Equipment Leasing Insider

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1 Welcome to our newsletter Welcome to First Equilease's edition of the Equipment Leasing. In this issue of the newsletter, we focus on Kuwait s residential sector. The residential real estate sector, especially affordable housing, in Kuwait has always been a sticky issue with the long waiting period and ever increasing housing applications. Recently, the Kuwait government announced its plans to build 12,000 housing units every year till Which, if implemented on schedule, could drastically bring down the waiting period for houses. The housing challenge is further exacerbated by ever increasing land prices and the necessity to provide the required infrastructure for areas outside the city. Affordable housing has also been given special attention to help provide the families that are unable to afford housing. The ELFA monthly confidence index has risen in the 1 st 3 months of 2015, signaling higher confidence among the business owners. We are eager to hear your suggestions and feedbacks. If you would like to know more about any of the topics covered in the Newsletter, please feel free to get in touch with us. Best wishes, Mohammad Al-Qahtany Chairman & CEO, First Equilease

2 Table of Contents Foreword 1 Kuwait Residential Sector 3 Equipment Leasing and Finance Association Monthly Confidence Index 7 Latest from Global Equipment Leasing News 8 TRAC Lease 10 2

3 Market Analysis Kuwait Residential Sector Housing has always been an issue in Kuwait with the government caught between rising land prices and the commitment to provide Kuwaiti nationals with a house of their own. More than half of Kuwait s citizens are under the age of 25, and roughly 80% of young couples apply for state housing 1. Under Kuwaiti law, every Kuwaiti couple is entitled to a government house built on 400 square-metre plot or a 400 square-meter apartment. The choice of a plot of land comes with a KD.70,000 (USD210,000) long-term, interest-free loan. Opting instead to purchase a house or apartment of at least 360 square-metres in the open market comes with a KD. 70,000 long-term, interestfree loan. The problem has been that the groundwork for building required houses has not kept pace with the demand. An estimated 174,000 houses is required by 2020 which looks like a tall order given the predicament of space shortage. According to a report on affordable housing in the GCC by Kuwait Financial Centre (Markaz), the demand for total affordable housing (includes existing supply) in Kuwait is expected to reach 0.46 million units by Nevertheless, the government has committed itself to providing housing to its nationals. In a recent announcement made by the Public Authority of Housing Welfare (PAHW), it has committed to the implementation of a roadmap, which stipulates distribution of 12,000 housing units per year over 10 years, starting from March There are more than 109,122 housing applications that are pending; some of them go back as far as The National Assembly's Housing Committee has played a key role in amending some relevant laws relating to housing and some of its recent amendments include allocating sufficient number of land plots for building nearly 200,000 residential units, outlined as follows: 21,000 houses will be built in Al-Metlaa, 40,000 in Saad Al-Abdullah South City, 35,000 in Al-Khairan, 52,000 in Nawaf Al-Ahmad City, and 52,000 in Al-Sabriyah. In addition to this, the Kuwait Municipality s technical committee has also given approval for building Sabah Al-Ahmad Residential City which roughly covers a total area of 61.5 Kilometers and aims to build 25,000 housing units which will form 58% of the total area. In addition to the above the Kuwait Awqaf Public Foundation (KAPF) has announced the launch of low income housing projects which are aimed at families that cannot afford to buy housing. 1 LSE Right to Housing in Kuwait 3

4 Figure 1: Increasing Urban Footprint of Kuwait Source: Kuwait Municipality, PAHW, LSE High rise apartment buildings in Kuwait have not seen much of a success. Al-Sawaber Complex, one of only two built projects of this new type to date was a multi-storied residential building with the promise of no waiting time but ultimately failed to garner much support. The trend of high rise apartments failed to catch on and as a result, the housing shortage problem still remains. 4

