Kuwait banks call for overhaul of home loans market

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.