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Real estate sector needs supportive policies Business ops in industry still best done on face-to-face basis

THE real estate business world is changing and innovating all the time. A new law, trend or event may come up any moment that will affect the real estate business operations. Kuwait’s real estate market is considered as one of the pillars of strength for the local economy. Real estate and construction segments continue to expand rapidly. Real estate in Kuwait plays a vital role in propelling the growth of the local economy. The Kuwait real estate industry is marked by continued recovery in asset prices, transactions and capital availability.

Dr Abdulla M. Al-Humaidi, the CEO of Kuwaiti European Holding Co (KEH), in this interview, provides an overview on the growth of the real estate industry in Kuwait, current challenges being faced by the sector and future business prospects.

Question: How’s the real estate business in Kuwait these days?
Answer: Real Estate business in Kuwait is doing relatively good. More and more buildings are being constructed and a big number of residential units are for rent not only to Kuwaiti citizens but also to expatriates. The number of commercial structures are also on the rise.
 

Q: How would you describe the real estate market performance this 2013?
A: This year saw some recovery in Kuwait’s real estate market with the three segments namely the residential, investment and commercial real estate, performing better than the previous year.  The residential segment is currently one of the strongest performing segments in Kuwait, with a large undersupply of residential homes for Kuwaiti citizens. The investment segment is also performing well due to a relatively stable and a less risky nature of the business. The commercial segment is also doing good. Overall Kuwait’s real estate sector performance is expected to improve in the near term as the economic developmental plans are implemented in the country.
 

Q: How lucrative is the real estate business in Kuwait?
A: We can say it is lucrative given the proper business environ and apt business plan and acumen by the key players in the real estate industry.
 

Q:  In brief, how would you differentiate the residential real estate sector and commercial real estate sector?
A: Commercial real estate is business-focused. It involves property that is sold, leased, or used to achieve a predetermined business objective. It’s used as an investment to achieve an anticipated rate of return on the funds invested. On the other hand, Residential real estate revolves around the wants and needs of a homeowner and his family. It involves property purchased for individual use, most often to provide housing for families. The selling process for commercial real estate hinges on numbers and return-on-investment calculations. Residential real estate is nowhere near so cut-and-dried because it’s more of an emotional purchase. Many buyers make decisions based on the fact that the house just feels right to them. The key factor is the return on investment. In commercial real estate, you can buy, sell, lease as a lessor (the person who owns the property for lease), lease as a lessee (the person who’s trying to lease the property for their use), syndicate, joint venture, develop, option and invest in a wide range of commercial real estate categories, including retail, office, industrial, apartments, investments, and raw-land leasing. Residential real estate is focused on personal use. For the most part, residential agent’s represent the buyers or sellers of single family, primary homes.
 

Q:  For the past 10 years, in which period/s do you think that residential sector has boomed?
A:  The residential sector has boomed for the last five years and there was a bit of slowdown of real estate activity during the recent economic crunch though it is not as bad in other countries wherein real estate was a downer.
 

Q:  Did the pull out of the US troops and transfer of military contracting companies overseas have an impact on the growth of the residential sector or none at all?
A: I don’t think so that there was any noticeable impact as the demand for apartments and residences in Kuwait keep on growing. The real estate growth in Kuwait was not highly dependent on the presence of the US troops in Iraq or in Kuwait, though there was a huge demand for apartments near the US camps during their mission in Iraq and Kuwait at the time.
 

Q: What was/were the effect/s of the recent global economic crunch on the real estate industry in Kuwait if any?
A: The real estate market in Kuwait saw spectacular boom during the pre-crisis period and this was majorly due to the commercial real estate segment. The market saw a number of new construction activities, fuelled by the hope of significant improvement in the economy. As I’ve stated earlier, the global crunch did not have so much heavy impact on the real estate in Kuwait except for a few and isolated instances.
 

Q:  The rents of flats and residential villas have skyrocketed in recent years. Some of the expats have claimed that some of the key players in the real estate market have created the artificial demand considering that a big number of residential buildings across the country remain unoccupied, what can you say about this?
A: Yes, the key players in the real estate market are the ones that have the control of the rent price. If a real estate company has set the standard price, it won’t lower it despite the low rents in nearby buildings. It would rather have no occupant than give it at a lower rental, that’s how they do business in the market to maintain the status quo. That’s their business strategy. So that’s why, you see some buildings with units that are unoccupied. Kuwait has registered significant growth in the population over the last few decades. Higher population is also due to the significant influx of expats. Higher expat population increases the demand for the investment real estate segment. This led to impressive growth in demand for rental apartment in Kuwait.

Q: How would you compare the rental of residential spaces per area across Kuwait? Which area has the most expensive rent? The cheapest? Or does it depend on the kind of residential building?
A:  The rental basically depends on the location of the building or property. Those that are near Kuwait City are more expensive such as the Bneid Al-Gar and Shaab Al-Bahri areas. That’s how it is. As you go farther from Kuwait City, the rent becomes lesser.

Q: How would you compare the market performance of the residential sector, investment segment and commercial segment?
A:  The residential segment accounts for the largest pie of the total real estate sector in Kuwait. There has been a huge demand in the residential segment owing to the increasing population. The reduction in the interest rate for housing loans also spurred demand. To cater to this demand, the government has initiated PPP (Public Private Partnership) programs. New PPPs and improved credit access given by government will help improve Kuwait’s housing supply demand gap. Under Kuwaiti law, Kuwaiti nationals are entitled to apply for government housing after marriage, receiving loans that are paid off in small installments over 30 years. In March 2013 the government announced plans to build 174,000 new houses and three separate cities by 2020.

