(MENAFN - Oxford Business Group) Analysts are tipping the real estate sector for strong growth as recent local and regional legislation create favourable conditions in the domestic housing market and spur the national economy.
According to a report conducted by Faraj Al Khudhari, head of Al Mutakhassis Real Estate, four main factors will contribute to a property boom in Kuwait in 2008 - plans to broaden the property market through the creation of affordable new housing, tax breaks for foreign companies, plans for a comprehensive rail and metro system, and the formation of a GCC common market.
The release of land by the Kuwait Petroleum Company for the building of 16,000 new low-cost housing units should introduce a host of new buyers to the property market and in turn stimulate continued capital growth, Faraj Al Khudhari predicted.
The real estate market is expected to be further fuelled by an influx of foreign capital , following a recent decision to cut corporate tax on foreign companies from 55 to 15% - a move that prompted HSBC Holdings to say this month that Kuwaiti shares now offered the best value in the GCC. The move was part of a raft of recent government initiatives designed to woo international business.
A third factor, according to the Al Mutakhassis report, is the government plan for a 400km rail link and an underground metro system, which if approved by the National Assembly, will be worth 14bn. The plans under discussion include two new lines to the Saudi Arabian and Iraqi borders, as well as a mass transit system for Kuwait City. The ministry for public works has previously said that such a development was essential to both link up ports, borders and cities and ease daily congestion for commuters. It would be bound to have a positive effect on house prices, particularly in affected urban areas. A ministry committee is already in discussion with a European firm.
The fourth catalyst is the founding, on January 1, of the long-awaited GCC common market. First proposed 27 years ago when the GCC was formed, its establishment is intended to allow free movement of people and capital. Kuwaiti economist Hajjaj Bukhbur said it will strengthen the GCC's position as a major global financial power while Issam Fakhrou, president of Bahrain's chamber of commerce and industry, commented that the common market would increase trade between member states from its present level of 10% of total foreign trade to 25% by 2010.
Among the common market goals is monetary union, scheduled for 2010. True, some analysts feel this may not be attainable with current high inflation across the region and the continuing fall in the US dollar, to which all member states - except Kuwait - are pegged. Nevertheless, the opening of markets to foreign investment seems to have gained powerful momentum. There will also be a growing harmonisation of regulations, such as those governing labour laws and social security entitlements, in both public and private sectors.
As a result, a boost in consumer confidence, purchasing power and the national economy should drive the sector as a whole, said Al Khudhari.
This confidence in the housing market stands in contrast to sentiment expressed elsewhere across the Gulf region, at least in some quarters. There is a feeling among some Gulf residents that prices, which have risen dramatically in recent times, may be close to peaking. In a regional survey released last week, 43% of respondents across the GCC said they would be cautious about buying at the moment due to uncertain market conditions, and would continue to rent, despite rising rental costs.
However, these fears seem less of a concern in Kuwait itself. Indeed, the report also commented that the undersupply that has inflated property prices in some Gulf states was less of an issue in Kuwait. Growing private and government investment should keep the market buoyant, as should record liquidity and continuing global economic uncertainty - with some foreign investors being drawn to what is viewed as the relative safety of the Kuwaiti market.
Should these predictions prove correct, the boom will be building on a successful year in 2007. National Bank of Kuwait figures for the 11 months to December showed that, compared with the same period for 2006, average real estate sales grew by 31%in number and 59% in value.