Kuwait’s New Housing Regulation: Shifting the Paradigm of Residential Development

Introduction:

On 20 August 2023, the Public Authority for Housing Welfare(“PAHW”) promulgated the new law no. 118 of 2023 regarding the Incorporation of Companies for the Construction of Economic Development of Cities or Residential Areas (the “New Housing Law”). This was followed by the Ministerial decree no 138 of 2023 issuing the executive regulation of the New Housing Law (“Executive Regulation”).

This law is enacted in response to the increasing demands forhousing, which is considered a fundamental right for Kuwaiti citizens which preserves the family as the society’s foundational unit. Kuwait’s economic dependence on oil posed serious challenges to the State’s ability to continue providing decent housing. According to Kuwait’s housing regulations, eligible Kuwaiti nationals are entitled to be granted a residential plot and an interest-free loan equal to seventy thousand Kuwaiti Dinarfor the construction of its house.

The New Housing Law aims at boosting the private sector’s role in urban development. Through establishing a scheme of public private partnership (“PPP”), the New Housing Law permits the private sector to contribute to the development of new cities and residential areas after this role had been carried out by the State.

The New Housing Law includes forty articles divided over six chapters. Below are the main features of the New Housing Law.

 

Nature of the Projects:

The New Housing Law applies to projects developed over residential plots. This includes developing an entire residential city or only a residential area. A Residential City is defined as an urban community established in accordance with the provisions the New Housing Law by a project company on lands allocated to PAHW, including residential areas and lands not allocated for housing welfare. A Residential Area is an area designated for the establishment of residential units for housing applicants and nationals.

At least thirty percent (30%) of the total area of the organizational plan approved by PAHW shall be developed as a pure residential area. Article 11 of the New Housing Law sets 400 square meters as the minimum plot size of each residential plot or developed residential unit. Developed residential areas will be used to cater for the needs of eligible citizens as set out in law no. 47 of 1993 on Housing Welfare, whereas any surplus units may be offered for sale to the wider population in accordance with the priority established under article 15 of the New Housing Law. To prevent concentration of ownership of housing units and plots, sale of  such units and plots is limited to natural persons and citizens are only entitled to purchase one housing unit only.

Projects developed under the New Housing Law may include commercial use facilities over non-residential areas. These areasmay be developed and managed by the project company.

 

Public-Private Partnerships for Urban Planning and Development:

A main feature of the New Housing Law is that it allows the private sector to develop residential projects over residential plots. While PAHW’s Investment Regulation permits PAHW to tender PPP projects for the development of non-residential areas, the New Housing Law extends PAHW’s ability to tender PPP projects for residential areas.

According to article 2 of the New Housing Law, PAHW may form shareholding companies to establish integrated residential cities or one or more residential areas on the land plots allocated to it. Project companies are formed in accordance with the provisions of the Companies Law No. 1 of 2016. The project companies should develop these projects in accordance with the best practices of urban development for smart and sustainable cities.

For projects of value exceeding 250 million Kuwaiti Dinars, PAHW will form a public shareholding company to act as the project company. The shares of the project company will be allocated as follows:

A percentage not less than 25% and not exceeding 50% for eligible Kuwaiti nationals;
A percentage not less than 6% and not exceeding 24% for the PAHW and other government entities eligible for owning shares;
A percentage not less than 26% and not exceeding 49 %or the successful investor.

Investors eligible to bid for projects tendered under the New Housing Law must be a legal person, whether a joint stock company listed on the stock exchange, a consortium of local and foreign companies, either of them, or specialized non-Kuwaiti companies without a local agent that have an entity in Kuwait through the Direct Investment Promotion Authority, and whose qualifications are approved by PAHW’s Board of Directors.Further qualification requirements may be included in the tender documents of each project.

Whereas the New Housing Law is void of any provisions related to the financing of the projects or the security packages available to the project company, article 2 requires the articles of association to be compliant with the provisions of Islamic Sharia.

PAHW may subscribe in the shares allocated to the public entities on behalf of them. PAHW also subscribes in the shares allocated to Kuwaiti citizens until the project reaches commercial operation.

