A sizeable cash injection into Kuwait's property sector from Kuwait Investment Authority (KIA) will provide a boost to shares in the country's biggest developers.
KIA will pump US$3.6 billion into the local commercial property market as the Gulf state's sovereign wealth fund looks to benefit from plunging prices. It is also an attempt to bolster the struggling sector, which has faced similar restructuring issues to Dubai's market.
Sales of Kuwaiti commercial and investment property, excluding residential, rose 114.5 per cent last year compared with 2009, according to a Reuters report, but analysts said the sector still remained under pressure and needed support.
"The commercial property sector is oversupplied and has been for a while," said Mostafa el Maghraby, a property analyst at Global Investment House in Kuwait. "This is definitely needed." Property stocks traded higher on the news, with Kuwait Real Estate Company an early riser on the Kuwaiti index as it climbed nearly 10 per cent. It ended 1.1 per cent higher at 445 fils.
Several other developers and construction companies also rose on expectations they will benefit from the support package. Mabanee, a manufacturer of pre-cast buildings and other construction work, advanced 1.4 per cent to 710 fils, while Acico Industries rose 3.1 per cent to 330 fils.
"Such huge liquidity in the real estate market will reflect positively on local investment and real estate firms, and the country's bourse as well," said Tawfiq al Jarrah, the chairman of Kuwait Real Estate Union. Mr al Jarrah said Kuwait's commercial property market comprised about 811,000 square metres, 55 per cent of which was occupied. But clarity is still needed as to how the cash injection will work.
"Injections of these kinds are always good, and Kuwait has the capacity to put money into areas that need it but it's not clear," said Mr el Maghraby. "Is it an investment decision or a support decision?"
KIA previously intervened in the local market during the financial crisis.
In 2008, Kuwait's government assigned KIA to set up a long-term portfolio in co-operation with other government institutions to invest in the Kuwait Stock Exchange.
* with Reuters