5 Figure 2: Housing Demand vs Supply in Kuwait Source: PAHW, LSE Sabah Al Ahmad - Future City Project Sabah Al Ahmad Future City, located north of Kuwait, is a 35 million sqm community comprising of universities, schools, hospitals, residential units, commercial buildings and associated infrastructure such as roads, sewage, water, electrical and telecommunications networks. The development will comprise a total of 11,000 residential units over an area of 40 sq km that will house more than 110,000 people. The project, which is split into five separate sectors, includes more than 45 schools, 70 mosques, a football stadium and 15 hospitals. The project is expected to be completed by October

6 Top Residential Projects in Kuwait Project Name Kuwait PAHW - Sabah Al Ahmad Future City Kuwait PAHW - Mutlah Residential City Kuwait PAHW - Al Subiyah Residential City Primary Sub- Sector Region Project Value ($ Mn) Completion Date Development Al Ahmadi 27,000 Oct 2015 Development Al Assimah 16, Development Al Subiyah 14, Kuwait PAHW - Khiran Residential City Residential Al Ahmadi 14, Kuwait PAHW - North Mutla Residential City Development Al Assimah 14, Kuwait PAHW - Kuwait City 6,000 Housing Units Development Al Assimah 2, Kuwait PAHW - Sabah Al Ahmad Future City - Dahiya A Development Al Ahmadi 922 Jul 2015 Tamdeen Group - Al Khiran Commercial and Residential Complex Commercial Al Ahmadi 700 NA Kuwait PAHW - Sabah Al Ahmad Future City - Dahiya A4, A5 Development Al Ahmadi 452 Q KOC - Ahmadi Hospital and Residences Healthcare Al Ahmadi 306 Q Kuwait PAHW - North West Sulaibikhat Residential City Residential Al Assimah 274 Mar 2015 Kuwait PAHW - Jaber Al Ahmad City - N1 & N3 Residential Unknown 205 Q Kuwait PAHW - North West Sulaibikhat Residential City Apartments Package Residential Al Assimah 130 Mar 2015 Kuwait PAHW - Sabah Al Ahmad Future City - Dahiya E Residential Al Ahmadi 127 Oct 2015 KOC - South Ahmadi New Houses Residential Al Ahmadi Kuwait PAHW - North West Sulaibikhat Residential City Houses Package Residential Al Assimah 11 Mar 2015 Kuwait PAHW - Abu Halifa Housing Project Other Al Assimah 7 Q Kuwait Finance House - Residential Tower Residential Al Assimah NA NA Kuwait PAHW - 170,000 Low Cost Housing Units Residential Al Jahra NA 2020 Source: Zawya 6

7 Trends Equipment Leasing and Finance Association Monthly Confidence Index The Equipment Leasing and Finance Association (ELFA) Monthly Confidence Index is one of the most widely known index which is used by industry leaders worldwide to gauge the business confidence. The Equipment Leasing and Finance Association is the trade association representing financial services companies and manufacturers in the $827 Bln U.S. equipment finance sector. Figure 2: ELFA Monthly Confidence Index Source ELFA The ELFA monthly confidence index has been on the rise during the 1 st 3 months of The index, which ended in February at 66.3, has managed to increase by 8% during March 2015 to reach When asked to assess their business conditions over the next four months, 50% of survey respondents said they believe business conditions will improve over the next four months, up from 30.3% in February. Around 41% of survey respondents believe demand for leases and loans to fund capital expenditures (Capex) will increase over the next four months, down from 42.4% in February. Around 58% believe demand will "remain the same" during the same four-month time period, up from 51.5% the previous month. None believe demand will decline, down from 6.1% in February. 7

