Real Estate Market and New Electricity & Water Regulations

09/03/2017 | by Abdulrahman Al-Sanad

Since 2014 oil prices witnessed a huge fall due to many factors including geopolitical issues. This in return made all sectors to slowdown, which had impacted the consumer purchasing power to be more cautious. Real estate was one of the main sectors affected by the oil prices fall, prices of real estate properties went down as well as the demand. Government, in return, has de-subsidized diesel and gas, which raised the cost of living. Vacancies increased, especially for investment sector, in return rents decreased due to the decrease in demand and high supply.

In 2016, the value of investment, industrial and retail properties have witnessed slight decrease after a decline of 5-7% in 2015 due to the fall in oil prices, and the value of offices has remained stable with a slight increase in rental rates and sales price through 2015 and 2016.

Recently, a new bill (20/2016) was passed to increase utilities expenses for electricity and water consumption. This new law is set to be effective in May 2017 for the commercial sector, August 2017 for the investment sector, and February 2018 for the industrial sector.

The following graphs show visualizes the set increases:

In Kuwait, the non-Kuwaitis represent 70% of the population. As per Kuwait law, non-GCC nationalities cannot purchase any property leading the expatriates to the option of renting. Therefore, the investment sector is one of the dominant sectors in Kuwait’s real estate market. The new law will negatively affect this sector leading to an escalation in cost of living, which makes Kuwait less appealing to expatiates. This will lead to higher occupancy and lower rental rates.

Regarding the commercial and industrial sectors, these increases will have a high impact as well due to the poor economy conditions effects on the purchasing powers of consumers. This will lead to huge decrease in sales that will have negative impact on current businesses and upcoming businesses affecting all sectors including real-estate. Therefore, it is also expected that the supply will surpass the demand, which leads to high number of vacancies.

This article is published in "Engage Q4, 2016" - click to view the publication