High operating costs are stagnating the market and forcing home developers to look further afield.
Kuwait’s real estate sector continues to frustrate investors and developers alike. A tired infrastructure and stifling bureaucracy remain the biggest barriers to modernisation and development in the emirate.
Despite this, there can be no doubt that the past few years have been a boom period for the country. Buoyed by high oil prices and greater confidence - brought on by the fall of Saddam Hussein’s regime in 2003 - a large number of significant projects have been announced.
But progress has been painfully slow. The emirate has benefited from the influx of investment into the GCC region. Unlike Dubai or even Bahrain, however, both of which have embarked on numerous large-scale and varied development projects that will bring diversity to the economy, Kuwait remains static.
Land prices are high, but this is as much to do with the monopoly of land enjoyed by the Kuwait Oil Company (KOC) pushing land prices to artificially high levels. There is also an unwillingness by people to move away from established residential areas on the coast.
This does not mean no progress has been made. Over the past few years, a series of high-profile projects have been launched that have attracted international attention.
Top of the list is the $77bn Madinat al-Hareer (City of Silk) being developed in a joint venture of Kuwait’s Tamdeen Real Estate Development Company and Ajial Real Estate Entertainment Company. When completed, the development located in the Subiya peninsula will be one of the GCC’s biggest.
There is also the $3.3bn Failaka island project. The 43-sq km island, located 20 km east of Kuwait City, is earmarked as a major offshore tourism project.
But the reality is that operating in Kuwait is not simple. Contrary to expectations, and frustrated by the red tape and time-consuming nature of business, Kuwaiti developers are consistently looking further afield to maximise their opportunities in the region.
A glance at the MEED real estate table reinforces this. Aside from Tamdeen, the majority of Kuwaiti developers on the list are conducting projects outside the emirate.
Kuwait Finance House is currently developing $2.2bn worth of projects. Its two key projects, both in Bahrain, are Diar al-Muharraq and the Bahrain Science & Technology Park.
Meanwhile, IFA Hotels & Resorts has three key projects: the Golden Mile, the Palm Fairmont and the Kingdom of Sheba. All three are based on the Palm Jumeirah in Dubai.
One reason developers are looking elsewhere is the cost of operating in Kuwait, says Abdullah al-Roudan, assistant projects and business development manager with Kuwaiti developer Al-Mazaya.
“Development costs for Kuwait are up to 60 per cent of the project’s entire cost, which is high compared with other GCC markets,” he says. “Due to the governmental system, things take more time for real estate development.”
Kuwait’s approach to the build-operate-transfer rule is clear evidence of the difficulties faced by real estate developers. Criticised for being too restrictive, the law was changed this year. However, it is still not viewed as a panacea for developers in the country.
It has also been suggested that introducing a new law will not make a great deal of difference as the key problem previously was a lack of communication between the Finance Ministry and the real estate developer or contractor.
But it is not all bad news. Recently, Al-Mazaya, which to date has been keenly pursuing work in Dubai, announced that it has proposed a key island project to the Kuwaiti government.
The development, which will comprise a financial centre and a cultural village, has an estimated construction cost of KD200m ($750m). Both elements will be constructed on reclaimed islands in Kuwait Bay.
The projects are designed to boost the emirate’s financial and heritage status within the Middle East and establish Kuwait as a regional financial, commercial and tourism hub. The company claims that the project will also provide more than 90,000 job opportunities for Kuwaitis and create 20,000 residential units.
Once again, however, progress has been slow. While the project was announced in June, nothing has yet been done as the firm is still to present the concept to Kuwait’s Prime Minister Sheikh Nasser al-Mohammed al-Ahmed al-Sabah.
Al-Roudan says the government has seemingly recognised that changes need to be made to improve the system and make the emirate more attractive to developers. Last year, it reduced the tax on foreign companies to encourage more firms to operate in the emirate.
“I hope it will change - it has to,” says Al-Roudan. “There is no other option. The government has made some changes in the past year. It has reduced the tax paid by foreign commercial institutions from 55 per cent to 15 per cent, so it is opening up like other GCC countries. They [the government] have started to make changes. Hopefully this will encourage companies and the private sector to work in Kuwait.”