Kuwaitization Causing Major Downturn In Property Rental Market

Investors in the Kuwait expat rental property market are feeling the cold hand of reality as workers leave or relocate to smaller apartments.

Some 14 per cent of apartments in residential developments popular with expat workers are now empty, according to a study by the Kuwait Real Estate Association. Translated into real numbers, the percentage means 52,000 apartments out of a total of 371,000 are now untenanted. To make matters worse, realtors active in the sector are predicting the sector’s woes will increase still further during the summer season, especially after late June when the school year ends.

The survey also reported increasing numbers of expats still in residence are giving notice to landlords, citing the increased burden of living costs exacerbated by the rise in electricity charges, medical fees, services and commodities. The majority are sending their families back to the home country and will no longer need larger apartments. In spite of the across-the-board increases in costs, salaries have not risen in compensation.

The decrease in demand is expected to result in landlords having to reduce rents in order to maintain occupation of their buildings, with real estate agencies revealing there’s already been a 25 per cent reduction in rental charges. However, most reductions to date apply to recently constructed, poor quality blocks with major problems such as small rooms, a lack of maintenance and other services and no car parks.

Some 60 per cent of recent developments are of this type, and will be almost impossible to rent out in the future. As more of the older, more desirable developments become empty due to lack of demand, the flip side of Kuwaitization for property investors is expected to become more obvious.