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ENGL 102

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Introduction

The financial crisis of 2008 greatly affected the entire gulf cooperation council and the real

estate industry. Despite this, the industry is back to recovery. Indicators of this growth include the

increase of housing loans that has been evidenced in Saudi Arabia and the presence of Madinat

Jumeirah City in United Arab Emirates (UAE). All these milestones indicate an increasing

sentiment growth within the real estate industry. The Qatar real estate entity is deemed to grow in

the near future because of the proposed hosting of 20222 world cup games and as indicated by real

estate growth as well. Turkey is currently a target for investors to boost the real estate industry and

it is expected that about 100 bn USD will be invested in five years’ time. Kuwait’s real estate

industry has shown significant growth from 2012 and has exemplary shown the potential of

positive future chances of investment. The largest contributor to this growth is the 1H2012 while

the commercial segment has only shown imbalances with regard to demand and supply. The good

performance attributed to 1H2012 is associated with the low returns from other investments. This

further indicates that the commercial segment could not come out of the 2012 financial crisis. This

is reflected from the Kuwait stock exchange (KSE). The dynamic changes in Kuwait’s case is

sensitive to interest rates, credit facilities and depends of population growth. Further analysis has

indicated that the industry is highly leveraged based on net debt and equity is about 94.11% with

regard to 1H2012 (Ejaz 1).

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Initiatives in Kuwait have tried to bring back the industry into its functionality. This

includes the Kuwait Investment Authority (KIA) and its promising announcement to end up

forming and strategically putting in place the Kuwait real estate Investment Authority. The KIA

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has assigned a contract based agreement with Markaz to boost its management scheme. A set of

these approaches all targeted at reviving the real estate industry. This will in turn boost Kuwait

economy. However, these are model based approaches which should be matched with customers’

demands to predict the future fluctuations. UAE and Saudi Arabia are well positioned to attract

new investors into real estate Industry. It is expected that the population is increasing and the

demand for more housing as well as costly rooms affordability due to the changing lifestyle and

economic class. This will not only boost the sales but it will also enhance customer spending. As

much as the population is expected to increase, measures such as rural-urban and urban-rural

migration may affect its stability (Ejaz 2).

A country whose movement of goods and services is easy creates a vibrant economic

market where competitions exists. Different investors from international market may raise or lower

the costs of the real estate industry depending on who uses little cost materials and labour. It is

comparative that a country which seeks to invest in real estate also gives rise to growth of

recreation facilities such as parks, tour sites and hotels. Saudi Arabia has its natives of about 70 %

while about 30 % are non-natives. Hence the population growth may directly affect the real estate

industry if it assumed that the demographic trends are the key determinants. Other factors also

affect such as political stability of a country, ease of conversion of currencies between the financial

institutions and if access to credit is available. Future prospects can also open up other ventures

such as increased banking services, exchange bureau efficiency and mobility of services. For

example, Qatar is expected to host the 2022 world Cup and due to this, the housing industry has

been blooming since it is expected that more tourists will come even before while some will be

left behind or join the tourist class of Qatar. This does not only make the investors more

competitive but also concerned about the investments. Regionally, the announcement has also

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affected the industry in Turkey where Saudi Arabia for example has already pumped money into

Rotana area of Turkey “Saudi Arabia’s My Tuana announced investments in the Rotana hotels of

Turkey” (Ejaz 2).

GDP of Kuwait is boosted by about 3.30 % revenues made from the real estate industry

and this as per 2010 data. However, the growth has been on since 2012 and thus its contribution

may be higher than the 2010 estimate. There was a 92.70 % growth in total trading transactions

for the first quota of 2012 but this trend was not monotonic for the second phase. This is related to

the summer breaks, a period when Ramadhan was ongoing. The legal provisions have also played

a role in that, it has made it flexible for investors to easily make exchanges at values which are

sustainable for their services (Doronin 14).

The legal environment had many restrictions (bounds and leaps in 2008 due to financial

turmoil which largely affected the global market and economy. Then nationally, the legal

restrictions of demand and the ground based supply restricted the expansion of the industry. Even

after the global financial crisis era, it was still a challenge for the industry to start performing better

as before because of the restrictions that were in operation. The new post crisis era created by new

laws opened doors to more chaos than and resilience of the industry had totally gotten lost. The

law for example restricted the mortgage entity of the residential units. The putting in place of Built-

Operate-Transfer methodology created fixed the operational space of the industry considering that

these laws were put into effect during the end of 2008. Many policy makers have outlined that

there is lack of enough land for the development of real estate and thus, pursuit to restrict the

influence of development resulting from this was shuttered down through the parliament. The law

also provided unsustainable role where the prime homes were to be provided to the locals. This

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meant also that locals had an upper hand to own land in Kuwait and no company or foreigner could

be allowed the ownership. This was a tough law which greatly affects the growth and expansion

of the industry and it minimizes entry of investors who could provide services and maybe sell

goods ate subsidized fee. Global outsourcing is a key element which also brings in the element of

global sustainability and cultural integration of experiences, designs, costing and aesthetic

properties. Thus tough laws limit entry of all these benefits. Law number 8 and 9 as outlined by

Kuwait’s law as by 2008 clearly outlined that no company was allowed to own any piece of land

whatsoever in the residential area of Kuwait. This is a challenge since the area segmented for

residential settlements was larger and therefore companies had only a small space to exercise their

mission. It is also only Islamic banks that enjoyed the provisions of the law which limited

companies from holding a property spanning 5000 sq.km for an estimated 3 years’ period. The

reason for exemption is based on observation trends that Islamic banks hold expansive properties

for even non trading purposes compared to other banks which were focused on generating more

revenue. The lending strategy of 2009 also limited award of loans to investors and there was a

slow recorded credit growth (Ejaz 3).

