Plunging house prices in Qatar
October 04, 2018
In contrast to the downward trend of real estate prices, transaction volumes actually rose by 16.4% y-o-y in Q2 2018, according to the consulting firm ValuStrat. Most sales came from Al Daayen (24.5%), Doha (22.7%), and Al Rayyan (21%).
"...Affordability has become pervasive across all real estate sectors in Qatar... On the residential front, developers are offering high-quality apartments at competitive rents to try and secure deals," says Pawel Banach, general manager for MRICS-ValuStrat Qatar.
Qatari real estate had previously boomed for three glorious years, fuelled by rapid population growth and a construction boom in preparation for the 2022 FIFA World Cup:
- In 2013, the real estate price index surged 20.74% (16.45% inflation-adjusted).
- In 2014, the real estate price index soared by 34.67% (31.81% inflation-adjusted).
- In 2015, real estate prices rose by 14.39% (10.75% inflation-adjusted).
However in 2016, the housing market slowed sharply, with the value of real estate transactions plunging by about 50%. Real estate prices fell by 4% (-5.15% inflation-adjusted). In 2017 real estate prices fell a further 9.94% (-10.44% inflation-adjusted). 2018 has been even worse, as owners realise that Saudi Arabia's hostility isn't letting up, and Qatar's economy is suffering.
Foreigners are allowed to obtain freehold ownership in specific areas in Qatar: The Pearl, West Bay Lagoon, and Al Khor.
Foreigners who buy in any of these areas are automatically granted residency, which extends to the owner's family, for the whole duration of the ownership.
In August 2017, a draft law was approved that grants permanent residency to qualified expats. Those qualified include:
- children of Qatari mothers who are married to foreigners;
- people with special talents "needed by the state";
- other individuals who extended notable services to the country.
However, citizenship will still be off-limits to foreigners.
Permanent residents of Qatar will be treated like Qatari nationals and enjoy benefits such as access to healthcare and education systems, priority (after locals) for military and civilian public jobs, and will have permission to operate commercial activities without a local partner, and permission to own a property. Three-fourths of Qatar's population are foreigners, according to the Qatar Statistics Authority (QSA). About 82% of the population lives in Doha and Al Rayyan.
Qatar National Bank (QNB), the country's leading financial institution, offers home and land financing at rates as low as 4.35%. The maximum loan offered to expatriates is QAR3 million (US$824,200) with a term of not more than 15 years. One can borrow up to 70% of the value of the property.
Yields in Qatar are excellent at around 12%
Qatar rentals have tripled in the past six years. Yields are now excellent. “A landlord who has just bought a new five bedroom house for QAR1.8 million (US$494,105), a good quality house, is renting it out at QAR18,000 (US$4,941) per month,” says Parry. This rental translates into a annual gross yield of 12%.
Rentals of QAR25,000 - QAR40,000 (US$6,863- US$10,980) are more usual houses in West Bay, an upscale residential district. Then there is West Bay Lagoon, which is even more expensive.
“There is a very limited supply of condominiums at the moment, only 2-3 buildings,” says Parry. “All that will change when the Peal of the Gulf comes on stream in the Q1 of 2008.”
Income tax ranges from moderate to high in Qatar
Rental Income: Rental income is considered a business income and taxed at a flat rate of 10%.
Capital Gains: Capital gains derived from business activities are taxed at a flat rate of 10%. Otherwise, capital gains are not taxable.
Inheritance: There is no inheritance tax in Qatar.
Residents: Resident individuals are not subject to tax on their income and capital gains, provided that these are not derived from business activities. Business income and capital gains are taxed at a flat rate of 10%.
Transaction costs are very low in Qatar
Transfer fee is levied at 0.25% of the property value. Other costs when buying property are very minimal, such as authentication fees of documents. It takes around 13 days to complete the process of registering a property.
The laws are mildly pro-tenant
b>Rent: Under Law No. 4 of 2006 in effect from February 2006 to February 2008, annual rent increase is limited to 10%. The implementation of the rent cap is widely expected to be extended.
Tenant Security: There are in theory only three reasons the landlord can give to force his tenant to leave: non-payment of rent, moving in of close family, and to demolish the property. However, there are reports that this law is often not observed, and that landlords are using fictitious demolition plans to squeeze their tenants out.
Slower economic growth in 2017 amid blockadeIn 2017, Qatar's economy expanded by only 1.6%, according to the Ministry of Development Planning and Statistics (MDPS), down from earlier expansions of 2.1% in 2016, 3.7% in 2015, 4% in 2014, and 4.4% in 2013. This is far behind Qatar's economic performance during the mid-2000s, when its economy grew by an average of 16.5% annually from 2004 to 2011. Qatar even performed well despite the global crisis, with double digit growth rates of 17.7% in 2008, 12% in 2009, 18.1% in 2010, and 13.4% in 2011.
The economic blockade to Qatar in early June 2017 made by several countries including Saudi Arabia, United Arab Emirates, Bahrain, and Egypt, has severely hit Qatar's economy. The participating Arab nations cited Qatar's support for Islamist groups, violating a 2014 agreement with the members of the Gulf Cooperation Council (GCC), as one of the main reasons for the blockade. Qatar was also criticized by its neighbours for its amicable relations with Iran.
The four Arab nations issued a list of 13 demands on June 22, 2017, which includes curbing diplomatic ties with Iran and shutting down Al-Jazeera. Qatar refused to comply, stating that it will not agree to measures that threaten its sovereignty.
Yet Qatar's economy has come through the diplomatic crisis despite reduced trade with its neighbours, rebounding in the third quarter of 2017, according to the Qatar Central Bank (QCB). Other factors boosted the economy in 2017, noted QCB, such as "sustained strengthening of the global economic recovery, significant rise in oil prices, continued accommodative monetary policies in advanced economies, and a buoyant global financial markets".
Qatar's economy is projected to grow by 2.6% in 2018, and by 2.7% in 2019, according to the International Monetary Fund (IMF). The Qatar National Bank (QNB) sees a slightly higher economic growth rate of 2.8% in 2018, up from the bank's earlier forecast of 2.5%. The QNB cited three factors for the upward revision of the forecast:
- QNB's higher projection for oil prices, which was recently increased from US$ 55 per barrel to US$ 63 per barrel;
- an expected sharper rebound in hydrocarbon output; and
- the blockade's economic impact has been lower than expected.
The country's budget deficit stood at 5.8% of GDP in 2017, lower than the previous year's deficit of 9.2% of GDP, according to the Qatar Central Bank (QCB). Qatar, which operated in a budget surplus for more than a decade, had its first budget deficit in 15 years registering a deficit of 0.9% of GDP in 2015.
In 2017, Qatar's external debt fell to 88% of GDP, from 110.9% in 2016, 73.8% in 2015, and 48.6% in 2014, according to the IMF.
In July 2018, inflation stood at 0.2%, unchanged from the same period last year, according to the MDPS.
In Q1 2018, unemployment was 0.1%, the lowest in the Middle East, according to the MDPS. Qatar’s highest-ever unemployment rate was 3.9%, seen in December 2011.