Kuwait is set to undergo a significant transformation in its financial sector with the introduction of a mortgage law, which will allow banks to offer home loans for the first time. This anticipated move marks a major shift in the country’s financial landscape, as the oil-rich nation seeks to address long-standing challenges in the housing sector while fostering economic growth.

A Long-Awaited Shift in Policy

The Kuwaiti government is on the brink of passing legislation that will enable banks to offer mortgages to citizens, unlocking a market that could be valued at approximately $65 billion. According to sources familiar with the matter, this development could lead to a 40% expansion in the credit portfolios of local lenders. The law is expected to be approved by the Council of Ministers soon.

Historically, mortgages were not allowed in Kuwait due to political concerns regarding the implications of home foreclosures on citizen-owned properties. Instead, the government had operated a subsidized housing program, providing married citizens with highly affordable houses or plots through low-interest loans. However, the program has been overwhelmed by 103,000 outstanding requests and long wait times, resulting in a backlog that could extend up to a decade.

Addressing Housing Demand

With Kuwait’s housing system under pressure, the introduction of mortgages aims to address the gap between the government housing supply and the growing demand for homes. The new law will provide a structured framework to enhance home financing accessibility for eligible citizens, ultimately stimulating the housing market.

Abdulla Al Sumait, acting CEO of Al Ahli Bank of Kuwait, described the law as a “transformative step”, emphasizing its potential to bring significant change to Kuwait's housing finance system. The law would not only meet the pent-up demand for homes but also stimulate growth in infrastructure and construction sectors.

A Boost for the Financial Sector

The mortgage law’s introduction comes amid broader efforts to rejuvenate Kuwait’s financial sector. The nation’s oil wealth has propelled it to become one of the world’s wealthiest nations, yet it has lagged behind its regional peers in terms of economic diversification and financial reforms. The mortgage law is expected to foster a more dynamic and diversified financial system by increasing the profitability of Kuwaiti banks and attracting foreign investments into the banking sector.

Kuwaiti stocks are already outpacing their Gulf counterparts, with banks leading the rally. Boubyan Bank, Burgan Bank, and Warba Bank have all seen their stock prices rise by over 17% this year, reflecting growing investor optimism about the country’s economic prospects.

The introduction of the mortgage market could significantly boost the profitability of Kuwaiti lenders. According to Justin Alexander, director at Khalij Economics, even with stringent regulatory limitations, the mortgage sector would be a game-changer for Kuwaiti banks.

Expanding Kuwait’s Real Estate Market

The legislation could serve as a catalyst for a major real-estate expansion over the coming years. Industry experts predict that the law will stimulate construction activity, leading to the development of new residential areas to meet the growing demand for housing. Jaap Meijer, head of research at Arqaam Capital, noted that the law could increase project awards for new infrastructure developments, which would help to increase the number of housing units available in Kuwait.

In addition to the mortgage law, the government is actively implementing other reforms to address the housing shortage. The Public Authority for Housing Welfare has signed a contract for the development of three residential projects that will provide over 5,000 housing units, further expanding the housing supply in the country.

Stimulating Infrastructure Investments

The new mortgage market is also expected to drive the need for infrastructure investments, which could boost domestic credit growth. Experts like Shaikha Al-Bahar, deputy CEO at National Bank of Kuwait, have highlighted the need for significant infrastructure investments to support the housing sector, including the development of new cities and residential areas.

Kuwait’s untapped mortgage market represents a substantial opportunity for both local and international investors, particularly when compared to its neighboring nations. Experts see the law as a key step in reshaping Kuwait’s financial landscape and positioning it as a more attractive destination for foreign investment.

Conclusion

As Kuwait moves closer to enacting this transformative mortgage law, the implications for its financial system, real estate market, and overall economy are profound. By providing a structured framework for home financing, the government is setting the stage for a more vibrant housing market, while simultaneously spurring economic growth and infrastructure development. The move is expected to have a lasting impact on Kuwait’s financial sector, providing a much-needed boost to the country’s overall economic diversification efforts. With the law set to reshape the housing market, Kuwait is poised for a significant shift in its financial landscape.

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