The increased number of deals in this segment reflects the recurring nature of the earnings as well as the high occupancy rates. This segment was the most viable alternative for commercial real estate developers especially after the slow recovery post the crisis. This segment of the market is primarily driven by the increasing number of the expat population in Kuwait. The contribution of commercial segment is the lowest as compared to other segments.The occupancy rates in some of the busiest and most well-known commercial office space in Kuwait still remains well below 50%. A revival in business conditions in Kuwait is the only catalyst that could lead to better prospects for the commercial real estate business.

Q: What are the characteristics of a prime property?
A: The term prime property equates to the most desirable, and normally most expensive, property in a defined location. Commonly, but not exclusively, prime property markets are areas where there is a high demand. The key word here is desirable. The properties don’t have to be luxurious, of great architectural importance or glamorous, although they might well be, but people just have to want to buy them – whatever the reason, that’s what prime property is.

Q:  Can expats own a real estate property in Kuwait?
A: Unfortunately, as of now, expats cannot own real estate property in Kuwait.

Q:  What are the most common problems/issues that a real estate company has to face with its tenants in both the residential and commercial sector?
A:  One of the challenges that a real estate company has to face is the failure of the tenants to pay the rent. Another big challenge is the lack or absence of real estate laws in Kuwait that would help in protecting investors and real estate companies.

Q: How do you deal and solve the above problems/issues with the tenants?
A: Well, when it comes to rent collection, various circumstances may surround the failure of the tenant to pay on time or be delayed for a couple of months. Sometimes, you have to give due consideration if reasons are valid, otherwise, you have to impose stricter rules. As for the absence of laws or policies to help the growth of the real estate industry, I believe it is about time that the parliament has to draft legislations that would help propel the growth of the real estate industry.

Q:  With the stiff competition in the real estate market, what strategies should a real estate company adopt to survive and perform well in the market?
A:  You have to have that acumen and foresight of the real estate business environment. You need to be transparent and honest with your clients. Because once you established a trusted name in the market, everything follows. Honesty and transparency are very important. Another thing, the Kuwait government should be keen in reducing its dependency on the oil sector and is making efforts to diversify its revenue Base. Being an oil dependent country, any significant movement in oil prices impacts the overall financial market. It may also limit the government’s ability to spend on infrastructure and other development activities.

Any major oil price fluctuation will have an influence on the economy which will ultimately impact the purchasing power of an individual.  In such a scenario demand for housing and other real estate activities will also be a great concern. Another factor is the political situation in Kuwait that has been unstable since the last few years. Instability results into lack of long term vision and implementation issues. Government regulations have serious impact on the overall performance of the real estate operations. Since the global crisis, Kuwaiti government has imposed many restrictions on real estate companies in order to restrict speculation in this industry, hence, government stability is very important for real estate or any business to flourish.

Q: How did the advent of the social media affect the business operations in the real estate industry?
A: Despite the advent of social media, real estate business operations are still best done on a face-to-face basis. If you want to close a deal, then you have to meet the prospective client in person and show him all the options though social networking sites such as Facebook, Twitter, Instagram and others may be used by some real estate companies in their marketing activities but it has not in any way have a big effect on how we carry our real estate business operations.

Q: Is Kuwait an ideal place for real estate investment taking into account all the various factors? Or is it better to turn to the Asia Pacific region or other countries right now?
A: For now, honestly, Kuwait is not that ideal for real estate investment. I would prefer investing in the UK because its government has implemented policies and laws that protect and secure real estate investors. The laws there are not implemented and repealed overnight unlike here in Kuwait wherein a law implemented today may be taken back the next day, leaving the investor the feeling of no security at all. When you invest in London, I can say that you can sleep soundly because you know that your rights as an investor are protected. Due to the presence of stable investment laws in the UK, it leaves no space for corruption or it cuts the bureaucratic red tape, making business easier and more secured. In London, you get to finish business papers or securing a business license from a few hours or in just one day whereas in Kuwait, it will take you a few days to a week and more often, you would need a ‘wasta’ (person of influence) to fast-track things in Kuwait and you don’t need such in the UK.

Q: How do you see the real estate industry in Kuwait in the coming years?
A: The real estate industry is expected to take off if the parliament approves supportive policies and necessary amendments to the existing legal framework that would establish a more business friendly environment.  I believe that the positive trend would continue in the coming years and residential  and investment segments will remain the largest contributor to real estate transaction value due to supply shortage coupled with huge demand. The commercial segment is also expected to perform well with the more promising business climate in Kuwait post the global crunch.

biography

Dr Abdulla Al-Humaidi established the Kuwaiti European Holding Co in 2008 and now holds the position of CEO. He has acted as CEO, Executive Vice Chairman and Chairman of several companies in Kuwait and Saudi Arabia and is also responsible for the investment strategy for two companies listed on the Kuwait Stock Exchange: Al Mudon and Remal. These responsibilities include investments in a variety of business sectors, primarily the medical, leisure and hotel sectors, as well as in a number of countries in addition to Kuwait, most notably the UK and Egypt. Having studied medicine, Dr Al-Humaidi quit the profession of medicine and started working for his family initially. He was promoted quickly as he gained trust and initiated an international management and asset restructuring for his family’s businesses, decentralising the decision-making processes and expanding in new territories most notably the United Kingdom through the Kuwaiti European Holding Group.

Educational Background
Doctor of Medicine at the Royal College of Surgeons in Dublin, Ireland.

By Michelle Fe Santiago
Arab Times Staff


By: Dr Abdulla M. Al-Humaidi

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