Draft Mortgage Law and the Rise of House Prices in Kuwait

19/10/2021 | by Muaz Al Ateeqi

To build a house, newlywed Kuwaitis receive a KD 100,000 loan with no interest (KD 70,000 cash and KD 30,000 worth of building materials at a subsidized price) from government-backed Kuwait Credit Bank. These soft loans contribute towards providing citizens a decent life for a long period of time. However, with the emergence of new laws and legislation that negatively affected the real estate sector, shortcomings in implementing new housing projects together with the drop in oil prices have affected the bank’s financing ability. This feature has turned into a disadvantage for both the state and the citizens.

Private housing prices in Kuwait rose to unprecedented levels reaching about 22 times annual salary, which is considered amongst the highest in the world. In my opinion, the main reason behind the increase in private housing prices is the deficiency in legislation that led to capital migration from other real estate sectors to the private housing sector for higher returns.

These deficiencies include:

  1. The inability of the Public Authority for Housing Welfare (PAHW) to meet the housing demands on time.
  2. Prohibition of real estate development activities for private housing causing very limited supply.
  3. Ministry of Electricity and Water and Ministry of Public Works do not have the capacity to provide the necessary infrastructure to build new cities/areas on time.
  4. Electricity and water tariff hike on all real estate sectors except private housing.
  5. No taxation on owning many houses.
  6. Increased FAR% for the private housing sector only.
  7. Easy access to finance for high-networth individuals/investors to acquire more houses for the purpose of investment.
  8. Residential buildings are not attractive for investors due to the exodus of expatriates.
Year Total Value
(Billion KD)
Private Housing Sector Investment (Residential) Sector Commercial Sector
Value (Billion KD) % of Total Value Value (Billion KD) % of Total Value Value (Billion KD) % of Total Value
2019 3.7 1.6 43% 1.2 32% 0.6 17%
2018 3.7 1.4 38% 1.7 46% 0.5 15%
2017 3.4 2.2 65% 0.7 21% 0.4 12%
2016 2.6 1 38% 0.9 35% 0.6 23%

The table above shows the total value of real estate transactions in Kuwait from 2016 to 2019 including the most important sectors:

The figures clearly show the desire of investors to invest in the private housing sector as well as the decrease in percentages in other vital sectors from 2016 to 2019.

New Development: As the state is obligated by law to provide financing to citizens, the government started working on a new mortgage law for local banks. The suggested law’s main features include: Local banks will be able to provide a mortgage loan up to KD 140,000, and the government will pay the interest for the first KD 70,000 on behalf of the borrower (for citizens only). The mortgage loan will be offered to an individual one time only. Previously, mortgage loans from local banks were given only to citizens who have 2 or more streams of income. With the new proposed law, citizens can obtain mortgage loan from local banks for those with a single income.

Current Law vs. Draft Law Current Scheme Kuwait Credit Bank Draft Law Local Banks
Maximum Loan KD 70,000 + KD 30,000 KD 140,000 + KD 30,000
Maximum Loan Without Interest KD 70,000 KD 70,000
Maximum Period for Repayment 58 Years 30 Years
Minimum Monthly Installment KD 100 or 10% of salary, whichever is higher KD 195 or 10% of salary, whichever is higher
The Possibility of Foreclosure Not Possible Possible
Government Initial Payment KD 70,000 + KD 30,000 30,000 KD
Government recurrent cash payments/receipt Government receives monthly repayments without profit Government pays interests on first KD 70,000 to banks
Risk Default The state could pay compensations to local banks for defaulted citizens