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Economic Insight
13.02.2025Real estate sales witnessed a broad-based improvement across all segments in Q4 2024, amid stronger demand in the investment and commercial segments especially. Real estate prices, meanwhile, logged their first quarterly increase in a year on rising investment and residential home prices. For 2024 as a whole, real estate sales posted their first annual gain since 2021, with the revival concentrated in the investment and commercial segments while residential sales growth continued to lag. The outlook for 2025 is positive, with expectations of improving growth in the non-oil economy, potential interest rate cuts and the prospect of legislative reforms, including a possible housing finance law, which would greatly improve liquidity and boost the fortunes of the residential sector.
Real estate activity rebounds in Q4 2024
Real estate sales surged in Q4 2024 by almost 28% q/q (from a mild fall of -0.8% q/q in Q3) to reach KD1,082 million, the highest level in more than two years. (Chart 1.) Strong sales were supported by robust activity in both the investment sector, which logged double-digit quarterly growth in transactions and sales value, and the commercial sector, mainly on large deals in the Hawalli and Al-Ahmadi governorates, while the residential sector recorded a large but less marked increase. Indeed, the value of residential sales in Q4 2024, at KD456 million, was the most in two years, amid a second consecutive quarter of double-digit growth in the number of transactions. Around 38% of these were concentrated in Al-Ahmadi governorate. Demand for residential property has benefited from lower valuations in outer areas and renewed optimism about prospects for the sector this year.
Investment sales, meanwhile, rose sharply for a second straight quarter in Q4, to a 6-year high of KD433 million. Demand in this segment has been supported by reportedly higher rental yields, amid shortages of affordable housing for low-paid blue-collar workers in central areas after the government tightened regulations around apartment overcrowding following the fire in Al-Mangaf in June 2024.
Meanwhile, commercial sales rebounded from the large decline seen in Q3 2024, with sales of KD193 million, though this is still below the sector’s record high from Q2 2024 (KD294 million). Only six transactions accounted for 61% of total sales during the quarter at KD118 million, concentrated in the Hawalli and Al-Ahmadi governorates.
Sales in 2024 recovered to near 2022 levels, but skewed toward the investment and commercial segments
Overall, 2024 was a year of recovery in total real estate activity from relatively weak 2023 levels. This was supported especially by strong performances in the investment and commercial segments. Here, large deals (>KD10 million) played an important part, and activity was supported by the relatively lower valuations compared to the residential segment and robust growth in bank credit for real estate (+6.8% in 2024 from +1.3% in 2023), despite a still high-interest rate level. However, sales in the residential sector – historically, the largest contributor to overall market volumes – though much improved on 2023’s decline of 26% y/y, rose at a much slower pace of 7.1%. This figure is still well down (-45%) on its peak, recorded in the aftermath of the pandemic in 2021. The abolishment of irrevocable real estate power of attorney may have lowered speculative activity within this sector, alongside the signposting of future ‘white land’ fees on undeveloped plots (effective January 2026). Together with still-high residential unit valuations, these factors may have redirected interest towards the investment and commercial segments.
Investment segment pushes real estate prices higher
Our estimated real estate price index registered its highest growth in ten quarters (+3.8% q/q) in Q4 2024. This increase came mainly on higher investment prices, recouping some of the losses seen earlier, with the residential index logging a milder quarterly gain. On a yearly basis, the overall price index logged a softer decline in Q4 (-3.0% y/y versus -4.7% in Q3) as the fall in residential prices softened slightly, while investment prices ticked up 2.8% y/y (Chart 2). For 2024 as a whole, the real estate price index fell by 3.0%, versus a mild increase of 0.6% in 2023. This decline came after the strong post-pandemic increases seen in 2021 and 2022 by 7.0% and 7.7%, respectively. Still, residential segment prices remain above 2021 level.
Government plot distributions on hold again in Q4
Government housing plot distributions in Q4 were on hold for a second consecutive quarter, based on the Public Authority of Housing and Welfare’s (PAHW) website. This is likely pending publication of the new distribution strategy and the approval of the real estate financing law. As a result, the outstanding number of housing applications increased to 98,099 by end-October 2024. According to a report by the Supreme Council for Planning and Development, slow completion and spending on PAHW projects is also linked to technical and managerial hurdles. However, PAHW awarded new infrastructure projects in Al-Mutla city and two contracts for homes and infrastructure within the affordable housing project. Meanwhile, approved Kuwait Credit Bank (KCB) loans for government plots fell on a quarterly and annual basis, to reach KD111 million, while distributed loans rose 15% q/q to KD111 million from the eight-quarter low seen in Q3.
Outlook for 2025 remains positive, while various legislative changes could impact the market
The outlook for real estate activity in 2025 remains generally positive, with the pick-up in momentum recorded in Q4 expected to be carried through helped by improving prospects for the non-oil economy and potential interest rate cuts. Various legislative reforms could also affect the market, including recent amendments to the residency law, which provided owners and investors with 10-15 years residency, to the law regulating real estate ownership by non-Kuwaitis as well as a law allowing authorities to revise their service fees and regulate the living conditions of workers (housing no more than 4 persons per room). These changes could reshape market expectations by increasing demand for investment and commercial real estate, though they might also be expected to exert upward pressure on rents, especially in housing for blue-collar workers.
Moreover, the upcoming potential approval of the real estate financing law should help stimulate demand in the residential segment. Although details of the law are not yet finalized, media reports suggest various steps to expand home ownership financing. This includes increasing the magnitude of the loan provided by local banks to KD130k at an interest rate of 2% above the discount rate in addition to the KD70k government interest free loan, while extending the commercial loan maturity to 25 years instead of the current 15 and raising the maximum debt-to-income ratio to 50% of the monthly income/salary from the current 40%. In terms of downside risks, market momentum could slow if economic growth disappoints in 2025. Also, the law for combating the monopoly of vacant lands – which imposes an annual tax on undeveloped housing plots – will come into effect in January 2026, pushing landowners to sell or develop these lands and potentially slowing the recovery in prices.