Feb 16 2013
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Demand supply gap closing fast
After a lull of close to five years, there are hints that Qatar's property market is looking up. The government's announcement of multi-billion dollar development projects has cheered the market, but people fear that house rents may zoom to the 2005-2006 levels -- a hike of 40 to 45 percent.
Asking price, a key indicator of the real estate market, has gone up by five to 10 percent in Doha and its suburbs. It is likely to shoot up further by the end of this year or by 2014, when Qatar's flagship development projects are expected to kick in, leading to a heavy influx of foreign workers and their families.
"Initially, the biggest pressure is going to be on the mid-segment residential villas. Until last October, a two-bedroom flat in Doha was available for something around QR4,000. The rentals have now gone up to QR5,000 to QR5,500", said the marketing executive of a local real estate company.
According to leading market players, the mid segment and the premium segment are showing varying trends. The asking price in the mid segment has gone up by five to 10 percent, but the premium segment is stable. This sector is not expecting a hike in rentals in the short term.
Hit by a huge demand-supply gap, Qatar's property market has had considerable overhang since 2009. But 2012 saw a 20 percent increase in transaction volume and 35 percent growth in value terms, said Jed Wolfe, Managing Director, Asteco Qatar.
"Currently, the premium market is stable. We are seeing more and more people coming in every quarter. But there is enough supply matching the demand. But with major projects expected to kick in by the third quarter of this year, we expect a surge in the inflow of expatriates and we forecast a little more than 10 percent of growth in rents in the premium segment of villas," said Wolfe
In the commercial segment, there is still a lot of space available, and the market is expected to be more stable. "We do not expect any hike in rents in the commercial space, at least this year," Wolfe said.
Currently, 800,000 square metres of commercial space is available in Doha. This is expected to cross a million square metres in the coming years. Demand in the West Bay area has increased by 17 percent, according to the latest market data.
Call it market manipulation, if you like: Self-styled real estate brokers, mainly of Asian nationalities, who are active in the mid-range housing segment, say property owners have frozen leasing of a huge number of villas in Doha to inflate the rents. Investors expect an influx of expatriate workers by the middle of this year, and rentals are projected to go up 20 to 25 percent from the current levels. They believe it is wise to retain vacant space and wait for a few months to lease it out at higher prices. The trend is increasingly putting pressure on the demand side in Doha.
A ban on subletting is another factor influencing the housing market. Until recently, Qatar's housing market, especially the mid-range segment, was controlled by middlemen. They used to lease property from the owners and then sublet it to the tenants. The new market trend is that the owners are increasingly weeding out middlemen and doing business directly with the tenants. With middlemen out of the market, there is a disconnect between potential tenants and the owners. Rather unfamiliar with market nuances, property developers in the housing sector are demanding whimsical rents.
Boosting the market sentiment, manpower companies are really bullish. After several dull months, many of them are in the process of massive recruitment. "We were, in fact, expecting orders from our clients some six months ago. Bu we were told to hold on as many of the projects were in the planning stage. Now, with the 'go ahead' order, the recruitment process is fast progressing in different Asian countries", said Vinod Mathew, a manpower company executive. According to him, Qatar will witness a massive inflow of foreign workers by the end of this year.
Qatar's growing population is a key indicator of market pressure on the demand side of the housing market. According to Qatar Statistics Authority (QSA), the country's population will increase by nine percent each year, resulting in a population of around four million in 2022. Considering that nearly 129,000 newly-recruited foreign workers arrived in the country in 2012, and the influx is expected to continue as more development projects are launched, the pressure on housing is bound to grow, sending rents soaring.
Banks heavily exposed
The post-Doha Asian Games market wobbled badly after being hit by the global financial crisis, resulting in a 25 percent slump in sales. Rentals, both in the commercial and housing markets, took an immediate plunge of 12.7 percent, and fell by as much as 49 percent in 2009. Qatar's property market had to wait until the last quarter of 2011 to recover, albeit minimally. The market fundamentals were so shaky that banks were wary of funding real estate projects.
Banks in Qatar remain heavily exposed to the real estate sector. By the end of the third quarter of 2012, or last September, for instance, credit dispensed by banks to this sector amounted to a staggering QR81.62bn ($22.36bn), accounting for more than 15 percent of the total lending by the banking sector (QR481.33bn, or $131.87bn). Investment Bank SICO noted that 40 percent of the banks' private sector lending is to real estate developers and contractors.
The authorities are closely watching the market dynamics. Qatar Central Bank (QCB) recently launched a real estate index to monitor price movements in the market and stabilise it. Data show the index grew 19.7 percent in 2011 to 148.59 points. The index for land rose an incredible 33.7 percent to 137.89 points. The indices for residential properties and villas grew 14.3 percent and 12.4 percent, respectively. All the increases took place barely a year after December 2010, when Qatar won the right to host the 2022 football World Cup.
The index was quite low at 72.1 points in August 2006, when the country saw a huge inflow of foreigners and large-scale demolitions for beautification projects, leading to an acute housing shortage. It peaked at an unbelievable 192.2 points, suggesting that real estate prices rose more than 2.5 times after mid-2006. Then it dropped to almost 86 points in the aftermath of the 2008 global financial crisis, which hit the real estate sector worldwide. The QCB index shows a steady increase in real estate sale transactions over the past two years in Qatar.
© The Peninsula 2013
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