KUWAIT CITY, Sept 21: Chairman of Kuwait Real Estate Association Ibrahim Al-Awadhi confirmed that the US Federal Reserve’s reduction of interest rates by 0.50 percent to range between 4.75 and 5 percent, and the announcement of the Central Bank of Kuwait to reduce interest rates in Kuwait by 0.25 percent -- 4 percent instead of 4.25 percent -- will whet the appetite of investors (companies and individuals) to buy and will encourage borrowing and investment; thereby, moving the investment and commercial real estate markets forward. In a statement to the newspaper, Al-Awadhi asserted “There is no doubt that reducing the interest rates will have repercussions on the economic sector in general, and the real estate sector in particular; as it is generally known that reducing the interest rates encourages borrowing and investment.

Whenever the Central Bank reduces the interest rates, borrowing for companies and individuals becomes cheaper, which preserves investment in new projects and drives the wheel of economic growth.” He explained there is a general rule and a wellknown equation in the real estate sector in and outside Kuwait -- a decrease in interest rates is always accompanied by an increase in real estate prices, while an increase in interest rates is accompanied by a decrease in real estate prices. “However, we have noticed that in the State of Kuwait; the recent general increases in interest rates were not accompanied by a decrease in real estate prices in the investment and commercial sectors. We have noticed decreases in the residential sector, but this sector ultimately has a specificity that is isolated from the investment and commercial sectors, especially since it is designated for individuals, not companies. The recent laws prevented financing entities from mortgaging guarantees related to residential real estate, so the Kuwaiti market was not accompanied by a correction in market prices in the past stage,” he clarified. He expects the investors’ appetite to increase in the coming period, considering the decrease in the interest rates on purchases by companies and individuals. He said this appetite was not cut in the past period, even with stable prices and high interest rates.

He added: “I believe the decrease in interest rates in the long term will lead to greater movement in the real estate, investment, and commercial markets. There will be an increase in demand that will increase deals. In the long term, this may contribute to increasing prices; but in a simple way, because prices were not corrected during the increase in interest rates.” On the other hand, the Chairman of the Real Estate Appraisers Association Qais Al-Ghanem confirmed that the decrease in interest rates has positive effects on various types of economy. He stated these effects would be the engine for the rotation of stagnant capital in the previous period due to the increase in interest rates. He added that with the decrease in interest rates, there will be a driving force to motivate the real estate investor, as well as the investor dealing in the stock exchange, to invest more broadly. “This has a positive impact on the national economy and will move the wheel of the economy after the stagnation that struck us. We had a negative economic experience with it,” he concluded

By Marwa Al-Bahrawi
Al-Seyassah/Arab Times Staff