In November 2007, Kuwait’s government approved the $77bn Madinat Hareer (Silk City) development. Following on from the apparent success of a series of multi-billion dollar projects in Dubai, the ambitious Silk City scheme signalled Kuwait’s intention to tap into the region’s booming property investment market.

But four years later, there has been little progress on the scheme and the development has been suspended, while the masterplan is redesigned. The stalled megaproject is symptomatic of the challenges facing Kuwait’s construction sector.

In common with the rest of the region, Kuwait’s real-estate market crashed during the recession. However, unlike Dubai, which is now facing a huge oversupply of properties that is set to continue for years, pent up demand for new housing in Kuwait remains.

Population growth in Kuwait

The country is currently experiencing rapid population growth, with the number of people expected to increase by 63 per cent over the next 20 years, rising to 5.4 million people in 2030 from the current 3.4 million people.

“The real-estate sector is beginning to pick up,” says a Kuwait-based economist. “I think 2012 will see further improvement.”

Local investment bank Kuwait Finance House reported that the total volume of real -estate transactions in the state rose by 5.3 per cent in the first quarter of 2011 when compared with the same period in 2010.

At the same time, the government is pushing ahead with a number of affordable housing schemes using build-operate-transfer (BOT) procurement models. In addition to housing, the increasing population requires new transport and social infrastructure to cope with the accompanying demand for services.

With current oil production at 2.9 million barrels a day and crude prices over $110 a barrel, the government has the financial resources to undertake significant development programmes. In its 2010-14 five-year economic plan announced in February 2010, the government set out its aim to direct investment into infrastructure projects to diversify its economy and boost its real estate sector.

However, political divisions between the government and parliament continue to delay many ambitious development schemes in the country. The challenge for Kuwait is to achieve consensus on its planned construction programme so that it can meet the needs of its growing population.

The downturn in Kuwait’s real-estate sector following the 2009 global financial crisis has seen a series of privately developed schemes put on hold. The largest of these is the Silk city project, planned for the Subiya promontory, north of Kuwait city.

The original concept for Silk City, unveiled in 2006 by UK-based architects Eric Kuhne & Associates, included designs for a mixed-use city that would cover a total area of 250,000 square metres and include 30 communities grouped into four main districts. It was intended to contain the tallest building in the world and house 750,000 residents when complete.

In early 2011, Canadian firm Malone Given Parsons signed an agreement with Kuwait Municipality to prepare a masterplan that will replace the previous designs for the Silk City scheme. “The project is behind schedule, but it is still ongoing” says a source close to the project. The masterplan should be finished in the middle of 2012.

Another major real-estate project that is on hold is Pearl City, also known as Al-Khiran. The original designs for Pearl City contained provisions for 100,000 waterside residential units in the south east of Kuwait. 

Pearl City was scheduled to be built in two main phases, each further split into sub-phases, with the first phase having five sub-phases. A new access road connects the existing road 278, which runs into Kuwait City in the north and Saudi Arabia in the south.

Kuwait’s contractors will be hoping that Pearl City and other similar schemes will re-start as Kuwait’s economy recovers from the effects of the financial crisis.

In addition to the extravagant private real-estate projects planned, the government is also undertaking a large number of housing schemes to meet the increasing need for accommodation. Sheikh Ahmad al-Fahad al-Ahmad al-Sabah, former Development and Housing Affairs Minister, said in 2010 that Kuwait would provide 70,000 new homes by 2015.

Public housing in Kuwait

Kuwait’s Public Authority for Housing and Welfare (PAHW) is currently undertaking three projects to provide homes for Kuwaitis that are entitled to housing welfare. One of these is the Sabah al-Ahmad housing development.

The Sabah al-Ahmad housing scheme is located 50 kilometres south of Kuwait City and will consist of 9,000 housing units for Kuwaitis. In May, PAHW received bids for the main construction package for suburbs B and C. The work will involve the construction of 42 public buildings, which will include police stations, mosques and schools.

