In Kuwait, drop in real estate transactions points to economic lull

In a country where economic data is sparse, observers look to real estate and stock market performance to assess the overall state of the economy

Axel Rangel Garcia

In a country where economic data is sparse, observers look to real estate and stock market performance to assess the overall state of the economy.

In Kuwait, drop in real estate transactions points to economic lull

Amer Ziab Al-Tamimi

last update on 21 Jun 2023

Kuwait's economy has experienced a lull in the past months with reports pointing to low growth rates in credit facilities and a decline in real estate transactions.

This is despite Kuwait's budget increase. Project spending rose during the first quarter of this year to KWD 527mn ($1.7bn), up 332% from the first quarter of 2022. Target projects included projects in the electricity and water sector, electricity interconnection projects for the Gulf countries, and projects in the transport and communications sector.

However, banking facilities recorded revenue of KWD 52.4bn ($170.6bn), slightly down from the level seen at the end of last year – KWD 52.5bn ($171bn). Although the decline is small, it could be an indicator of a decline in credit demand in recent months.

Unlike the United States, Kuwait does not produce audited weekly, monthly, periodic, or annual data regarding consumer confidence, industrial and agricultural production rates, financing flows, consumer prices, and other key indicators.

The Central Statistical Bureau is inconsistent in publishing data reports — especially regarding economic data. This poor record of documentation and transparency has drawn the ire of international institutions such as the World Bank and the International Monetary Fund who complain about delays and lack of data.

Real estate a good indicator of state of economy

On its part, the real estate sector is one of the most important non-oil sectors and its data is a good indicator of the state of the national economy.

A report from the National Bank of Kuwait, published on 16 May 2023, indicated that the value of real estate transactions fell to KWD 714mn ($2.3bn) in the first quarter of this year, the lowest since the second quarter of 2020 – when the country was locked down due to the Covid-19 pandemic.

The value of real estate transactions in Kuwait fell to KWD 714mn ($2.3bn) in the first quarter of this year, the lowest since the second quarter of 2020 – when the country was locked down due to the Covid-19 pandemic.

The report added that the housing price index slowed by 8.4% year-on-year. The real estate investment sector fell to KWD 254mn ($827mn). The report attributed this to higher lending costs and a slow recovery in the rental market despite a rise in arrivals in 2022 following the easing of pandemic restrictions. But arrivals remained 3.7% lower than in 2019 before the ban.

Central Bank of Kuwait data shows that the value of credit facilities granted to the real estate sector as of the end of March 2023 amounted to KWD 9.5bn ($31bn), representing 20% of total credit facilities in the same period.

Kuwait Stock Exchange an indicator of investor confidence

Additionally, the Kuwait Stock Exchange is one of the most important economic channels in Kuwait, where the levels of liquidity in circulation determine investor confidence in the economy and related government policies.

Major real estate companies listed on the Kuwait Stock Exchange recorded good results in the first quarter of this year. Statistics prepared by the newspaper Al-Jarida and published on 18 May showed that the total operating revenues of the listed real estate companies amounted to KWD 120.2mn ($391mn) at the end of March this year.

AFP — Traders follow the movement of stock prices at the Kuwait Stock Exchange.

The revenues of these companies in the first quarter of last year were KWD 104.2mn ($339mn) – this means the companies grew at a rate of 15.9%.

Real estate companies are essential to the Kuwaiti economy. They have developed many commercial and residential complexes and office buildings in various regions of the country; they have also revived, modernised and diversified marketing operations.

New complexes include shops for various goods, restaurants, cafes, and cinemas. These companies have benefited from government facilities by acquiring land under long-term use contracts (BOT); in return, the companies build and manage structures for a long period of up to 20 years.

The land and buildings built on it will then be returned to the state or use contracts will be renewed if the state agrees with the developers that such a move is in the benefit of the public.

Stock market drop

The Kuwaiti economy is still far from perfect, due to pending economic reforms and stalled politics during the past years. The Kuwait Stock Exchange's performance in the first quarter of this year is one of the most important indicators.

AFP — Traders follow the movement of stock prices at the Kuwait Stock Exchange.

The market witnessed a 38% decline in the value of listed shares compared to the fourth quarter of 2022, recording KWD 2.64bn ($8.6bn), compared to KWD 4.15bn ($13.5bn). Daily transactions fell to KWD 43.3mn ($141mn), compared to KWD 68mn ($221mn) in the same period last year.

The Kuwaiti stock market witnessed a 38% decline in the value of listed shares compared to the fourth quarter of 2022, recording KWD 2.64bn ($8.6bn), compared to KWD 4.15bn ($13.5bn).

The total market value of listed shares was KWD 42.1bn ($137bn), down from the end of December 2022 level of KWD 43.6bn ($142bn).

However, it's possible that market performance will improve after banks announced good results during the first quarter of 2023. This will help restore consumer confidence in economic activity and gives a much-needed boost to struggling sectors.

However, a sustained boost in Kuwait's non-oil sectors is dependent on legislative reform and a comprehensive restructuring of the economy to promote diversification.

+ / -