Real Estate and Construction Sector in Kuwait

What is the overall assessment of the real state sector and the construction sector in Kuwait? What is the outlook of both real estate sector and construction sector for 2012?

Real Estate:
There are two sectors within the commercial real estate industry that are affected heavily which are the offices sectors and the retail sector. The office sector is basically because of the oversupply and decreasing demand because of the financial meltdown.

The second is the retail sector is indirectly affected by the lower consumer spending which by de facto made us think of our expansion plans. In addition to an increase of supply and demand that what was built in the country in the last three years. As far as for the residential, there has always been a problem in the residential sector due to the lack of supply of land.

The government is planning to start a new city in the north of Kuwait and this plan has been postponed for 4 or 5 years now since the announcement. Accordingly, the demand has been increasing so that’s why the residential sector has a boom in pricing which is to a level quite unreasonable.

Construction:
As for construction, there are the private and government sectors. For the private sector, there was a meltdown, is almost dead due to the international financial crisis. The government sector is a bit more active especially with development by the government and the release of several projects during the last few years.

The prospect for 2012 – I can’t tell whether it is clear or not, but I personally believe it will continue unchanged as was the case over the last three years, which is a boom of government spending in the infrastructure projects and decreasing private sector spending and investments. I don’t see much change in 2012.

How do you see this affecting the real estate sector? Have you been able to modify your strategy? Are you expanding outside? You have a plan for the company to raise additional financing? Could you give an overview of your strategy?

The strategy we adopted from the beginning is a mid-market strategy whether it is our hospitality industry or our real estate industry. The real estate sector has not been affected so we didn’t really have to revise fiercely but we did actually relook at our development plan outside of the region and decided to concentrate only in the GCC region and Australia.

So, we are just active in the GCC and Australia due to the healthy economic indicators. Our plan to list the company comes with the belief that we have built a very solid real state operation company. It is time for us to take the gain out of it. However we are not looking at that due to the fact that the stock market is not very encouraging, so, although we have eight initials approvals we might not proceed in it next year or after.

As far as the debt, it is very challenging. We have been working in the last two years to restructure our debt and we have successfully completed that into a long-term financing. I see that capable of doing just fine. Future expansion we are looking at is mainly in Saudi Arabia and Kuwait itself. We are right now working on two projects in Australia which we believe will add value to our portfolios from real estate and retail point of view.

What would you identify as a major challenge in the industry?

The major challenge is that we should convince the banks of the feasibility and to overcome the risks. We used to have two risks in the operations which are construction risk and marketing risk.

But right now we have three risks: construction, marketing and operational because your tenets are actually not sustainable. That does entertain at 3 risks right now involved in any real estate operation, just not only the construction or the leasing part but the operation itself.

The financial meltdown has affected a lot of development plans so we have seen huge vacancies in the major sectors in the real estate. Accordingly, the major challenge is providing debt.

What is your vision for the companies – Action real estate and Kuwait Dynamics?

Our vision is to become the major player in the mid-market sector. We are slowly but surely walking through there. We are growing portfolios into a benchmark that will make us the major player in five years. I will add the region because there are much further bigger players in the neighboring country. But in Kuwait itself that is our ambition to be a developer and an operator, among the biggest five. Now, we are amongst the top 15.