From the UK to Dubai, Kuwaiti’s invest billions into overseas real estate every year. So what prompts the country’s investors to seek international assets? And what are many of them looking for?
Small in land area and population it may be, but Kuwait is a country of high international significance.
Its GDP per capita in 2011 of KD 15,451.70 was the 12th highest in the world, while it is home to 10% of all the global oil reserves, with petroleum accounting for 95% of all government income.
And Kuwait also has an investor community that is among the most active in the international property market. KD 245 million was spent by Kuwaiti’s in Dubai in 2015, while a strong Kuwaiti presence was among the 60% month-on-month rise in interest in UK property in January this year from investors in the Gulf.
Indeed Select Property can count thousands of Kuwait nationals as members, with many spending millions on products across the world for more than a decade.
So why are Kuwaitis obsessed with acquiring property abroad?
A poor 2015. An even worse outlook for 2016. A local market they cannot rely on.
Kuwait’s property market is currently doing very little to stem the flow of real estate investment out of the country.
Of course Kuwait has long been a nation of international property investors. But the current state of the market only increases the emphasis on buying elsewhere. Between January and May last year, there was a 28% year-on-year drop in sales for local real estate, and the KD 199 million spent on residential property in particular represented a 30% fall on the year previous.
Already there’s been a 20% drop in average values across the board since the start of January this year, and the patience of investors is beginning to wear thin.
An interest rate rise on the dinar as a result of the US Fed rise naturally makes things tough. But undoubtedly the slide in oil prices applies even greater pressure on Kuwait’s property market. Crude values have now suffered their worst falls since 2007, with prices forecast to soon drop to just KD 7.50 per barrel.
And for a country with an economy so reliant on oil this, according to Secretary General of the Real-Estate Union Qais Al-Ghanim, is “a very negative eventuality that will negatively affect various property sectors”.
Instead Kuwaitis are continuing to explore opportunities internationally. With two destinations in particular as popular now as they ever have been:
Situated at the other end of the Arabian Gulf, Dubai is arguably the market Kuwaitis feel most comfortable with. Their money is kept within the GCC and their asset is less than a two-hour flight away. Importantly the UAE is home to one of the most politically-stable economies in the region.
Luxury apartments in iconic developments bring Kuwaitis to Dubai, but strong returns make them stay. Yields in the emirate are currently as high as 10% in some areas, and while capital growth is slow at present, it’s the prospect of a new growth cycle triggered by Expo 2020 that’s driving huge demand for Dubai assets.
Kuwait has a long history of investing in Britain. It was reported in 2013 that the Kuwait Investment Authority holds KD 6.7 billion worth of assets in the UK, approximately 29% of all the international funds on its books.
The exclusive addresses of London have been a favourite for Kuwaitis, as they have for many GCC investors, for decades. And with many Arabic students relocating to study at one of Britain’s illustrious universities, buying property here is often also an investment in a home for an investor’s child.
But the UK makes for a compelling investment location. Product ranges are diverse, capital growth is strong and yields are high. The prestige of the pound and the strength of the British economy also position the UK as a safehaven for offshore funds.
Crucially, there are opportunities in Britain that are scarcely found anywhere else. When Select Property recently launched a new development in Manchester, Kuwaitis were among the 16% of GCC investors that bought units within just four months. London, their long preferred UK destination, is reaching the end of its growth curve but, thanks to strong government-led investment in the Northern Powerhouse, other cities such as Manchester are at the start of their own, and Kuwaitis want to be a part of it.