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Economic Insight
23.07.2025Real estate activity witnessed a rebound in Q2 2025, supported by fading seasonal factors from Q1 and optimism about market reforms. The rise was driven by a surge in investment sector sales to an 11-year high while the residential segment lagged behind, still constrained by affordability issues and a lack of fresh supply. However, the multi-year fall in prices in the residential sector seems to have abated, with prices now almost flat year-on-year. Looking ahead, aside from the typical summer lull in Q3, we see developer sentiment benefitting from amendments to the real estate developer law and changes to investment regulations, while the anticipated approval of the housing finance law will improve access to home financing. These dynamics, in conjunction with decent non-oil economic growth and potential interest rate cuts, will underpin property market activity ahead.
Investment sales anchor the broader recovery
Total real estate sales surged to KD1.0 billion in Q2 2025 (chart 1), marking a 15.5% increase compared to the 2024 quarterly average. This upswing follows a seasonal contraction in Q1 and was driven primarily by robust performance in the investment (i.e. apartments and buildings) segment, while the residential and commercial segments contributed more modestly. Strong investment sales were supported by robust credit growth to the real estate sector, higher demand in inner urban districts and recent changes to investment housing regulations aimed at advancing the country’s urban development model (see below).
Residential sales rebounded in Q2 following Q1’s sharp contraction while the number of transactions rose to its highest level since Q2 2022. Despite the rise in Q2 and a mildly improving trend, residential sales in H1 2025 were well below the levels seen during the same period of 2021 & 2022. The increase in Q2 was also likely aided by the fading impact of seasonal factors in Q1, which could go into reverse in Q3. Other headwinds facing the sector include the potential release of idle lands due to the vacant residential lands law coming into effect (January 2026 – although this might boost transactions levels in the near term, it may have a negative impact on prices), ongoing discussions for utility fee adjustments and lingering affordability pressures. But on the upside, the potential approval of the real estate financing law over the coming months could provide a big boost to home financing availability and demand in the medium term.
Investment sales in Q2 hit KD483 million, continuing a positive recent trend and reflected in strong credit growth (chart 2). Year-to-date, investment sales surged by 82% y/y, mainly on the rising demand in apartment-heavy inner urban areas (Kuwait City and Hawalli governorates). Sentiment towards the segment may also have received a boost from recent updates to investment housing regulations aimed at modernizing the urban planning framework and incentivizing developers. The changes include allowing mixed-use investment buildings in Kuwait City, recognizing studio apartments under the investment category, regulating the use of basements, adding new permissible activities such as charities and libraries, and increasing the building-to-land ratio by 50% for some property categories.
Commercial property sales remained broadly stable on a quarterly basis at KD104 million but fell sharply by 65% y/y due to the high-value deals that took place in the corresponding period in 2024. The subdued performance in this segment reflects still cautious overall business sentiment and a shift in capital toward more liquid or higher-yielding real estate classes.
Real estate prices mixed in Q2 but maintain an overall positive trend
The overall price index edged up by 0.2% q/q in Q2, supported by a 1.2% q/q increase in residential prices – higher than the 0.5% recorded in Q1 (chart 3). On an annual basis, real estate prices rose by 2.9% y/y as investment prices led the way, up by 7.1%. Residential prices showed signs of stabilization, declining by just 0.5% y/y compared with a 1.7% contraction in Q1. The divergence in the price trends has helped to narrow the price gap between the two segments with investment properties showing upward momentum but residential prices relatively flat. While the residential segment still suffers from affordability constraints, the quarter-on-quarter price hikes for the past three consecutive quarters suggests that these pressures are abating – helped perhaps by anticipation of the approval of the real estate financing law that would ease borrowing bottlenecks.
Public sector initiatives target housing supply bottlenecks
In response to the long-standing housing backlog – now at 103,110 applicants in July 14 - the Public Authority for Housing & Welfare (PAHW) is pushing ahead with its development agenda by initiating tenders for the design and infrastructure planning of three residential cities: Al-Khiran, Nawaf Al-Ahmad, and Al-Sabriyah, collectively providing 170,000 units. The cabinet has also approved amendments to the real estate developer law to allow the private sector to help resolve the housing crisis by developing new residential cities and to attract foreign and local investors. However, PAHW’s project awards slowed notably in Q2 to a two-year low of KD121 million, as reported by MEED. (Chart 4.)
A follow-up report by the Supreme Council for Planning and Development for FY24/25 (April-December) indicated that Jaber Al-Ahmad and South Abdullah Al-Mubarak cities are nearing completion, with progress rates of 94.7% and 90.4%. Other major projects, however, continue to face execution delays with completion rates in the Al-Mutla’ (76.9%), affordable housing (37%), and South Sa’ad Al-Abdullah (20.3%) projects remaining behind schedule. That said, there are signs of progress in infrastructure works in South Sabah Al-Ahmad and South Sa’ad Al-Abdullah. On the financing front, the Kuwait Credit Bank reported a 48% q/q increase in approved housing loans in Q2, totaling KD47.6 million. This marks a modest recovery from the four-year low observed in Q1. However, disbursed loan volumes fell by 3.7% q/q to KD109.4 million, continuing the downward trend from Q1, likely due to the suspension in plot distributions.