January real estate activity eases after year-end strength
In KD value terms too, NBK noted that the transactions were down considerably. Total sales dropped 29% from December to KD 116 million. Although the year-on-year increases are still very high – some 48% in January – this is largely a base effect reflecting very weak sales a year ago.
In both volume and value terms, a gap appears to be opening up between the performance of the different sub-sectors, with a steady or improving trend in the residential and apartments sector contrasting continued weakness in the commercial segment. This reflects what we see as key medium-term market fundamentals; a shortage of residential housing versus strong supply growth and credit constraints in the commercial sector.
i) Sales – residential (mostly villas and land)
Sales in the residential sector fell 40% from December to 285. However, this still is above the average of 238 recorded in 1H09. The main reason for the month-on-month drop was the lower level of land purchases. These had been unusually high of late, possibly related to government approvals for the installation of infrastructure in certain areas. Stripping out these sales, the number of home purchases was in fact slightly higher in January than in December.
ii) Sales – investment (mostly apartments)
NBK noticed that sales in this segment stood at 102 in January, unchanged from December. In broad terms, however, activity seems to have improved somewhat from the lows of 1H09. In value terms, sales are much improved, reaching around double the levels seen at times in 1H09. This appears to suggest a rebound in sales prices for investment properties, which were hit especially hard during 2008 and early 2009 when fears over the impact of the global crisis on the Kuwaiti economy were at their height. Indeed, the previous fall in prices may be one reason why transaction levels have recovered fairly quickly, with investment property seen as relatively attractive compared to other asset classes.
iii) Sales - commercial
There were no sales of commercial property during January, down from 4 in December and an average of 6 per month in 2009 as a whole. Although activity in this segment can be very ‘lumpy’ on a month-to-month basis, we are inclined to view this as further evidence of a more enduring period of weakness. This is the second ‘zero’ month in the past five – before which they had been scarce. Weak demand, financing constraints and a lack of confidence may be contributing to the continued lack of activity in this sector.
Savings and Credit Bank loans
NBK also noticed that the number of loans approved by the Savings and Credit Bank (SCB) fell 9% between December and January to 322 after three successive monthly increases. In value terms, loans also declined, by 3% to KD 9 million. After surging in mid-2008, the number of loan approvals fell sharply through 2009, partly because of the low number of plots being allocated under the government’s housing scheme. The recent rise in approvals has been largely associated with more loans for maintenance and improvement purposes, which tend to be of lower value than those for outright purchases.
The latter are showing some signs of recovery, however. Loans for purchases increased 15% in the three months to January. Most encouragingly, loans for purchases of existing homes – which are not dictated by the pace of the government’s housing scheme – are running at close to double the levels seen at the beginning of 2009, suggesting that a degree of confidence has filtered back into the market. Moreover, the number of loans for purchases could be boosted over coming months by an acceleration in the government’s land distribution program.