 

Role of Project company in Project Development:

The project company formed pursuant to the provisions of this law will enter into a PPP agreement with PAHW. It will beentrusted with developing the entire infrastructure of cities or residential areas. Moreover, the project company may be granted a concession to operate and manage the non-residential areas of the project as well as the common areas of the residential plots for the term of the project, which may extend up to forty (40) years. PAHW may extend the investment term of a project for another ten (10) years in certain cases. Upon expiry of the project’s term, the project’s assets will be handed over to PAHW. The handed over project may then be directly managed by PAHW or any other public entity, or retendered as an investment opportunity through a public bid.

Subject to obtaining PAHW’s approval, investors may dispose, in whole or in part, of their shares after no less than three (3) years of the delivery of all residential units. The rest of the project company’s founders are not permitted to transfer theirshares until the company becomes listed on the stock exchange.

 

PAHW – A One-Stop Shop:

To facilitate the development of new cities and residential areas project, the New Housing Law empowers PAHW with  much independence in the implementation of the law. This is reflected in providing PHAW with several exceptions from other laws.

For instance, article 47 of the Executive Regulation authorizes PAHW to approve the maps and organization plan of each project. It is also authorized to approve traffic studies, infrastructure plans including the establishment of water network lines of all types (fresh and brackish), sewage networks, sewage treatment plants, rainwater drainage and storage networks, low-voltage communications and information technology networks, fiber optics, central cooling for suburbs, power and electricity generation sources and their main and subsidiary transformers, road lighting, city road network, or the internal and public residential area, industrial and landscape water bodies, commercial advertising, public cleaning, collection of fees thereof, and linking all those components with different parts of the city or residential area.

Furthermore, under article 31 of the New Housing Law, as an exception to Kuwait Law No. 33 of 2016 on Kuwait Municipality, PAHW shall, in coordination with Kuwait Municipality, approve land use ratios, organizational charts, building systems, and activities associated with all facilities located on the lands allocated to PAHW on which the projects will be built. PAHW is also responsible for issuing building permits. Imported construction materials for projects are exempted from customs duties during the construction of the project. The exempted materials and quantities are determined by PAHW’s decision.

Also, as an exception to the provisions of Kuwait Law No. 109of 2013 on the Establishment of the Public Authority for Manpower, PAHW has the authority to estimate the need for work permits for each project company. PAHW’s work pursuant to the New Housing Law is neither subject to the provisions of the Public Tenders Law No. 49 of 2016 nor to the ex-antesupervision of the State Audit Bureau. As a further exception from the Department of Legal Advice and Legislation’s authority, PAHW is responsible for handling all cases, appearing before all courts and arbitration bodies, or expressing legal opinions and conducting investigations related to the provisionsof the New Housing Law.

 

Off Plan Sales:

The New Housing Law permits off plan sales of the residential units under construction. The proceeds of the sale price instalments paid by the purchaser are deposited into an escrow account to be opened and operated by PAHW. Payments out of this account will be made to the project company in conjunction with the commencement and progress of the construction works in the project.

To protect the beneficiaries’ interests in the sold units, a new register will be established in the Real Estate Registration and Authentication Department called “Off Plan Sale Register”, whose organization and registration procedures shall be issued by a decision from the Minister of Justice.

 

Conclusion

The New Housing Law is an important step towards meeting the housing needs of Kuwaiti citizens. It fosters public private partnerships, allowing the private sector participation in the development of residential areas for the first time. This can result in developing more efficient and innovative residential projects by the private sector, in addition to benefiting from the private sector’s financing abilities.

The New Housing Law is expected to pave the way for changing the statutory framework for housing regulation in the State of Kuwait through enacting other long-awaited crucial laws in the area of residential real estate development. The success of this law rests upon the enactment of other important legislations that will facilitate the implementation of the New Housing Law including lease financing and other forms of financing ownership of real estate properties. In this sense, the New Housing Law may be viewed as a first step in shifting the paradigm of housing regulations in Kuwait.  

 

Written by: Dr. Ahmad Alshorbagy, Head of Projects and International Dispute Resolution, and Linda Al Hmoud, Senior Associate

Kuwait’s New Housing Regulation: Shifting the Paradigm of Residential Development Introduction: On 20 August 2023, the Public Authority for Housing Welfare(“PAHW”) promulgated the new law no. 118 of 2023 regarding the Incorporation of Companies for the Construction of Economic Development of Cities or Residential Areas (the “New Housing Law”). This was followed by the Ministerial […]