There were more than a few sceptical remarks in early December when reports in the UK press revealed a plan to build a kilometre-high tower in Kuwait City. With a history of conservative height limitations, and a reputation for investor wariness, many in the industry scoffed at the idea of the world’s tallest building being located in the state. But while the project still seems improbable, developments in the local and regional real estate sector over the past 12 months make it by no means impossible.
It is clear to any visitor that the high-rise boom found lower down the Gulf has yet to fully hit Kuwait. With the exception of the three city-defining communications towers, the capital is still predominantly low-rise, thanks to a decades-old height restriction of 40 storeys.
Now all this is changing. Height restrictions are being relaxed, while local investors have finally regained the confidence to invest domestically. The changes are beginning to show: across Kuwait City, dilapidated buildings are being torn down to be replaced by sleek new office blocks, roads are being upgraded and a beautification programme is under way.
Commercial real estate is considered an especially attractive investment opportunity for the private sector. Since the coalition occupation of Iraq in 2003, scores of international companies have set up base in Kuwait as a stepping stone to doing business with Baghdad. While the security situation to the north remains perilous, multinationals have taken out long-term leases on many residential and commercial properties. The influx of business has seen rent increases of more than 50 per cent over the past two years, and for many cash-rich investors there has never been a better time to build real estate. “We estimate there is more than $8,000 million worth of private sector construction projects in Kuwait City alone,” says one local grade 1 contractor.
Indigenous demand is also strong. A chronic shortage of office space has seen many local firms having to base themselves in out-of-the-way industrial areas in run-down buildings. When new office blocks come up for occupation, it does not take long to fill them.
Hotels, too, are another growth area. There is a dearth of quality hotel accommodation in the state and local investors have been quick to realise the opportunity. Because of a well-publicised price-fixing regime by the hotel owners’ cartel, rates are among the highest in the world – guaranteeing high revenues per available room (revpar). Less restrictive plot-height ratios for commercial developments provides an extra incentive.
Conversely, there is little demand for high-rise residential property. Kuwaitis have always traditionally preferred to live in large villas, stretching down the coast, while high-earning expatriate workers, although greater in number than five years ago, are not numerous enough to support large-scale residential developments. And unlike elsewhere in the Gulf, there are no plans to allow freehold ownership of property to non-GCC nationals.
It is still early days for the high-rise club, with only a handful of projects having progressed beyond the design stage. The most advanced tower development is the 70-storey Al-Hamra, being built by the local Ahmadiah Contracting & Trading Company. Other projects approaching the tender stage are the Gate of Kuwait, developed by Al-Shaya Group, and Al-Asima, sponsored by Al-Salhiya Real Estate Company; both buildings will also be 70 storeys high.
The slow start is explained by the complicated set of rules governing maximum building heights. It was only late last year that Kuwait City Municipality, the authority responsible for granting building permits in the capital, said towers could be built up to 70 storeys. This has yet to be officially approved by emiri decree, leaving some projects with just a theoretical go-ahead. The issue is complicated further by another municipality announcement earlier this year that the height restriction will be lifted to 100 storeys. Moreover, a tower’s height is limited by plot size, with only the largest – and most expensive plots – able to go up to the new limits.
“We have been assured by the municipality that the emiri decree will be published soon,” says Osama Bukhamseen, director of local developer Bukhamseen Group and president of design consultant Osama Bukhamseen Design (OBD). “We certainly hope so because we have already waited a long time since the height increase announcement, and cannot go ahead with our projects until formal approval comes.”
The publication of the emiri decree will not remove all the obstacles of going high-rise. The municipality has to approve all designs before a project can go ahead, and developments cannot be built without an adequate power, road and sanitation infrastructure, which is the government’s responsibility. “We are often left waiting for approval because the municipality says the existing infrastructure cannot cope with the addition of a high-rise tower,” says one developer. “The government does not want to add to the existing sanitation and traffic problems by giving the go-ahead, but at the same time it does nothing to alleviate the current situation by making the necessary improvements.”
Land availability is another issue, with few plots up for grabs in the most desirable areas of the capital. The municipality, or whichever state or private entity owns the land, rarely puts a plot up for sale, and when they do, bidding is intense. Plot prices have risen three-fold over recent years, with the land cost sometimes accounting for half the project cost.
Limited plots and restricted development space have resulted in a fragmented real estate sector. Unlike Dubai or Abu Dhabi, where large-scale developers dominate the sector, there are numerous developers in Kuwait, each one doing no more than two or three major projects at a time. The lack of space also means developments are normally restricted to just one or two towers, unlike the mass conurbations found elsewhere in the region.
The fragmented market has its benefits, however. Stringent municipality design rules, and developer focus on just one or two projects, has meant most high-rise designs are distinct and generally praised by architects. “Kuwait is at the forefront of design,” says Gulf Consult deputy managing director Jeff de Lange.
However, contracting can be a further headache. Local building firms dominate the civil construction sector, but few have the experience to build 70-storey towers. Developers would like to go for foreign companies, but the customs duties and taxes can be extortionate. One solution is prequalifying international contractors to work with local firms on the project. This also helps to keep costs down; developers frequently complain of contractors monopolising the market.
But for the cash-rich local developers, the obstacles are well worth overcoming. With the economy booming, and higher oil prices set to stay, returns are almost guaranteed despite high plot and material prices. A 1,000-metre tower in the state may only be a dream today, but who knows what the future might hold?