“There are more tenders coming out this year for government housing, the state is moving these schemes forward,” says one local contractor bidding on the Sabah al-Ahmad scheme.

In October, PAHW invited companies to express interest in investing in a new housing scheme using the BOT procurement model. The project will involve building approximately 10,000 low-cost houses on an area of 8.4 square kilometres west of Jahra City. The total cost of the project is estimated to be KD369m ($1.4bn). The housing authority will hope that the response from contractors is more positive than last time it launched a housing scheme using the BOT model.

“About 12 contractors were prequalified and invited to bid, but after looking at the terms not a single contractor submitted [bids],” says one local contractor.

The BOT and public-private partnership models are new to Kuwait, and it is likely to take some time before the procurement and tendering of such schemes runs to schedule.

Kuwait’s labour accommodation

In common with other GCC states, Kuwait is dependent on expatriate workers to meet labour demands. In 2007, 75 per cent of the Kuwaiti’s total workforce was foreign. To cope with the increasing demand, Kuwait’s Partnerships and Technical Bureau, the body set up by the government to advise and procure public-partnership projects (PPP), is planning to build a large residential compound for foreign workers.

Kuwait Labour City will house up to 200,000 workers and will cover a total area of more than 1 million square metres. The labour city will be located in South Jahra along the sixth ring road. The project is being developed through PPP and companies were invited to express interest in the scheme in July.

The PPP and BOT housing schemes are set to offer a number of opportunities for Kuwait’s construction sector in the next few years.

“The Kuwait market is excellent just now. There are a lot of projects coming from the Public Works Ministry, the Public Authority for Housing Welfare and the Labour City scheme,’’ says Augusto Morais, business development manager at the local Mushrif Trading & Contracting Company.

The government housing and labour accommodation schemes will not only provide building work for houses, they will also require major infrastructure works, from roads to utilities. Mushrif Trading is currently working on a $140m soil improvement project for the PAHW at northwest Sulabikhait.

A comprehensive transport plan will also be rolled out over the next five years as part of Kuwait’s plans to develop its infrastructure. The major projects planned include a $7bn metro network and $3.5bn-worth of investment at Kuwait International airport.

The metro is being developed under a design, build, finance, operate and maintain contract as part of Kuwait’s PPP programme. When complete, it will comprise four lines and have 171km of incline sections, 72km of elevated track and a 115km tunnel. About 60km of the metro will be underground.

A consortium led by UK-based Ernst & Young has been appointed as the transaction adviser for the project and is currently carrying out feasibility studies. “The metro project is a key project for Kuwait. If it goes ahead, it will create a number of extra opportunities. Each of the stations will create opportunities for shops and business facilities, and demand will increase for real estate in surrounding areas,” says Jeff de Lange, deputy managing director of Gulf Consult Kuwait.

Transport schemes in Kuwait

The expansion of Kuwait International airport will also offer the region’s contractors an opportunity to win work, with about $3.5bn-worth of projects in the pipeline. In August, the Directorate General of Civil Aviation issued tender documents for a contract to build a 4.5km runway.

Kuwait’s gross domestic product (GDP) is set to grow by about 5 per cent in 2011. With steady growth expected to continue into 2012, the real-estate sector should start to pick up in the next 12 months. As the private sector awaits a return of investor confidence, the government is set to push ahead with low-cost housing and PPP initiatives.

However, Kuwait’s unique form of democracy continues to stall the progress of its projects market. The political divisions within the Gulf region’s oldest parliament make it difficult for political consensus to be achieved. The cabinet was forced to resign in March during the regional turmoil. This was the sixth cabinet to resign in the past five years – three parliaments have been dissolved in this same period.

The planned Subiya Causeway is a key example of an important infrastructure scheme that has been delayed due to lack of political consensus. After five years in the bidding phase, Kuwait’s government tendering body, the Central Tenders Committee, approved the award of the estimated $2.6bn construction contract in February this year. But nine months later, the contract has still not been awarded due to alleged disagreements in parliament.