Qatar: The cost of growth

The booming gas-rich emirate of Qatar has, for several years, suffered from a scarcity of residential and commercial real estate. Problems have been caused by the rapid influx of expatriates and the resulting huge rise in population. Qatari Statistics Authority figures show the population grew by 18% in the first half of 2008 to 1.45 million people, of which some 1.1 million are men.

The population boom has placed huge demands on existing properties, while at the same time Doha has lost much of its crumbling low-cost inner city housing stock, which had catered for lower paid expatriates.

Some observers had hoped that the situation would improve following the December 2006 Asian Games – which had attracted many specialist employees to Doha – but this does not seem to have been the case. Instead, rents continued upwards.

Inflation remains a huge and sensitive issue for Qatar. According to Moody’s Investors Service: “The most important short-term challenge [for the economy] is inflation, which is undermining competitiveness, creating economic distortions and could raise social tensions. Inflation is being exacerbated by very strong growth in government expenditure and the currency peg to a weak dollar.”

The latest figures showed inflation increasing to 14.75% by the end of March this year. According to real estate consultancy DTZ, real estate costs increased 25.9% in 2006, the latest year for which data is available. “One of the current biggest threats to the country is the inflationary state of the economy,” DTZ said in a recent market report. “However, we consider this to be expected given the rapid growth Qatar is currently witnessing.”

Construction obstacles

Problems are exacerbated by shortages in construction materials and construction cost inflation. In June, Qatar said it would tackle inflation by freezing the price of steel and cement for three years. “Contractors can now work without having fears about any price rise in construction materials, namely steel, cement and sand,” said prime minister Sheikh Hamad Bin Jassim Bin Jabr Al Thani. “Any future price rises of such materials in the global market will be borne by the state during the three-year freeze.”

Doha observers contacted for this report said that Qatar’s residential property market was still at an immature stage of its development. According to DTZ: “There has been a large increase in supply recently in all residential sectors. This increase has not been substantial enough to meet the rapid rise in demand, which has led to rental and capital inflation over the past three years in excess of 30% per year.”

While most real estate is owned by Qataris, the government moved several years ago to allow foreigners in on the act. In June 2004, laws were amended to allow non-Gulf

Co-operation Council (GCC) nationals to lease property for 99-year periods (usufruct tenure) in 18 areas across Doha. Foreigners can buy freehold property in three freehold zones. West Bay Lagoon, The Pearl development and Al Khor resort fall under these zones, but not the huge Lusail development.

Mixed-use developments

Lusail is Qatar’s largest development scheme, backed by Qatari Diar Real Estate Investment Company, which is fully owned by the Qatari government. Lusail is comprised of a number of residential, commercial and recreational sub-districts with a total site are of approximately 145 million square feet (sq ft). Estimates forecast a potential population in excess of 220,000 people by 2017.

The development is to be based around several new districts, including the Marina district, a mixed-use area of buildings on the sea front, to include residential apartment blocks and a large shopping mall. There are also plans to create an entertainment hub consisting of water and theme parks and hotels. Energy City Qatar (business park) is based within Lusail. The mixed-use Fox Hills district sold out within four hours of being launched.

Lusail Towers district will include four towers – reportedly being designed by Norman Foster – and, according to DTZ, the proposed golf course resort at Lusail has been bought by Bahraini investment bank Arcapita. These are in the masterplanning process.

Key developments

Other key development areas in Doha are the new diplomatic district (one of the 18 usufruct zones) which comprises high-rise towers (commercial offices, hotels and residential apartment blocks). According to DTZ, the only development within the diplomatic area that has offered units to purchase is in the under-construction Dubai Towers Doha (backed by the Dubai government-owned developer Sama Dubai).

The first two phases of the tower sold out in three to six months, setting record pricing levels of QR2056- QR4953 ($565 to $1360) per sq ft. Most towers within the diplomatic district have been developed by rich Qataris and then rented out.

