Sustainability of Mortgage Financing

Kuwait’s real estate sector is entering a new and exceptional phase, following the Cabinet’s approval of a draft law decree concerning housing support entitlements. This legislation is a continuation of Law No. 118 of 2023, amended by Law No. 89 of 2025, and serves as a cornerstone in addressing the financial gaps that have long posed significant challenges, undermining the sustainability of housing finance at various stages.

The spark for recognizing this challenge dates back to 1975, when the government identified an impending financial strain due to rising housing demand against uncertainty regarding the ability to sustain financing for these homes. With the initial distribution of Al-Qarin areas, this financial challenge manifested as the state’s inability to maintain such funding, leading to a halt in housing financing for several years up to the present, due to the lack of a sustainable alternative solution. Despite numerous studies, legislative amendments, and the adoption of experiences from neighboring and foreign countries to improve state-provided housing financing methods, the financial challenge remained intertwined with the housing issue, causing accumulated housing requests to exceed 100,000 applications, driven by both financial and technical constraints.

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Today, with the enactment of this law, which reorganizes the resolution of the housing issue and offers new hope for its settlement, the Kuwait Credit Bank serves as the guarantor and supervisor, while commercial banks act as the primary financiers. This arrangement ensures the continuity of housing financing. The provisions of the published law clarify that the role of the Kuwait Credit Bank has shifted to become the contracting party with housing support beneficiaries, financing them through commercial banks, and it is responsible for paying the interest on these loans.

The law consists of 15 articles detailing the operational mechanism with precision. Article 4 permits the combination of subsidized and non-subsidized financing according to regulations set by the Central Bank of Kuwait. Under this framework, beneficiaries must repay the principal amount in both cases, plus interest on the non-subsidized portion. Meanwhile, the Ministry of Finance covers the interest on the subsidized portion from the General Reserve Account and pays it directly to the Kuwait Credit Bank. This arrangement grants the Kuwait Credit Bank the status of the state’s agent before financing banks, ensuring the repayment of the remaining balance in case of beneficiary default, secured by a mortgage lien on the property.

A key feature of the law is the reduction of the repayment period, which previously reached a maximum of 700 months (approximately 58 years) for a monthly installment of 100 dinars. It is now capped at 300 months, with a minimum monthly installment of 233 dinars for the subsidized loan amounting to 70,000 dinars. This change enhances the ability to recover funds and provides stability for banks to continue their financing operations.

Previously, the Kuwait Credit Bank’s suspension of financing for several years was due to low repayment amounts resulting from extended installment periods, which also reduced its financing capacity. Furthermore, the bank was formerly known as the Loan and Savings Bank, meaning it handled both financing and savings/investment activities, providing it with substantial investment power to fund housing support beneficiaries. However, this savings and investment system was abolished in 1995, leaving current investment resources extremely limited and insufficient to meet the ongoing high volume of housing requests.

A major challenge remains regarding average salaries in Kuwait, particularly since the average salary is 1,400 Kuwaiti dinars. If we consider the lowest installment, which is 233 dinars, it represents 16.64% of the salary. This exceeds the previous statutory limit of 10% of the salary, which applied before the new law and did not account for other installments or non-subsidized loan requests. This constitutes a new challenge for most housing benefit recipients, as their installments will increase by approximately 7%.

The law also addresses cases of default, granting a grace and extension period of up to five years. During this period, the housing applicant bears the accrued interest, under the management of the Kuwait Credit Bank. If default persists, the Kuwait Credit Bank’s role shifts to mortgaging the property, and it becomes responsible for settling the remaining debt with the financing banks.

The sustainability of financing is also linked to the state’s long-term commitment to supporting this obligation, as well as to the borrower’s ability to meet monthly installments throughout the loan term. This law marks a milestone in Kuwait’s real estate history, with its core objective being the sustainability of real estate financing. However, a clear concern and challenge remain: the sustainability of financing versus the sustainability of repayment. While the law ensures a continuous financial flow to banks through the Kuwait Credit Bank, the question persists regarding whether a large segment of housing benefit recipients can absorb this increase in installments without the financial solution becoming a serious burden on Kuwaiti families.

Researcher and Real Estate Consultant