Qatar's real estate market shows signs of recovery

 

Although Qatar’s real estate sector is still experiencing the effects of the trade embargo imposed by some regional neighbours in 2017 as well as cyclical oil prices, the sector has begun to rebound, buoyed by continued government efforts to mitigate the economic consequences. The drop in oil prices in early 2020 amid the Covid-19 pandemic has affected economies worldwide, but the long-term prospects for the sector are positive. Rents have become more competitive regionally, attracting businesses and prompting a shift to higher-quality, lower-cost developments. As 2022 FIFA World Cup infrastructure projects reach competition, prices are set to increase in a number of Doha’s bustling neighbourhoods.

Structure & Oversight

The real estate sector in Qatar is largely overseen by government institutions, including local municipalities and the Ministry of Justice (MoJ), which has a leading regulatory role as well as being responsible for registering property transactions. In October 2018 the MoJ signed a memorandum of understanding with the UK’s Royal Institution of Chartered Surveyors, a professional body that promotes global best practices in the industry, to improve market transparency and investor confidence by regulating the real estate sector in accordance with international standards.

There have recently been several legislative and regulatory reforms aimed at strengthening the real estate market. In May 2019 the Cabinet approved a new draft law covering the regulation of real estate development and proposed expanding the companies and entities permitted to participate in tenders, auctions, practices, competitions and direct agreements. The new draft law replaces Law No. 6 of 2014, which stated only insurance companies and banks were permitted to participate in these agreements.

In January 2020 the Ministry of Municipality and Environment simplified the processes for obtaining building permits and construction certificates, turning them into a single online application. These updates were put into effect in early February 2020.

In March 2019 Law No. 16 of 2018 was implemented, increasing the number of freehold zones in which non-Qataris can purchase real estate from three to 10. In addition to designated areas such as The Pearl, West Bay Lagoon and Al Khor Resort, foreigners are now allowed freehold ownership in Rawdat Al Jahaniyah, Al Qassar, Al Dafna, Onaiza, Al Wasail, Al Khraij and Jabal Theyleeb.

Although foreigners remain unable to obtain Qatari citizenship, the purchase of real estate with a minimum value of QR728,000 ($200,000) in any freehold zone automatically grants permanent residency to both buyers and their families. An additional measure to entice foreign investment saw visa rules altered to allow homebuyers to obtain real estate visas, letting them live in the country without sponsorship. According to Mazen Alsbeti, chief business development officer at general contracting company Power International Holding, this liberalisation of visa laws is encouraging non-Qatari real estate investment in a number of areas, particularly in the freehold zones of West Bay Lagoon, Onaiza and the recently developed Lusail City.

Size & Performance

Real estate activity peaked in 2017 with a total value of QR38.3m ($10.5m). Following the establishment of the blockade and a dip in oil prices, in 2018 there was a significant decline in the value of real estate activity. Total real estate activity fell from QR10m ($2.7m) in the fourth quarter of 2017 to QR9.4m ($2.6m) in the first quarter of 2018 – a quarter-on-quarter decrease of 5.6%.

According to local media, in 2019 the country’s real estate sector saw deals valued at more than QR22.8bn ($6.3bn). In the first quarter of 2019 the sector saw some 1065 transactions totalling QR5.1bn ($1.4bn), while in the second quarter transactions were valued at around QR5.7bn ($1.6bn) from 930 transactions. In the third quarter of 2019 the sector slowed somewhat, with 823 transactions totalling QR4.5bn ($1.3bn); however, this turned around in the last quarter of the year, which saw a high in terms of value with 934 deals accounting for QR7.1bn ($2bn). According to the Planning and Statistics Authority (PSA), December 2019 saw deals worth QR1.58bn ($433.7m), compared to QR1.55bn ($425.4m) in November of that year. This monthon-month growth of around 2% indicates that slow but steady improvement may be anticipated for 2020. The highest transaction prices were seen in The Pearl, Salah Al Jadidah, Lusail and Abu Hamour.

Individual property sales have fared less well in recent years. The real estate price index, which lists property sales registered with the Ministry of Interior, rose by 16.5% and 34.7% in 2013 and 2014, respectively. October 2015 marked an all-time high of 311.5 points on the index, according to the Qatar Central Bank’s “Financial Stability Review”. Since 2016 the industry has slowed and the real estate price index has subsequently declined. At the end of 2018 the index stood at 246.14 and after briefly rising to 250.74 during the first quarter of 2019, declined to 225.76 in December of that year.

According to Mohamad Al Ishaq, rental and real estate manager at management consulting company KBM Group, the fall in prices is not a cause for concern and is part of a healthy rebalancing that has made Qatar’s real estate more competitive regionally and has attracted foreign investors. “Over the last few years land prices in particular have fallen by between 10% and 40%, which means that people are buying and building again,” Al Ishaq told OBG.