West Bay Lagoon (WBL) is another prominent and popular district, occupied by a mixture of senior expatriate executives and rich locals. Again, most property at WBL is owned by locals.

The Gate is another mixed-use project that will offer retail, commercial, entertainment and leisure facilities. The developer is the Salam Bounian Development Company, which is majority owned by a prominent Palestinian/Qatari family. The Gate will offer a reported 592,000 sq ft of office space and 258,333 sq ft of retail and entertainment space.

Market adjustments

One developer speaking out about Doha’s spiralling property prices is prominent Qatari businesswoman Sheikha Hanadi Nasser Bin Khalid Al Thani, who says the market is undergoing adjustments, not necessarily in terms of prices, but rather in terms of quality. “We see unrealistic prices, and I think the market will undergo a correction of this kind, but it would focus on quality rather than prices,” she says.

Sheikha Hanadi runs the Al Waab Development Company with her brother Sheikh Nawaf. This is behind the $12.9bn Al Waab City, described by its promoters as a “community with a heart”. The 1.5 million sq ft Al Waab site is located in Doha’s southern suburbs, bordering the major Salwa road, and away from the flashier developments near West Bay – such as Lusail.

DTZ notes that “Al Waab is not generally considered as a high-end prime residential district”. This is something that Al Waab’s planners appear to recognise. A senior Al Waab official told fDi a year ago: “The West Bay area will be more in line with a financial district, and thus we will not be competition. We are located in the centre of the city, and the fact that Al Waab’s residential area is close to the commercial area will attract those people who like to live close to work… the largest schools in Doha are located across the street.”

Tower power

Doha has plans for its main business district in the West Bay area to include 180 towers by 2013 – more than twice the current number. Experts are confident the demand is there. DTZ Qatar director Edd Brookes says: “According to our supply and demand forecasts over the next five years, vacancy rates will rise [to about] 14% in 2011/12 and then fall [to about] 7% by 2014.

“Currently, tenants do not have the choice to determine between a range of possible properties.”

Doha currently suffers from a significant imbalance between supply and demand, with availability dwindling and demand spiralling regardless of location, terms and other externalities. “Naturally this imbalance in the marketplace is fuelling an increase in the market rate landlords are seeking for office accommodation,” says DTZ.

Such is the demand that rents for prime locations are reaching QR20.50 per sq ft per month, with rents in the first quarter hitting QR23.36 per sq ft per month. “Most new properties are quoting QR26.36 to QR30.84 per sq ft per month. These figures are exclusive of service charge for shell and core accommodation,” reports DTZ.

The company forecasts that an additional 2.8 million sq ft of office accommodation will be made available to lease before the end of 2008, with another 2.4 million sq ft in 2009 – an increase of approximately 75% on existing supply.

Other business areas are focused on Doha’s Grand Hamad Avenue, where banks and the Doha Stock Exchange can be found. Government offices are centred on the Corniche, and there is also a commercial district along Doha’s C and D ring roads, with prime rents in this area reaching QR18.69 to QR23.36 per sq ft per month. The new Energy City development – aimed at international energy companies – at Lusail will provide about 8.2 million sq ft by 2013.

Shopping around

Retail is a sector that has done very well in Doha, with shopping malls tapping the economic boom. Some 10.7million sq ft of retail space is expected by 2010 (up from about 5.1 million sq ft at the moment).

“Demand for retail space in prestigious developments has historically been strong… Villagio Mall achieved full occupancy one year prior to completion, while leasing managers at The Pearl have confirmed a buoyant pre-letting market,” said Colliers International in a recent report.

Colliers notes that Dubai’s malls derive 55% of revenues from tourists versus fewer than 20% in Doha. Qatar’s major malls include City Center Doha (opened in 2001 with overall space of 3.2 million sq ft) and the new Villagio (total built-up area of 1.5 million sq ft). Future developments are The Pearl’s Porto Arabia, which will provide some 968,000 sq ft of retail accommodation.