(MENAFN - Arab Times) * In the past two years, investment real estate, principally apartment buildings, has attracted many investors looking for income property and for better yields on investment. This segment of the real estate market has thus accounted for a rising share of total sales during this period. While sales of entire buildings dominate that segment, other types of transactions, such as plots or individual apartments, have gained in popularity after the 2008 financial crisis.
* Not surprisingly, the populous Hawalli governorate accounted for about half of all building sales, followed by the Ahmadi and Farwaniya governorates.
* From 1999 to 2012, the price paid per square meter rose on average 10% annually for buildings and 7% on average for plots of land. Price increases appear to be similar among the four most popular governorates while measures for Kuwait City have been somewhat more volatile.
In NBK's latest GCC Brief:
Growth in the investment real estate sector in Kuwait has outperformed property sales in recent months. Not surprisingly, and in light of the current volatile world financial environment, investors are attracted to the safety and returns of these assets. In this report, we delve into more than a decade's worth of individual transaction data, looking at the different trends and how they have evolved over the years.
The investment real estate segment has been gaining a bigger slice of the real estate pie in recent years. In 2011, with sales of KD 995 million, it took 37% of total real estate sales, compared to a mere 13% share in 1999. For the first half of 2012, the sector's share was about 40% and is expected to do well in the future.
Overview of the investment real estate market
Vacant plots, apartment buildings, and individual apartments make up almost all of the transactions in the investment real estate sector. The end-use for the majority of investment property is for rental apartments, offered generally as residences for expatriates. Healthy housing demand has helped keep the sector vibrant.
The investment sector has traditionally been dominated by transactions of entire buildings. Those made up 87% of the number of all investment real estate transactions between 1999 and 2007. But the financial crisis in 2008 saw the sector shift towards less costly and less risky investments, namely vacant plots or individual apartments. Interest in individual apartments may also be the result of smaller investors entering that market.
As for actual KD sales within the investment segment, buildings still account for the bulk of sales, even after the global crisis. Nevertheless, the 2008 crisis did bring about a more diversified composition of the investment sector (chart 2).
Sales of vacant plots have become more popular since 2008, contributing about 28% of total sales in 2011; whereas they only made up 5% of total sales between 1999 and 2007. This may be simply attributed to an increase in demand for land zoned for apartment buildings.
Average price per square meter
The average price paid per square meter has risen in the past decade, though this measure dipped in 2009 following the crisis. For buildings, the average yearly increase in price per square meter between 1999 and 2012 was near 10%. The average price of vacant plots rose by 7.1% between 1999 and 2012.
Buildings and governorates
Almost all building transactions take place within four of Kuwait's six governorates. For this reason, Mubarak Alkabeer and Jahra governorates have been excluded from most of the following analysis.
The large and populous Hawalli governorate has usually been a prime destination for expatriate households and families, and so it is no surprise that sales there account for half of total building sales. The Ahmadi governorate, which has been gaining a bigger share at the expense of Farwaniya and Kuwait City, now ranks second in contribution to total sales (chart 4). The weakness in building sales in Farwaniya, may be related to the decline in demand for foreign employment during the economic downturn of 2009.
Existing stock of buildings
Hawalli also dominates the existing stock of buildings, making up around half. At 22%, Ahmadi appears to be catching up to Farwaniya in terms of percentage of total existing stock, and might surpass it by the end of 2012 (chart 5).
Average price per square meter
All four most active governorates have had a somewhat similar rate of price increase in the past decade. Kuwait City had the most erratic movements, caused by occasional large transactions, while the remaining three governorates have witnessed a relatively steady increase. Their average yearly growth ranged between 11.9% and 12.4%.
So far this year, the first half has seen investment real estate sales grow 15% y/y " following a stellar 52% in 2011 " with sales averaging KD 115 mn per month. With investors focused on tangible assets and income properties, both locally and worldwide, the "investment" segment of real estate should remain relatively well supported ahead.