Major Developments

Commercial and residential stock continue to increase in the wake of a number of ongoing developments, the largest of which is Lusail City, located along the northern coast of Umm Salal, north of Doha. Developed by Qatari Diar, the real estate wing of the Qatar Investment Authority (QIA), Lusail covers an area of around 38 sq km. In addition to the 80,000-seat Lusail Stadium, which will host the opening and closing ceremonies of the 2022 FIFA World Cup, the new city is home to 10 hotels, 3000 villas, and 12,000 apartments and retail areas, and will accommodate approximately 200,000 permanent residents.

Lusail City is not the only mixed-use development under way. Al Waab City, owned by Nasser Bin Khaled Group, covers around 1.2m sq metres and is estimated to cost QR13bn ($3.6bn). Built with a focus on environmental sustainability, the development contains 2411 residential units, 232,700 sq metres of commercial space and a 425-room hotel complex. Other notable developments in the pipeline are Asia Towers, Al Sadd and Msheireb Downtown Doha. Developed by Msheireb Properties, a subsidiary of Qatar Foundation, the Msheirib Downtown Doha project was completed in 2019 and is considered the first fully sustainable regeneration project in Qatar. Meanwhile, the first phase of the Hamad International Airport extension, which will increase its annual capacity to 53m passengers by 2022, is also nearing completion. The extension, whose second phase will increase annual capacity to 60m passengers, is expected to drive growth in the hospitality sector (see Tourism & Sport chapter).

Other developments that look likely to have a positive impact on the real estate market include Qatar Rail services like the Doha Metro, which opened in 2019, and the Lusail Light Rail network, scheduled to launch in 2020. Real estate developments in areas served by Doha Metro’s 37 stations will benefit from greater connectivity between residential, commercial and leisure districts. Tenant demand in these areas is expected to increase, putting positive pressure on occupancy rates and rental prices.

Residential

Residential rents followed a general downward trend in the years after 2015 – due to oversupply as falling oil prices resulted in a high rate of expatriate layoffs. Rents continued to drop in the first quarter of 2019, and in the second quarter of the year the median monthly cost for apartments fell by 5.4% year-on-year (y-o-y), and 1.1% quarter-on-quarter (q-o-q). Villa rents, meanwhile, declined by 7.1% y-o-y and 4% q-o-q. Towards the end of 2019, however, the market began to stabilise. Nonetheless, the large supply of residential stock means there is unlikely to be a quick return to rental growth that is comparable with pre-2015 rates.

Lower rental prices mean that people are increasingly relocating to higher-quality apartments in better locations. “Because of this, we are seeing rising demand in areas like The Pearl and Lusail as affordable new properties come on to the market,” Ed Brookes, senior director Middle East and general manager at Cushman & Wakefield Qatar, told OBG. Apartment supply is predominantly made up of studios and one-bedroom apartments, which in areas like The Pearl could be rented for around QR8500 ($2333) per month as of mid-2019. Over the same period, rent for two- and three-bedroom apartments in The Pearl averaged QR10,500 ($2882) and QR12,500 ($3431), respectively. Developers are building fewer large apartments, which could also act to drive up rent. In 2019 occupancy rates of villas increased, and according to Cushman & Wakefield, some high-end compounds have waiting lists. The higher occupancy rates and lower available supply could cause rent prices to increase.

Law No. 16 of 2018, which extends the number of freehold zones in which non-Qataris can buy real estate, stands to expand the potential market for residential sales. “Its implementation will give non-Qatari investors the opportunity to purchase apartments in Lusail on a freehold title, where previously only usufruct was available,” Alsbeti told OBG.

Commercial

Demand for offices in Doha dropped following the downturn in 2016, as private companies consolidated or downsized their office space. This put downward pressure on rents, a trend which kept up in 2019 as vacancy rates continued to rise.

At the same time, commercial property stock has grown significantly. “At the end of the 2018 there was about 2m sq metres of office space in Doha,” Brookes told OBG. “By the end of 2019 that increased to 2.4m sq metres,” he said. According to Cushman & Wakefield, Qatar has a total of around 4.8m sq metres of purpose-built office space, 45% of which is located in West Bay and Lusail. In 2019 some 120,000 sq metres of new grade-A office space came onto the market in Lusail, driving up the vacancy rate across West Bay and the Marina District. Cushman & Wakefield predicts that total office space will rise to around 5.8m sq metres by 2022.

Nevertheless, there is cause for quiet optimism. A number of oil companies have downsized office accommodation and there has been rising demand for office space from companies in the IT and technology sectors, though this demand is typically for smaller office units. According to Brookes, new hydrocarbons projects should reinvigorate demand from the oil and gas sector. Now that they have been included in the government’s expansion of freehold zones as part of Law No. 16 of 2018, prime office districts such as Lusail and West Bay may attract more foreign investors. According to Alsbeti, in the past office buildings have tended to be held by a single owner, but the introduction of foreign buyers may lead to the sale of smaller individual units.

