Possible solution to the inflated prices of Real Estate in Kuwait

Meshal Al Melhem: “4 types of taxes help halt price inflation of residential real estate”

Vice Chairman and Managing Director of Blueprint Real Estate Investment Advisory, Eng. Meshal Almelhem, said in an interview with Alwatan Newspaper that the solution to the problem of constant hike in residential real estate prices in Kuwait warrants approving a number of reform legislation that might face tough opposition.

He said that those types of taxes include the registration tax of the property which is considered quite low in Kuwait vis-à-vis its counterparts in Lebanon (6%) and in Britain (4%) for ordinary real estate and (7%) for real estate worth more than two million pounds. Consequently, the high real estate tax will limit the quick negotiation of the real estate because the speculator cannot achieve profits under high real estate taxation.

The second tax is the “tax of high property value” which is imposed by some Western countries on properties used for speculation purposes by which speculators achieve high profits. This tax is not applied to residential properties or the developed properties. It reaches up to 40% in U.K.

The third type of taxes is the income tax of private housing property. Consequently, any income generated to the investor from a private housing property should by subject to taxation especially after trading in residential property has become a phenomenon in Kuwait, a matter which is quite serious.

A fourth tax applied in the U.K is the real estate inheritance tax. One of the current problems in Kuwait is the acquisition of some merchants of large areas of land and holding them for long periods of time despite the land scarcity in Kuwait. We have witnessed this happening lately in Southern Surra.

He added that applying all these taxes might check the rush of traders, companies, banks and individuals upon the residential properties which will be non-feasible especially as there is extensive rush upon residential properties in Kuwait with the government’s blessing which allowed citizens to work officially in this field.

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Race to buy Real Estate properties in Georgia, Bosnia, and Malaysia

Alwatan Newspaper – Kuwait 8 September 2012

Real estate investment trends and directions change according to a number of conditions and premises usually determined by the market conditions and influencing factors therein. It is currently noticeable that the demand in the GCC markets shifted from buying Gulf properties to buying Turkish and European where the supply and demand are available. We now hear of markets that were unknown previously like Malaysia, Sarajevo, Bosnia and Georgia, and other markets that were not thought of investing or promoting therein before now.

Numerous Arab, regional and global political and economic conditions played a role in this major shift in the investors’ orientation, both individuals and corporates, who permanently seek such opportunities. However, it is worth warning that some of these opportunities may not be real or may not end well, especially the currently available opportunities in some of the unknown markets and states either in terms of real estate properties prices, or tax laws, or the political future therein or the future exit mechanisms.

The Euro Zone

It is noticeable now that we see a big shift among GGC investors heading to the Euro Zone because of the several advantages for investment there. European countries are considered the most developed in the world in terms of development, services, or roads. They are also very stable politically and security.

There are a number of premises that pushed investors to these regions, most important of which is the current low interest rate in addition to the low exchange rate of the Euro which guarantees achieving positive results for investors on the medium and long terms. This, however, should not be a reason for quite a large number of investors to decide hastily to invest in those states.

Thrust to Buy

Deputy Chairman of Blueprint Real Estate Investment Advisory, Meshal Almelhem, stated that there is a noticeable direction by Kuwaiti and Gulf investors in general to target real estate investment abroad. This orientation is similar to the policy adopted during the economic surge era describing the current thrust as hasty backed by the so-called “cattle policy”. This orientation included many unknown markets to investors.

Almelhem urged investors to be considerate and adequately aware to avoid falling victims to many companies seeking profits at the account of investors’ ignorance. He stressed the significance of knowing the nature of the real estate market in any country where he/she wants to invest, and familiarize himself/herself with the legal and taxation legislation in those states and the policies/mechanisms of exiting in the future.

Taxation System

He added: in some of these countries the taxation system on the real estate properties might poise a burden equal to the cost of buying the property itself. Besides, some of the recently liberated countries might still lack the political stability meaning that its real estate properties may be vulnerable to embezzlement, direct or indirect, and may even face forgery in deeds which eventually leads to the loss of investors’ money and savings.

Mr. Almelhem added: it is important that the investor should know the government’s ability in any state to apply law and protect the souls and properties, be acquainted with the investor’s rights and obligations towards the state or the city where they have ownership, the free ownership system or ownership through lease and the disciplined legal system in the state so as not to be faced with systems or regulations that may not suit him in future.

Almelhem advised investors to know the land/real estate property location which they want to purchase and the available infrastructure services or lack thereof.

No Opportunities

Almelhem divided current investors into various categories according to the financial capability of each investor. He pointed that due to lack of real investment opportunities in Kuwait, their scarcity in the GCC, and the lack of trust in the ME markets, investors currently head to European markets subject to the financial ability of the individuals and the psychological composure like the ones who used to live in Spain, France and Britain, which are considered economically stable (to some extent), though real estate prices there suit the medium category. What encouraged this is that some Kuwaiti banks offered credits to investors who want to buy real estate properties in these three countries in particular due to the stability of these markets.

Medium Income

As for the ordinary to the medium bracket, Almelhem stated that investors of this group went to markets of risky states like Georgia and Sarajevo besides Turkey, which is considered an emerging market economically and which has become one of the best options in Eastern Europe especially after it provided appropriate legislation that attracted a large number of investors.

Turkey, he said, is currently the first preferred destination to the Gulf investors both in volume and value. In other words, one property in UK equals in value three properties in Turkey whose price is KD 30,000 – 40,000 in the maximum.

Mr. Almelhem revealed some of the tricks adopted by some companies and some of the painful stories which occurred in Kuwait during the real estate surge years because of the cattle policy referred to earlier which was adopted then but which has been revived today. An example is when some citizens discovered that the real estate companies sold them graveyard lands in some countries though such lands cannot be registered. He added that some companies obtain a high commission rate that goes up to 45% in return for marketing some properties. As a result, this commission is carried by the customer who ignores the real value of the property in the state where he purchased the land. Mr. Melhem provided a third example that a real estate marketing company tricked the investor by promising 12% return in two years when he bought a property. He did not realize that he paid 24% additional percentage to the price he paid; this means that the 12% which he will get has been paid by him when he purchased the real estate property.

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