Kuwait banks call for overhaul of home loans market

  • Share via facebook
  • Tweet this
  • Bookmark and Share

Mainstream banks in Kuwait are lobbying for an overhaul of mortgage regulations in a bid to open up the Gulf state’s underserved home loans market.

Islamic lenders already offer home financing packages but conventional lenders are restricted from doing so, putting them at a disadvantage, a senior executive at Gulf Bank said.

“Mortgage loans are something that is a big problem here in Kuwait,” said Aly Mahmoud Shalaby, head of consumer banking at Gulf Bank, Kuwait’s second largest lender by market value. “Conventional banks are upset and not happy and we [put] pressure on the government.”

Kuwait, which restricts foreign ownership of property, saw property prices slump about 30% after the government banned companies from investing in real estate to stem inflation.

The Gulf state has suffered from a shortage in both residential and commercial properties as delays in public investments aggravated the imbalance.

The lack of mortgage options has left a number of Kuwaitis struggling to secure financing to purchase their own home. A government lending scheme offers first-time buyers a loan of KD70,000 ($254,684) and many nationals apply for a 15-year personal loan for another KD70,000.

But Shalaby said this is usually not enough to cover the price of buying and building a “reasonable villa”, which he said costs on average around KD250,000.

 “That is a huge gap… it doesn’t fulfill it, which means they need [alternative finance] from their parents,” Shalaby said.

According to Kuwait Real Estate Union, the average price per sq m in the country is KD6.750.

The issue has been brought before parliament but ongoing hostilities between the ruling family and cabinet – which last week prompted the resignation of deputy prime minister Sheikh Ahmed Al Fahad Al Sabah – has pushed it down the list of priorities.

“If the Islamic banks are going to be able to fulfill the demand they will not listen to us but I doubt the Islamic banks will be able to fulfill it,” Shalaby said. “Plus [there is] the fairness and unfairness issue of [banks] competing on an equal footing.”

The government will also need to address the absence of foreclosure laws allowing banks to take action against defaulting homeowners, if it plans to spur activity in the mortgage market, he said.

“The laws here do not allow banks to offer mortgage loans like the ones given in the West. You cannot kick out the tenant if they are Kuwaiti and take possession of the property as, ethically, they do not accept it here.”

Kuwait Investment Authority (KIA), the country's sovereign wealth fund, said in March it would launch a real estate portfolio worth KD1bn ($3.6bn) to invest in the local market.

Kuwait Finance House, the country's biggest Islamic lender, is initially managing the portfolio.

 

Related:
Companies

Market Performance

Gulf Bank
395.0
5.0 1.28 (%)
Join the Discussion

Disclaimer:The view expressed here by our readers are not necessarily shared by Arabian Business, its employees, sponsors or its advertisers.

Please post responsibly. Commenter Rules

Posted by: Abdullah Ludeen

As the (KIA), would announce a $3.6 billion dollar fund to provide loans for those young country mates who want to build new houses for themselves. In my point of view, the KIA should monitor the effects of this portfolio fund on national economy growth and they would try hard to control it's inflationary effects which may cause increasing rate of inflation. The perfect way to overcome inflation in such financing projects is to prevent high level of expenses which people have made in the way to build their houses.

Enter the words above: Enter the numbers you hear:

All comments are subject to approval before appearing

Further reading

Features & Analysis
Dubai mulls rule change to lure more domiciled funds

Dubai mulls rule change to lure more domiciled funds

Proposed rules would create a new class of funds in the Dubai...

Gulf's rift over Qatar may slow investment, reforms

Gulf's rift over Qatar may slow investment, reforms

Analysts suggest dispute may not hurt immediately but could impact...

Dodgy data obscure reality of Gulf's economic boom

Dodgy data obscure reality of Gulf's economic boom

Economists say that as Gulf opens wider to foreign investment...

Most Discussed
  • 53
    Three UAE women attacked with hammer at London hotel

    I really feel that Arabian Business.Com should now close this comments page. This should be all about sympathy for the families not what it is/has turned... more

    Wednesday, 16 April 2014 1:06 PM - Adrienne
  • 51
    Why Dubai isn't a plastic city

    What is definitely not a plastic city. The Arabs have a culture dating back to several centuries. 50 years back Dubai was just a fishing village. Today... more

    Tuesday, 8 April 2014 3:49 PM - P. MADHUSUDAN
  • 48
    DMCC boss Ahmed Bin Sulayem entertains Robert Mugabe in Dubai

    @fga ''However today, simply because he decided to dispossess a few white farmers of their land and redistribute to the poorer indigenous blacks'' more

    Sunday, 13 April 2014 3:02 PM - Matt Williams