Hospitality

Tourism also experienced losses as a result of the 2017 blockade; however, there are indications that the sector may be on an upward swing due to a number of measures taken to mitigate the effects of the blockade. The Qatari government has worked to open up immigration, extending visas on arrival to 89 nationalities. This has helped to drive an increase in tourist numbers. Qatar welcomed 1.2m visitors in the first seven months of 2019, representing a 10.7% increase over the same period in 2018.

Lower prices contributed to the positive occupancy trends. According to the PSA, between mid-2018 and mid-2019 there was a 5% decrease in the average daily rate, from QR297 ($81.52) to approximately QR377 ($103.48). As a result of the higher occupancy and despite lower daily rates, in 2019 there was consistently higher revenue per available room. “Due to the anticipated rise in visitors as well as a fall in room rates, it is projected that occupancy rates will continue to increase across all hotel categories in the country,” Alsbeti told OBG. “Occupancy rates in hotels increased to 65% in the fourth quarter of 2019,” he added.

Retail

As of early 2020 there was around 1.4m sq metres of retail space across 21 purpose-built malls, an increase of roughly 120% since 2018, largely due to the opening of Mall of Qatar and Doha Festival City in Umm Salal. With around 700,000 sq metres of retail accommodation due to be released by 2022, Brookes told OBG the market is likely to see increased pressure on occupancy levels. Indeed, recent years have shown a drop in occupancy and footfall rates, and landlords responded to this falling occupancy by introducing tenant incentives throughout 2019, such as waiving service charges or turnover rents.

Although retail property has historically been the strongest real estate subsector, rents have trended downwards – though this has happened a lesser extent than for residential and commercial properties. “This is most likely because rental contracts are longer,” Brookes told OBG. “A lot of these contracts are coming up for renewal in 2020, so we might see softening as the new rents reflect a market that has a large amount of retail space,” he said. Retail sales in the country were sluggish in the years following the blockade, largely due to high-spending expatriates leaving the country amid falling oil prices and subsequent job losses. There was a short-lived resurgence in 2018, but this did not continue in 2019.

Nonetheless, retail continues to be an area of focus, and a number of new malls are set to be completed in 2020, including Doha Mall, North Gate Mall, La Galleria and Doha Souq. Place Vendôme, a new mall in Lusail City, is attracting many luxury brands, which are relocating from existing establishments. “In terms of retail offerings, not all malls are created equal,” Sean Kelly, project director at Place Vendôme, told OBG. “Some malls are big enough to offer the full spectrum of retail, from value to luxury, with a significant entertainment component, while others are more offer- or catchment-driven, and cater to a different segment of the market.”

Mortgage & Housing Finance

In terms of housing finance, before 2010 the mortgage market was equivalent to less than 10% of GDP. This rose quickly, however, to reach 24.3% of GDP in 2017. While in 2018 it fell slightly to approximately 21.4%, the trend remains generally positive.

Although data on mortgage penetration remains somewhat scarce, in 2011 it was around 20.4%, according to a report from the World Bank. This is in line with the regional average, and significantly higher than some countries such as Bahrain and Saudi Arabia. According to the Qatar Central Bank’s current laws on mortgage lending, expatriate borrowers’ mortgage repayments cannot exceed 50% of their monthly salary. Qatar Islamic Bank and Qatar National Bank require expatriates to have a minimum monthly income of at least QR10,000 ($2745) and QR15,000 ($4117), respectively. Meanwhile, banks usually require non-residents to provide a deposit of at least 30% of the total amount in order to obtain a mortgage. In addition, current laws prevent mortgage terms of more than 20 years.

In line with the growing number of green developments, in 2019 Doha Bank introduced the first green mortgage for homes that are certified as energy efficient. These mortgages generally offer lower rates, waived management fees, complimentary fire insurance and a free credit card.

Outlook

The real estate market in Qatar saw a boom between 2013 and 2017, and after some turbulence in recent years, has begun a period of recovery, with 2019 reflecting stabilisation. As developers continue to fulfil requirements for the 2022 FIFA World Cup, the real estate pipeline is likely to reach its peak between 2020 and 2022, after which new supply will fall back to earlier levels.

There are promising signs of fresh demand, driven in part by greater affordability which will absorb the new supply and allow the sector to return to higher growth. While new hydrocarbons projects are expected to reinvigorate the economy, the effect that Covid-19 will have on the country’s real estate industry remains to be seen as of early April 2020.

Investment in tourism projects and the launch of a number of Qatar Rail services also bode well for the hospitality and residential segments in the coming years. Furthermore, the opening up of the market to foreign nationals will increase Qatar’s competitiveness as a regional centre for businesses and buyers. It will also contribute to long-term demand for properties and encourage a drive towards sustainability.

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