Rental Woes


Economic News

22 Jul 2010
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As Qatar's economy continues to grow at an astounding rate, the real estate market is current playing catch-up as it tries to address a lag in supply. This gap has unfortunately opened the door to opportunism by landlords in some cases, but the situation is not expected to last as new projects are launched to close the difference over the next few years.

The construction and real estate market in Qatar has given rise to a forest of concrete that is testament to the opportunity and wealth that the peninsula state enjoys. Doha's West Bay area is eventually to be populated by around 150 towers, each with a prescribed minimum height of 15 floors. The Doha municipality has given landowners a deadline of 2007 to start work, or the government will re-purchase the land and sell it to a suitable investor who will fulfil the planners' dreams. With 60 towers already approved, the biggest is Qatar's tallest yet, at 54 storeys.

It's not just West Bay that will be graced with new bricks and mortar either. A look at the total number of building permits issued since 1999 shows an upward trend across the country.

In 1999, the number of permits granted was 1506. Over three years of growth in 2000, 2001 and 2002 the figure moved to 1620, 1724 and 1874 respectively. A fall in 2003 to 1653 mirrored the investment climate around the Gulf as potential investors awaited the outcome of the US-led invasion of Iraq. Yet 2004 has seen investors full of confidence, and over 1000 permits had been granted by the end of the first six months; some hope that the figure will break the 2000 milestone by the end of the year.

The West Bay project is the first phase of a larger government master plan. Other areas will soon be hosting groundbreaking ceremonies of their own, but the planning and zoning regulations also require some replacement of existing buildings. Hence, as the greenfield sites in West Bay rise like bread in an oven, other parts of town are being changed in a phased manner, as property developers consider making the most of their land and re-building.

The telltale statistic for this activity is the rising number of demolition permits. This has mirrored the rise in construction permits, up from 186 in 2000 to 213 in 2001, 251 in 2002 and 396 in 2003. The first half of 2004 saw 268 demolition permits issued, with the end-of-year total expected to exceed all previous periods.

However, there are sceptical voices too behind the rattle of jackhammers. There is a worry that the scope and range of development will not be met with enough demand for the new developments to be profitable when completed. Others say the demand is there, and point to the extraordinary rises that have occurred in the cost of land, property and rentals. Prices in prime residential areas have shot as high as QR300 ($82.50) per sq foot, nearly double the price of 2002. Other prime residential areas, such as that around the Khalifa stadium, have also risen rapidly; land for villa compound developments in the area are four-times the price they were back in 2000.

Rental prices have been the most widespread gripe in Doha recently - apart from amongst landlords of course. Commercial property rents are between QR40 ($11) and QR60 ($16.50) per sq foot per month compared to their 2000 level of QR25 ($6.90) to QR30 ($8.25). But the real concern is residential rentals, as the rising number of white-collar workers coming to Doha has meant there is in fact a shortage of residential property to house them. Ironically enough, a large number of these expatriates arriving each month are those working on constructing the new developments around the city.

The hikes in rental costs are not all driven by excess demand, as some would hope though. Opportunism by landlords is blamed for exacerbating the problem. Concerns that the increases could adversely affect the economy more generally have also come to the fore and provoked the Ministry of Economy and Commerce to issue a notice against indiscriminate rent hikes. The knock-on effects, of course, affect inflation figures adversely and skew macro-indicators. Whilst some blame a weakening dollar for the 2003 rise in the Consumer Price Index (CPI) to 2.3% from 0.2% in 2002, a closer analysis of the CPI shows that the rent, fuels and energy component of the basket rose 18%. In a country that harbours some of the world's largest natural gas reserves, it is hard to make out that fuel and energy were the culprits.

The effects could however be self-limiting, whilst affecting the economy adversely in a more indirect way. As the country attempts to attract regional service industries, there is concern that the cost of property and rent will deter potential investors who consider these factors before setting up shop. Along with taxes, these costs are key competitive factors that are currently higher than some of Qatar's regional competitors.

The expectation is that the market will correct itself, but not perhaps before more opportunistic rent hikes. The amount of expenditure on infrastructure has created a solid base for the new developments that will be coming on line in the next few years.

"It won't calm for a couple of years," explains Mohamad Moabi, executive manager of economics and planning at Qatar National Bank (QNB). "By 2007, a lot of the infrastructure will be nearly completed or be well on the way to completion. There's so much related to the Asian Games in 2006; the other element is the energy sector, which has also created the demand that will [absorb] the new capacity that becomes available."

After the games it is anticipated that thousands of new housing units will be available as companies associated with the event move away. This will allow rental prices to adjust.

In the short term, however, there's still room for opportunism. The hope is that prices won't turn away the tenants who are to satisfy the supply in a few years time - leaving new developments high and dry.

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