Expats leaving Kuwait creates tremor in real estate

While the airport is crowded with people departing the country and some areas in the country are still under isolation, several real estate buildings are starting to empty. This has become a familiar scene in recent times due to the government’s keenness to implement its vision for restructuring the population and supporting the policy of Kuwaitizing local jobs.

In order to achieve this, the government is aiming to amend the demographics to ensure the ratio of citizens and expatriates in the country is 70:30, which means 70 percent citizens and 30 percent expatriates. The air traffic has recently witnessed an unprecedented hike in the number of flights for transporting expatriates to their home countries.

The number of expatriates who have left the country has so far exceeded 100,000, and this number is continuously increasing. Despite the blessing of many citizens for the firm government approach in this regard, there is a large segment of them who are against this approach, as they stress the need to study this step before rushing to implement it, especially when it comes to the real estate sector.

They expressed their dissatisfaction with this measure, as the real estate sector has become the biggest victim of some recent decisions taken by the state, which will entail the departure of a large number of expatriates who constitute a huge proportion of the residents of their real estate in addition to their commercial workers.

In addition to starting the evacuation of expatriate workers, this step was preceded by decisions that included reducing salaries and imposing total isolation of areas that included investment housing properties, most of which are inhabited by the labor category.

This affected the income of many tenants, which led to failure in the payment processes. Some of the expatriates have left the country leaving behind more empty apartments. There has also been a shortage of labor. All of these are factors that directly refl ect on the returns and revenues of property owners.

With the increasing departure of expatriates, the expectations of real estate experts indicate deterioration of the condition of the real estate sector to continue during the coming period or until COVID-19 crisis is solved, at least. Among the most prominent of these expectations is a forthcoming decline in real estate investment in terms of prices and performance. According to the most recent report prepared by the National Bank of Kuwait (NBK) in the real estate sector, it was expected that the real estate market, especially the commercial and investment sectors, as well as the residential sector would be affected, albeit to a lesser degree, in the second quarter of 2020.

This is due to the outbreak of the COVID-19 pandemic and the precautionary measures imposed to contain the pandemic, particularly the ban and restrictions imposed on commercial activities, which have led to a negative impact on the working conditions and job losses especially among expatriates.

The report stated that sales in the investment sector have decreased by 42 percent on a monthly basis and by 18 percent on an annual basis to KD 62 million in February. This monthly decline is due to lesser prices and average size of transactions. As for the prices, they have remained relatively low in this sector, which was negatively affected by weak basic constituents since early 2017, partly refl ecting weak demand from the expatriate category on one hand, and the continued increase in supply on the other.

The prices of buildings and apartments, as in January, decreased by three percent and five percent respectively on an annual basis. It is expected that the prices and sales of the investment sector will be affected negatively due to repercussions of the COVID-19 outbreak.

This is especially since most of the demand for rents of this type of real estate usually stems from the expatriate workforce, which has been affected by the bans and closures of businesses. It is almost certain that the commercial sector will also be affected by the ban imposed against the backdrop of the COVID-19 outbreak and its negative impact on sales and revenues of commercial activities.

Various reports have already been released about the difficulties faced by some companies in paying the rent of commercial space, which led to a decrease in value of the rent and postponement of payment by various commercial tenants, although the category of retail tenants is the most affected by the increase in the shopping center rents. NBK’s report did not hide the fact that the view of the future of the real estate sector in the country has changed.

Instead of stable expectations, it made it clear that this is no longer the case. The decline in oil prices may increase the fears of investors and buyers, which may lead to the postponement of upcoming purchases. In addition to the study by NBK, several real estate experts and property owners did not hide their concerns regarding the future of the real estate sector. Secretary of the Real Estate Union Qais Al-Ghanim expressed his dissatisfaction with what is happening.

He stressed the need to review the current procedures and decisions, saying: “I am shocked by the large number of decisions that were taken without consulting the private sector. So far, these decisions have not yielded any noticeable results, not to mention those concerned with restructuring the population. This will result in many negative repercussions on all sectors, such as the real estate, consumer and industrial sectors.”

Al-Ghanim clarified, “I support the idea of restructuring the population, provided it is applied in a deliberate manner so that we do not lose the personnel and labor we need. In the end, there are activities that citizens did not and will not accept to work in, such as repairing cars, electrical works, plumbing, etc.”

Meanwhile, the Vice President of the Real Estate Development Company Suleiman Al-Mudyan affirmed that application of the equation of jobs by 70 percent citizens and 30 percent citizens is an unrealistic and almost impossible theory, as it needs more research if the state wants to achieve its goals and future projects. He said the state’s decision to restructure the population is good, but it will not be easy to implement it in real, especially in terms of the percentages referred to by the government.

Al-Mudyan stressed the need to do a careful study of the proposal before setting the proportions in order to be more realistic and to take into consideration the interest of the state in the future. He did not hesitate to disclose the fact that the state cannot dispense with expatriate workers, as the strength of the state is based on diversity, adding that the expatriate category will remain necessary to support economic sectors on one hand, and achieve the New Kuwait 2035 vision on the other. Al-Mudyan indicated that modifying the population density will lead to a significant vacancy in the housing sector at a rate of up to 16.5 percent.

He opined that the correction of the current situation can be possible through the deportation of marginal and infringing workers, and orientation towards creating some jobs, as well as putting an end to the recruitment of expatriate workers based on a clear time plan until the desired goals related to population density are achieved.

When asked about the future of building materials, Al-Mudyan said, “The contracting sector is divided into two parts – building materials and the construction sector. “I believe that the construction sector will suffer the lion’s share of vulnerability as a result of the scarcity of workers, specialists and technicians working in construction companies. Therefore, the rates of labor wages will witness a significant increase, which will in turn increase the cost of construction. “Regarding the building materials, it will witness a slight impact as a result of the stagnation in the construction sector. The
situation will depend on the extent of activity of state and real estate projects in the future.”

Furthermore, despite the concerns raised by the experts regarding the future of the real estate sector, expectations of the real estate expert Abdulaziz Al-Dughaishem came less negative in this regard, especially if some solutions were adopted. From his point of view, there will undoubtedly be an impact on all real estate, investment, commercial, residential and industrial sectors, but it will be in varying proportions in the investment sector, despite the departure of many expatriates and violators of residency recently.

However, expectations indicate that there will not be a strong impact if the government issues strict laws prohibiting housing more than four people in one room and preventing rotation of workers on the bed. Consequently, it is necessary to organize and monitor the rent activities and abide by the number of tenants. In this way, the demand for investment housing will increase, and the vacant apartments and buildings will be occupied. However, if the matter remains as it was before, the impact will be significant.

Al-Dughaishem said, “We have seen in one of the areas where more than 800 to 1,000 people reside in one building. This was discovered by the responsible authorities during the recent period.” He went on to explain, “As for the commercial sector, it is the worst affected. Activities will be concentrated in the shops and commercial complexes that overlook the front end of the areas. As for the shops located in the interior parts, the mezzanine and the basement, they will be affected significantly.

Source : Arab Times

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