Kuwait Is Set to Allow Banks to Offer Mortgages for the First Time

(Bloomberg) -- Kuwait is preparing to allow banks to offer mortgages for the first time, a move that could reshape the oil-rich nation’s financial landscape.

The legislation is expected to be passed soon by the Council of Ministers, according to people familiar with the matter. The move would unlock a market that could eventually reach a value of $65 billion, implying a 40% expansion in lenders’ credit portfolios, according to the people, who declined to be identified as the information is private.

Traditionally, mortgages were neither allowed nor regulated, as policymakers feared the political repercussions of foreclosures on citizen-owned homes. Instead, the government has a public housing program for married citizens to receive a highly-subsidized house or a plot with a low-interest loan. 

But the system has been buckling under a backlog of 103,000 requests and handover rates suggesting a decade-long wait, prompting the government to plan significant changes to the system.  

Government officials couldn’t be reached for comment on Friday, a public holiday in the country. 

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Kuwait’s oil wealth has propelled it into the ranks of the world’s richest countries, but years of policy paralysis have meant the nation has lagged its more ambitious peers in the Middle East. 

The long-awaited law could provide a “structured framework that enhances home financing accessibility for eligible citizens,” said Abdulla Al Sumait, acting group chief executive officer at Al Ahli Bank of Kuwait. “We see this as a transformative step.” 

The introduction of the mortgage law would come 10 months after Kuwait’s emir suspended parliament for up to four years, effectively clearing the way for the government — headed and appointed by the ruling Al-Sabah family — to pass key bills. Just days earlier, the cabinet approved a draft decree that paves the way for the OPEC-member state to sell international debt for the first time in eight years.

Those moves have already led to optimism in markets. 

Kuwaiti stocks are outpacing their Gulf peers this year, with banks driving the rally — Boubyan Bank KSCP, Burgan Bank SAK and Warba Bank KSCP are all up 17% or more. 

The pent up demand for housing means that mortgages, even with significant regulatory limitations, could significantly boost Kuwaiti lenders’ profitability, according to Justin Alexander, director of Khalij Economics and an analyst for consultant GlobalSource Partners.

It could also spur foreign interest in banking stocks. There’s currently 4.7 billion dinars ($15.3 billion) of foreign investments in Kuwaiti banks, representing 15% of the sector.

“This opportunity goes beyond the direct impact from housing finance, considering the magnitude of infrastructure investments needed to develop new residential areas to meet the growing demand for housing in Kuwait,” said Shaikha Al-Bahar, deputy group CEO at National Bank of Kuwait SAKP. 

What Bloomberg Intelligence Says...

The legislative amendments could potentially include mortgage durations, state subsidies, interest rate caps, and regulatory limits such as debt service ratio. Accelerating mortgage market could stimulate construction sector, potentially driving domestic credit growth to high single digits over the medium term.

- Salome Skhirtladze, Europe Middle East and Africa financials analyst.

Untapped Market

The mortgage law is expected to spur a real-estate expansion over many years. “It should increase project awards to create infrastructure and new cities, and increase housing starts,” said Jaap Meijer, head of research at Arqaam Capital in Dubai. 

Behind the scenes, the government is lining up other changes.

Officials have activated a new law for urban development and the Public Authority for Housing Welfare recently signed a consulting services contract to develop three residential sites with over 5,000 housing units.

“Kuwait offers much,” said Bader Al-Saif, an assistant professor at Kuwait University and an associate fellow at Chatham House. “It’s an untapped market when compared to its immediate neighbors.”

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