Further signs that real estate activity has bottomed-out
In its latest economic brief on the monthly statistics of registered real estate contracts issued by the Ministry of Justice (MoJ), excluding sales conducted through agents, National Bank of Kuwait reports that real estate transactions rose for the second month in a row in July – a further sign that the pronounced weakness seen in the local property sector earlier this year has past. A total of 415 transactions took place in July, up 2.0% on June and 42% from the start of the year. In broad terms, however, overall activity remains subdued, with sales remaining at around two-thirds of their pre-crisis levels. Indeed, sales fell 36% on a year ago, though this is mostly the result of an unusual spike in sales in July last year.
NBK noted that, in value terms, the picture is slightly less positive, with total sales falling 4.0% from June. But even here there are some signs of recovery. While sales are down a massive 38% in year-on-year terms, most of this decline came last year; sales have risen 27% since January. In general, a combination of low interest rates, improving confidence levels and relatively stable employment prospects for Kuwaitis may be helping lift the sector off its lows. In addition, confidence in the sector has been given a boost from a recent legal ruling which will allow Islamic financial institutions to restart trading in residential property – seemingly reversing the impact of laws passed in February 2008.
i) Sales - residential
Transactions in the residential sector rose for the third successive month in July, a key factor in the pick-up in the property market as a whole. The number of residential sales rose 9.6% to 307 in July from June and are up 72% since January. But although a modest recovery from the immediate problems associated with the financial crisis seems to be taking hold, sales volumes are still well down from the +600 levels commonly seen before the passing of Laws 8 and 9 last year.
ii) Sales - apartments
NBK notes that signs of a recovery in the apartment sector are less visible, with the number of transactions falling back below 100 to 97 in July after reaching 120 in June. On average, monthly sales stood at 121 in 2008. Activity in this segment has been unaffected by legislative changes than the residential sector, however (sales restrictions in laws 8 and 9 apply to houses, not apartments), so activity is not far off its medium-term trend levels. In value terms, however, sales have trended lower over the past 2 years, signaling perhaps a combination of less aggressive pricing, weak trading of large blocks and possibly construction delays on bigger projects.
iii) Sales - commercial
There were 11 transactions of commercial property in July, up 57% from 5 sales in June. These transactions were of small size, however, averaging KD 907,000 each, compared to an average of KD 2.9 million between January and June. Because of typically thin trading, these numbers can be very volatile from month to month, so again, this should not be considered as a reliable indicator of trend. But at the very least, commercial sector activity – rarely Kuwait’s stellar performer – shows few signs of any serious pick-up.
The number of loans approved by the Savings and Credit Bank (SCB) rose by 5.6% between June and July, to 380. By value, loans rose by a smaller 3.0%, to KD 11.8 million. All of the increase in the number of loan approvals came from loans for purchases of existing homes and for additions & renovations, which increased by 27.8% and 13.6%, respectively. Loans for the purchase of new homes, by contrast, fell by 27.7% to 73 in volume terms and remain well below their average of 195 seen in 2008. The demand for these loans is partly linked to the distribution of residential plots of land by Public Authority for Housing Care (PAHC) – albeit often with a lag. Recent press reports suggest a rise in the number of new plots distributed so far in 2009, which could provide a boost to loan approvals over coming months. In general, however, total SCB loan approvals remain well above 2007 levels and broadly in line with (recent) historical trends.