Housing Cost in Kuwait Eat Up 50% of Expatriate Salaries

23/10/2024

Housing Cost in Kuwait Eat Up 50% of Expatriate Salaries

KUWAIT CITY, Oct 23: The real estate sector plays a crucial role in Kuwait’s economy, ranking second only to the oil sector in some years when measuring its contribution to the gross domestic product (GDP). This sector encompasses more than just the buying and selling of buildings, apartments, and lands; it also includes construction, materials, rental markets, real estate asset management, and engineering services. Among these, investment real estate stands out as one of the most significant areas of investment in Kuwait, with investment construction percentages reaching up to 250 percent outside the capital and as high as 400 percent within it.

The current landscape of investment buildings, particularly those not overlooking Gulf Street, often reflects traditional architectural styles. Most residents of these buildings are expatriates with limited incomes, leading to a general lack of construction quality. Typically, the apartments in these buildings do not exceed 80 square meters, creating cramped living conditions.

The prices for investment lands vary significantly, with rates between 3,000 and 4,000 Kuwaiti dinars per square meter in the capital. In areas like Hawalli, Farwaniya, Mangaf, and Abu Halifa, prices drop to around 1,200 to 1,500 dinars per square meter. This disparity contributes to rising rents that do not align with the income of residents. For expatriates -- who often work as teachers, employees, or small business owners -- average monthly incomes hover between 500 and 700 dinars. With rental prices at approximately 250 dinars, housing costs consume about 40-50 percent of their income, posing a significant financial burden. Investment in residential buildings constitutes a substantial portion of real estate portfolios for both individuals and companies. There is a clear inverse relationship between interest rates and real estate demand; higher bank interest rates tend to reduce interest in real estate investments. When the average return on real estate investment hovers around 7 percent after deducting management and maintenance expenses, the demand for investment buildings remains robust, particularly when interest rates are low.

According to the “Baytak” report on investment returns for the second quarter, opportunities for returns range from 6.80 percent to 7.8 percent. However, it’s important to note that these figures do not include penalties imposed by the Kuwait Municipality for violations, such as unauthorized basement rentals or constructing residential units smaller than permitted sizes. By the end of the second quarter, average returns on investment properties were recorded at 6.24 percent in the Capital Governorate, with varying returns in other regions: 7.35 percent in Hawalli, 7.39 percent in Farwaniya, 7.49 percent in Ahmadi, 7.21 percent in Mubarak Al-Kabeer, and 7.39 percent in Jahra Governorate.

Despite the growth potential, several challenges need addressing: Rental Prices vs. Income: The increasing prices of rental lands translate to rental values that often do not correspond with residents’ incomes. There is a pressing need for the state to either increase construction rates or provide land for investment housing at reasonable prices. Parking Issues -- Many buildings lack adequate parking spaces, leading to congestion and parking crises. Unfortunately, basements intended for parking are often misused as storage, creating safety risks for residents.

Construction Quality -- The municipality must closely monitor construction materials, as low-quality materials can significantly affect building longevity and maintenance needs.

Improper Utilization of Residential Lands -- High land prices and limited space have led some individuals to convert residential buildings into multiple rental units, degrading services in established residential areas.

Regulation of Residential Sales -- While the sale of residential apartments has gained traction, establishing a regulatory framework and a property owners’ association law is essential to uphold the rights and responsibilities of property owners. Investing in real estate in Kuwait requires a proactive approach to addressing these challenges.

Expanding the creation of specialized property management companies is crucial, as reliance on property owners for management can hinder effective oversight and maintenance. A qualified property manager can ensure properties are well-maintained, thereby increasing their return on investment and enhancing the overall real estate landscape in Kuwait

By Abdulrahman Abdulhamid Al-Hamoud

Al-Seyassah/Arab Times Staff