Boston, MA -- (ReleaseWire) -- 03/12/2014 -- We believe the real estate sector in Kuwait will see some increases in rental costs due to a reduction of oversupply in the office and retail sub-sectors. However, without a significant change in the supply and demand dynamic, there will be no change to net yields in 2014 for all sub-sectors.
While BMI is generally optimistic about Kuwait, there are several pitfalls to the current scenario. Soft market conditions could persist, particularly in the office segment, where dynamics are still dictated by a legacy of oversupply. Our outlook would also be considerably tempered should political uncertainty in the country or its neighbours escalate.
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Changes in Kuwait's political situation, or that of its neighbours, such Iraq, will continue to present substantial risks to our growth forecasts. The Kuwaiti economy will remain on a moderate expansion path heading into 2014, with growth supported by robust private consumption and a modest rise in oil production and exports.
We forecast real GDP growth of 2.6% in 2014, and remain cautious about Kuwait's fixed investment outlook, noting that political evolutions will continue to present both upside and downside risks to our forecasts. Government stimulus measures continue apace, but project delays and claims of corruption impede development.
- The National Bank of Kuwait announced a 75% increase in the value of sales in the commercial real estate sector, up to KD440mn in 2013.
- Kuwait-based United Real Estate Company (URC) has sold 10 of its plots in the Mubarakiya area in Kuwait and two plots in Entertainment City, Qatar. It made the sales for US$46.7mn, making a combined net profit of US$9.7mn. The 10 Mubarakiya plots cover a total area of around 1,295 square metres, representing 1% of URC's total assets with a book value of US$16.3mn, giving the company a net profit of US$3.1mn. The sale of the Entertainment City plots generated around US$6.6mn.
Key BMI Forecasts
- Rental rates will increase by 5-10% in the Kuwait City office sub-sector, and by 5% in the Al-Jahara office sub-sector.
- Rental rates will increase by 5-7% in the Kuwait City retail sub-sector, and 3% in Al-Jahara's retail subsector.
- Rental rates will increase by 2% in Al-Jahara's industrial sub-sector.
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