Key Factors to Consider for Maximizing Returns in Kuwait’s Real Estate Market

March 14, 2023 | Estater, Kuwait Real Estate | No Comments

Overview of the Kuwait Real Estate Market and its Investment Opportunities

For many investors, investing in Kuwait’s real estate is a lucrative option, but it comes with its fair share of risks. For maximising returns and optimize risks, it is essential to understand various important elements while investing in this market. Here are the macro drivers of real estate in Kuwait:

Oil Prices have Outsize Impact on Real Estate Returns in Kuwait

The oil price has direct impact on the macro-economic growth and on real estate returns. High oil prices like what is witnessed in 2022 and 2023 allow the Government to invest in infrastructure and creates demand for private sector. This results into employment growth and in turn pave ways for healthy returns from real estate.

High Disposable Income of Kuwaiti Families Create Solid Demand Base

Kuwait has one of the highest per capita incomes anywhere in the world. This creates a solid base for real estate demand across all sectors.

Availability of Vacant Lands in Kuwait is a Supply Side Constraint

While the overall size of Kuwait is substantial for its population size, the urbanized land (especially for commercial properties) remains in short supply. This shortage of land is a key reason for high real estate prices that is the most important factor governing the returns from real estate. The Government is mindful of this and has taken several steps to correct it in the last 10 years but a lot more is required before the shortage is fully addressed.

Political Instability Hampers Kuwaiti Government’s Ability to Undertake Bold Economic Reforms

The frequent political instability in Kuwait curtails the Government’s ability to initiate bold economic reforms in the country that can create long term growth potential. The private sector in the country is very enterprising and is capable of competing with global companies if it is given right policy environment. Private real estate companies have already done several landmark projects such as The Avenue Mall, 360 Mall, Al Hamra Tower, etc. that show they are capable to developing the best properties in the region.

No Tax on Income or Capital Appreciation in Kuwait

Unlike most countries in Europe, America or Asia, Kuwait does not have any income tax or wealth tax. This allows investors to enjoy tax free returns from real estate.

Despite many challenges, the Kuwaiti real estate sector offers promising returns to investors. Kuwait’s population has grown by around 5% per annum over the last 10 years; this growth has benefited Kuwait real estate market, making it one of the most lucrative markets in the Gulf region.

Key Factors to Consider When Investing in Kuwait Real Estate Market

It’s crucial to consider several factors when investing in Kuwait real estate. These include property location, supply and demand equation, potential rental yields and capital appreciation, legal and regulatory environment, etc.

You may make wise investment decisions and maximise your returns by doing thorough research and keep yourself up to date with the market conditions. If you’re considering investing in Kuwait real estate market, read on to understand how to maximize your returns:

Choosing a Right Location and Neighbourhood:

It is one thing to keep repeating the term “location” when considering real estate, it is another to define your objectives properly and pick a good “location”. The location of the property is essential since it can affect both the rental income and the capital appreciation. The type of property and its intended usage determine the right location. A residential property for self use need to satisfy your aspiration for social status and your daily places of commute. Another property for investment need to satisfy local market dynamics such as occupancy, prices and understanding of consumer profile. A thorough market research with comparison across several locations can help you make the right choice.

Always Estimate Rental Yield of Investment Properties:

The rental yield is one of the most crucial aspects to take into account when making real estate investments. This represents the expected rental income as a percentage of the property value. Rental yields underpin the value of all investment properties. It is important to benchmark the rental income of the subject property to the incomes of comparable properties nearby to avoid any miscalculations. At times, there are traps in the market where rental income for a property is far higher than what is available on comparable properties nearby. If such a property is bought at “unfairly high” valuation, it presents high risk of devaluation and potential losses. Rental returns in Kuwait vary according to the area, type of property, and several other considerations.

Long Term Capital Appreciation Potential of the Property:

The capital appreciation potential on a property depends on several factors such as the local physical & social infrastructure, status of the neighbourhood, accessibility to various places of interest, availability of vacant lands for new properties, etc. Detailed information on each of these factors is difficult to obtain for most consumers but Estater can help bridge this information gap easily. Information has been built up using cutting edge analysis of satellite images, yearly land development rates, type of road network in every neighbourhood, accessibility matrices for business districts, retail & entertainment, etc. Consumers can benefit tremendously from this information base and create a real estate portfolio that can generate substantial long term capital appreciation.

Real Estate Inventory Demand and Supply:

Knowing the current market dynamics of inventory, demand and supply of properties is critical when making investment decisions. Quality information can help you avoid making bad choices and reduce the risk of potential losses. Real Estate sector has traditionally suffered from lack of transparent data however, the situation is changing rapidly with several PropTech companies (such as Estater) now working to provide timely and quality information to real estate investors. Modern technology of artificial intelligence, data science, remote sensing and GIS applications allow dissemination of market information fast to its users.

Manage Your Property Financing To Avoid Pitfalls of Rising Interest Rates:

While investing in Kuwait’s real estate market, having a suitable financial plan is crucial. A suitable financing plan doesn’t mean high leverage…on the contrary it needs to be adjusted based on type of property. A rental income generating property has high ability to cover financing payments and thus, the leverage can be higher. On the contrary, a vacant land or self-use properties does not generate any income and thus, requires you to cover the financing from other income sources (such as employment or business). The world in 2023 has high inflation and high interest rates; in such conditions the property values often decline and thus, any short term investments for speculation can be very risky.

Maintaining & Managing the Property:

It is crucial to have a detailed property maintaining and management plan to increase its shelf life and improve its value. Investors should be aware of all expenditures related with property maintenance throughout its ownership period. These may include utility bills, facility management, cleaning, periodic repair and maintenance, etc.
Prior to purchasing a piece of land or a building, you should conduct due diligence to ensure that you understand what kind of maintenance is required. Having a property management systems in place from the start may go a long way towards ensuring everything goes smoothly.

Real Estate Legal and Regulatory Environment:

Before investing in real estate, it’s important to understand the legal and regulatory environment. Make sure you have a good understanding of the laws and regulations surrounding property ownership, rental agreements, management obligations, etc. There are many properties for which where freehold ownership is not available but these may offer excellent returns. Locations such as Shuwaikh Industrial, Freezone, etc. have commercial properties on 50 year lease from the Government. These properties are very high in demand and offer high rental yields.

How Estater Helps You on Maximizing Returns in Kuwait Real Estate Market?

Estater have detailed and comprehensive data on different real estate sector in Kuwait that can provide intricate details in these trends.

  1. Market insights: Inventory build-up and occupancy trends.
  2. Location analysis: Market gaps and retail catchment analysis.
  3. Competitor Benchmarking: Estater can help businesses understand their competition and make strategic decisions.
  4. Financial Modelling: Estater can provide you highly flexible financial model which can be easily modified based on your inputs.
  5. Leasing Trends: Lease rate and tenant mix analysis.
  6. Demographic analysis: Combining retail sector data with demographics of the areas, Estater can help businesses understand their target audience.

Consultancy: We offer consulting services for many aspects of real estate reports, such as financial modelling, benchmarking, demographic analysis, catchment analysis, and so on. Our Estater Meter and Market Intelligence solutions will provide you with customised results depending on your preferences.

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Estater is a unique real estater advisory company operating in Kuwait and Bahrain. We provide comprehensive real-estate
data and market intelligence with granular details to help developers.

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