Interest hikes have begin to cast shadow over real estate market

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KUWAIT CITY, Feb 6: It seems that the successive rises in interest rates, which recently reached 4%, have begun to cast a shadow over the real estate market, especially in the investment and commercial sectors, as it is expected – according to some experts – that these two markets will suffer more stagnation, while the extent of the impact remains closely related, reports Al-Qabas daily. Real estate sources added that raising interest rates to 4%, and the cost of borrowing in some banks reaching nearly 6%, will have a clear impact on many investment and commercial real estate.

Basic factors
The sources added that there are other basic factors that have a direct impact on the two sectors other than the high discount rate that must be taken into account, such as total income and employment rates, in addition to economic activity and the stability of the political situation in the country. The sources indicated that investment properties, which generate returns between 6.5% and 7.5%, will be more vulnerable to the repercussions of raising interest than others, while their impact remains less severe on buildings, which have remunerative returns in excess of 9%, and which mostly enjoy high-end finishes and are located in distinct locations.

The sources believe that the real estate investor, who is still bound to pay more than 70% of the remaining installments, may not be able to abide by them, and therefore may increase the rental value of the apartments or shops he owns as a natural reaction to meet the financial costs and compensate for the increase in the cost of borrowing.

A real estate source confirmed that the general situation of investment real estate in Kuwait is still “comfortable” until this moment, especially that the sector is currently witnessing good occupancy rates ranging between 88% and 90%, supported by the stability of its rental value despite the recent campaigns by the Municipality to close the basements.

At the same time, the sources pointed out that the effect of the interest rate hike would be more harmful in the event of an increase in apartment vacancy rates, which may result from the state’s efforts to address the demographic imbalance and reduce the number of expatriates.

As for commercial real estate, the source stated that the return on the sector ranges between 5% – 6%, while the occupancy rates are around 86% and vary from one region to another. The sources pointed out that the repercussions of the interest hike will be severe for individuals who depend on facilities for their investments, while its impact will remain less severe for large companies investing in commercial real estate

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