8 Latest from Global Equipment Leasing News Boom time for Saudi earthmoving equipment market Saudi Arabia is fast becoming a major market for earth moving equipment manufacturers, thanks to the ongoing construction and infrastructure development activities in the kingdom, said a report. The earth moving equipment market in Saudi Arabia is poised to grow at a compound annual growth rate (CAGR) of 9.2 % over the next six years, according to a study by 6wresearch. Growing civil construction market, mining industry and coupled with rise in spending on construction of public infrastructures have boosted Saudi Arabia s Earthmoving Equipment market. Kuwait's Aayan seeks rescheduling of $586.7 mln debt Kuwait investment firm Aayan Leasing and Investment has asked creditors to reschedule its remaining debts worth KD.176 million (USD 587 million), according to the chairman of the company. Like many investment companies in the Arabian Gulf State, Aayan was hit hard by 2008 global financial crisis which cut access to funding markets and meant short-term debt used during the boom times to acquire assets such as real estate, private equity and shares could not be refinanced. This forced Aayan to restructure part of its debt burden, which helped reduce its obligations from KD.333 million in 2012 to KD. 176 million currently. Novus Aviation Capital closes purchase and lease back transaction with Emirates Airline for five Boeing B ERs Novus Aviation Capital has successfully closed the purchase and leaseback for five Boeing B ERs with Emirates Airline. The transactions were closed between February and March "We are very pleased to enter into this landmark leasing transaction with Emirates Airline. Such large underwritings for a single airline within short periods of time are precisely the type of transactions we can add value to and constitute an integral element in sustaining our competitive advantage. With continuous traffic growth, airlines are rapidly expanding their aircraft fleet which in turn is spurring demand for large leasing and financing solutions within shorter timeframes, especially in the Middle East and Asia. Novus recognizes this and we have designed our business model to absorb these large transactions spanning multiple aircraft," said Hani Kuzbari, Managing Director at Novus. 8

9 Byrne group Diversified General Rental Company in GCC Headquartered in Dubai, UAE, Byrne Equipment Rental was established more than 20 years ago and has grown to one of the largest general rental companies in the Middle East. It has 450 employees and 13 offices and rental depots in UAE, Qatar, Oman, and the Kingdom of Saudi Arabia. The company offers a wide range of equipment for rental from temporary multi-use buildings to generators, compressors, lighting towers, welding machines, material handling equipment, power washers, puomps, air dryers and much more. In March 2014, the company was 75% acquired by Saudi Arabian car leasing and rental company Hanco from Havenvest Private Equity Middle East and HSBC Bank Middle East for US$163 million ( 144 million). The Venture Capital Bank acquired the remaining 25% of the company. The deal included Byrne s sister division, Spacemaker, a portable accommodation manufacturing and sales business. 9

10 Educational TRAC Lease (Terminal Rental Adjustment Clause) TRAC lease is one of the most popular avenues to acquire commercial equipment. Over 80% of businesses take advantage of leasing to reduce the expensive upfront costs of purchasing equipment as well as creating a trade cycle to ensure they are acquiring the most technically advanced equipment on the market. A TRAC lease gives the purchaser the option to buy the vehicle at a predetermined value at the end of the lease or to trade up to new equipment. What is a TRAC lease and how does it work? TRAC value lease is a true lease for tax purposes, meaning the Lessor, owns the equipment for tax purposes, depreciates the equipment, and passes a portion of the tax depreciation to the customer (Lessee) in the form of a lower payment. At the end of a TRAC Lease the lessee has several options. Pay the TRAC amount and the lessee owns the vehicle/equipment. Lessor will finance the TRAC amount Use the TRAC amount value as a trade in on a new vehicle/equipment Return the vehicle/equipment to Lessor and: o Lessor will sell the vehicle: If the sale price is more than the TRAC amount, Lessor will pay the difference to the lessee. If the sale price is less than the TRAC amount, the lessee will pay the difference to Lessor. A TRAC lease can be considered an operating lease or a capitalized lease on your financial statements so you can consider this as an off balance sheet financing. TRAC lease payments can be completely expensed, an advantage that most companies realize with leasing as opposed to financing their equipment. 10

11 About First Equilease We were established in 2005 as a Kuwaiti closed shareholding company. We aspire to be the market's first choice in equipment leasing in the Middle East, recognized for the innovative trend-setting solutions, Client-centric approach, ethical standards, and dedicated towards the sustainability of our community and the environment. P.O.Box 23444, Safat 13095, Kuwait Tel. : (965) Fax : (965) [email protected] Url : FirstEquilease CopyRight FIRST EQUILEASE 2014 All rights Reserved 11