In 2012, there was a parliamentary struggle which was boycotted by the opposition. This

was a challenge that has really slowed the improvement of laws on the operation of real estate

industry and thus, the future parliamentary proceedings were expected to change the atmosphere

of investments. This was expected if only a new government was enacted and put into operation.

The investment segment is the principal contributor to the overall transactions resulting from real

estate industry in the first quarter of 2012. This showed great improvements when the same is

compared to efficiency and performance of 2011. However, a further analysis indicated that the

growth of investment segment may have been influenced by a weak Kuwait stock exchange which

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then favored the investment. Revitalization of the investment segment also attracted more

performance from the investors side and the income from capital investments was also realized. It

is imperative that during the month of Ramadhan (mostly July), people break off and thus the

revenue as well as transactions goes down the line. An annual range of 3 years starting from 2009-

2013 saw a rise of cost @sg. Meter of about 7-10 % annually for plots and buildings respectively

(Ejaz 5). This indicates a sharp growth in investments within a strict atmosphere provided the

tough laws. Theory has it that real estate industry is less risk compared to other common business

enterprises. This is because free from land restrictions, it is risk free from movement and thus save

from easily getting damaged by volatile factors. This believe is also highlighted as one reason why

the investment segment grew in 2012. The population growth puts pressure on the government to

think of looking for simple but sustainable housing opportunities for its people and the effective

way is to lessen pressure on land acquisition restrictions and encourage mutual involvement of

development and housing stakeholders (Santander Par 3).

Kuwait’s economy is contributed by about 49.23 % from the oil reserves and thus oil is the

main contributor to its GDP. This is data as per 2010 analysis. However, the GPD was anticipated

by the IMF to be falling from 8.20 % in 2011 to 6.60% in 2012 and a projection of decrease of

about 1.8% was projected for 2013. The real estate industry of Kuwait still depends o approval by

the various governmental authorities. The increase in income associated with oil reserves could

help the industry to flourish but this is on a short term basis but sustainable based on the Kuwait’s

development plan. The plan includes a metro, Silk city harbor and railway line. However, it was

identified that the delay in its implementation could fatally impact its economy. To raise this,

Kuwait could boost its real estate by enhancing the private sector and public sector partnership

investment projects. The central bank of Kuwait has been helping the non-oil industry to come up.

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A reduction in interest rate for example helps the investment industry to prefer taking loans and

getting committed to the law. This protects the buyers and those selling the real estate services.

While the residential segment is expected to enjoy benefits from the low interest rates, the

commercial industry may be at stake. The IMF report of 2012 identified that about 10 % of total

banks loan entity was secured to meet real estate demands. However, the 2011 credit growth was

associated with a sluggish 1.6% growth. However, 2012 saw an increase in its credit growth of up

to 3 %. While this is not high, the real estate restrictions however avail that this creates several

degrees of freedom for investors in the context of business management and investment portfolios.

The changes evidenced from the 1980s changes in Arab world to boost economic growth has

opened more investment avenues which are also expected to shine more in the coming future.

“faced with a decline in exogenous finance in the 1980s, most Arab States proclaimed a new

openness to policy from the private sector” (Moore 127).

As workforce moves from men oriented parliamentary set-ups to a mixed set-up, women

who serve the society at different capacities are expected to bring value and influential capabilities

in the real estate industry. This will work well when women will get involved in legalization

processes. A descent representation of committees by women will add value to policy making and

will avail challenges previously not spotted in financial or real estate management. Any

development of a nation’s economy thus depends solely on what the private and public sector

contributes and as to whether the foreign investors involvement is favorable or not (Alzuabi 690).

Conclusion

The future of investment in the real estate industry is sustainable and of interest if the

political stability is achieved and if the policy makers will work mutually to make the land-tight

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relationship a breakthrough. About 90 % of Kuwait’s land is not used and thus revisions on access

and ownership of land by companies should be revised accordingly. If the law provides a package

of freedom and flexibility for companies to exercise the economic demand mandate, it then the

GDP could see a boost through a growth of tourist industry. Increase in loans availability and

access is foreseen as an element which can boost the residential investment segment. The

residential and investment entity is deemed to be improving provided the political environment

will remain open and calm for operation and analysis of profit outcomes. Women participation is

also a nice entity that could sustain the industry.

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Works Cited

Alzuabi, Ali Z. "Sociopolitical Participation of Kuwaiti Women in the Development

Process: Current State and Challenges Ahead." Journal of social service research 42.5 (2016):

689-702.

Doronin, Dmitry. "Macro-level Market Research of Kuwait."

(2013).https://www.theseus.fi/bitstream/handle/10024/55142/Kuwait.pdf?sequence=1&isAllowe

d=y

Ejaz Sarah, "Kuwait Real Estate Sector," Capital Standards. December 2012.

http://www.infomercatiesteri.it/public/images/paesi/107/files/Kuwait%20Real%20Estate%20Sec

tor%20Report_pdf%2012_12%20Capitalstandards.pdf

Moore, Pete W. "What makes successful business lobbies? Business associations and the

Rentier state in Jordan and Kuwait." Comparative Politics (2013): 127-147.

Santander Trade Portal "Kuwait: Foreign Investment,". October 2017.

https://en.portal.santandertrade.com/establish-overseas/kuwait/investing

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