Concrete City

Qatar

Economic News

22 Jul 2010
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While Qatar's real estate and construction boom continues at breakneck pace, the perennial problem of shortages in building materials was given another airing this week, as building-sector leaders and the government tried to deal with a dwindling amount of cement, steel and gravel. At the same time though, analysts were generally unanimous in predicting a rosy future for real estate in the country, despite complaints from many residents over rocketing rents and prices.



This week, Abdulla Mohammed al-Zamil, chief operating officer of the Saudi-based Zamil Industrial Investment Company (ZIIC) - a major investor in Qatar - spoke out on the shortages issue. He told Qatari newspaper The Peninsula that even though most of the region's cement factories were expanding production, there were still worries that current shortages would continue.



In addition, he said, the region was facing a shortage of other vital building materials, such as steel, copper and aluminium.



This seems in one way hardly surprising given the enormous amount of construction work currently underway in the region - and in Qatar. By 2007, if all goes according to plan, Doha will have been radically transformed by new building. Some 150 tower blocks are set to crowd the city's shoreline along the corniche, all with a minimum requirement of 15 floors.



Some 60 towers have already been given the go-ahead in the West Bay area, with a 54-storey tower the highest on the books so far. If these projects are not underway by a 2007 deadline, the government will buy the land and then look for new investors.



That is still a date some way off, but many in the sector are concerned that shortages in materials are delaying work. These worries were the subject of a new government initiative recently, under which a series of studies is to be undertaken into pricing in the building supplies market.



The daily al-Sharq reported September 19 that the Ministry of Economy and Commerce is gearing up as a result of these studies to intervene in the market. This will likely take the form of retail price controls on cement, steel and gravel.



Under a law passed back in 1972, the ministry does have the power to make such interventions if it decides there is a need to regulate the market - and it has indeed done so in the past. Underscoring its current deliberations on this is the suspicion that some retailers might be either hoarding materials or overpricing them - or both.



This is widely denied by retailers, who point instead to global problems in supply and the shortages they experience too in their orders from the cement factories.



However, many see the current difficulties as likely to be short-lived. New cement plants are being established rapidly, while existing ones are being expanded. Saudi Arabia, for example, will see around 1m tonnes of extra capacity come on stream by the end of the year, al-Zamil told The Peninsula, expecting that this would not only ease supply problems in Saudi, but elsewhere as well.



Meanwhile, the towers of new Doha keep rising. "The Qatari market is very promising," added al-Zamil, "and there are many professional contractors and consultants that we can deal with [there]. In addition, there is the industrial sector, particularly the gas sector in general, which we have been serving for many years now and we think we can add value in this market."



There is therefore an expectation that the office towers, hotels and complexes aimed at the Asian Games currently being constructed are only the start of what can be done - and what profits can be made.



"The country's earnings are constantly going up," Gulf Housing and Construction Company General Manager John Kennedy told Qatar Today in its September issue. "The appetite for real estate will only grow. At present the most expensive piece of commercial land costs about QR600-800 [around $165-220] per sq foot. In Dubai it is about Dhs4000 [around $1089]."



Yet there is also in the short term a continuing shortage of housing - partly caused by the demolition of older buildings to make way for new ones - coupled with an influx of higher income earners. The result has been a major upward pressure on prices, with some apartment holders experiencing six-monthly rent increases.



The danger here is that such increases will add to inflation, a point the Ministry of Economy and Commerce recently highlighted in a warning against unnecessary rent hikes. Keeping prices here under control is also a concern to the government, as the whole strategy of building Qatar as a regional rival to places such as Dubai relies on the country being price competitive. Overexploit the shortages and demand may go elsewhere.



However, most sector insiders see this as also a temporary blip, with a market correction in rents likely soon. When many of the building projects currently underway complete, Doha will see little shortage of real estate, analysts argue. Tenants might see things in a less long-term fashion though, as such a correction is unlikely within the next couple of years, if it depends on new building activity coming on stream.



Whatever the case, while the long-term prospects look good, in the short term, shortages - particularly in building materials - do need to be acted upon. Many hope the ministry will be able to sort this out soon - along with a helping hand from the cement producers and retailers.

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