Qatar's housing market remains weak
Lalaine C. Delmendo | November 24, 2020
The nationwide real estate price index plunged 9.77% during the year to Q2 2020, in contrast to a y-o-y rise of 1.42% in Q2 2019, according to the Qatar Central Bank (QCB). However in real terms, real estate prices increased 1.97%, as the country continues to suffer from negative inflation.
Quarter-on-quarter, prices were down 1.92% in Q2 2020 (-0.31% inflation-adjusted).
Based on the ValuStrat Price Index, the average residential property price in Qatar was QAR 7,731 (US$) per square meter (sq. m) in Q2 2020, down 1.4% q-o-q and by 4.1% y-o-y. By property type:
- Apartments: the average price was QAR 11,152 (US$3,063) per sq. m in Q2 2020, down by 2.3% from the previous quarter and by 6% from a year ago
- Villas: the average price stood at QAR 6,052 (US$1,662) per sq. m, down 1.2% q-o-q and 3.6% y-o-y.
“Amongst freehold apartments, Lusail witnessed the highest fall in capital values followed by West Bay Lagoon and The Pearl,” said ValuStrat.
Qatari real estate had previously boomed for three glorious years, fuelled by rapid population growth and a construction boom in preparation for the 2022 FIFA World Cup:
- In 2013, the real estate price index surged 20.74% (16.45% inflation-adjusted).
- In 2014, the real estate price index soared by 34.67% (31.81% inflation-adjusted).
- In 2015, real estate prices rose by 14.39% (10.75% inflation-adjusted).
However in 2016, the housing market slowed sharply, with the value of real estate transactions plunging by about 50%, and prices falling by 4% (-5.15% inflation-adjusted). Real estate prices fell a further 9.9% (-10.4% inflation-adjusted) in 2017, by 2.6% (-2.4% inflation-adjusted) in 2018 and by another 8.1% (0.6% inflation-adjusted) in 2019, as Saudi Arabia's hostility adversely affected Qatar's economy.
Qatar's housing market is expected to continue to struggle during the remainder of the year, as the COVID-19 pandemic is aggravating the crisis in the region. The Qatari economy is projected to decline by 4.5% this year, following a miniscule growth of 0.8% in 2019, according to the International Monetary Fund (IMF).
In October 2020, the Qatari government loosens its foreign property ownership rules further, in an effort to attract more expatriates, foreign buyers, as well as real estate funds.
The new law will include two important changes:
- Increase the number of locations where non-Qataris can purchase real estate outright
- Introduce a two-tiered residency program that rewards large investors with government-provided services
Foreign investors who buy a property valued above US$ 1 million will be eligible for permanent residency, which comes with government benefits such as education and health care (previously limited to Qatari citizens and long-time permanent residents). With the new law, a semi-permanent residency status is now open to buyers of property worth US$200,000, who can obtain renewable residency permits for themselves and their families without the need to be sponsored by an employer.
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.
Qatari economy continues to struggle
The Qatari economy expanded by a meager 0.8% in 2019, down from the prior year’s 1.2% growth and from annual average growth of 3.8% during 2012-16, according to the International Monetary Fund (IMF). In fact, this was 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 17.5% in 2008, 13.1% in 2009, 17.7% in 2010, and 11.3% 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 economy contracted by 1.5% in 2017, its worst performance since 1991 and the first decline in 24 years. 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.
In a surprise move in December 2018, Qatar ended its nearly 60-year membership of the Organisation of the Petroleum Exporting Countries (OPEC) – the oil cartel dominated by Saudi Arabia.
Now the COVID-19 outbreak is aggravating the crisis in the region. Recently, the IMF revised down its 2020 economic forecast for Qatar, projecting a contraction of 4.5%, instead of the earlier estimate of -4.3%.
Qatar’s merchandise trade balance surplus plunged 61% to QAR 15.5 billion (US$ 4.26 billion) in Q2 2020 from a year earlier, according to Planning & Statistics Authority. Total exports plummeted by 42.8% y-o-y to QAR 37.8 billion (US$ 10.38 billion) in Q2 2020 while imports dropped 15.2% to QAR 22.3 billion (US$ 6.12 billion).
From 2017 to 2019, Qatar had one of the highest current account balances as a percentage of GDP in the region ranging from 3.8% to 8.7%.
In 2019, the country saw a budget surplus of 0.9% of GDP, following a surplus of 2.2% of GDP in 2018 and deficits of 6.6% of GDP in 2017, 9.2% in 2016 and 0.7% in 2015, according to the Qatar Central Bank (QCB). However the country is expected to return to a deficit, estimated at 5.9% of GDP, as hydrocarbon revenues plunge due to collapsing energy prices, according to Fitch Solutions.
In 2019, external debt amounted to QAR 196 billion (US$ 53.8 billion), up 25.6% from a year earlier, according to QCB. As percent of GDP, Qatar’s government gross debt increased to 56.2%, sharply up from 46.5% in the previous year, based on figures from the IMF. Debt is expected to rise further to about 68.1% of GDP in 2020, mainly due to pandemic-related measures.
In August 2020, inflation stood at -2.97%, the 23rd consecutive month of falling consumer prices, according to the MDPS.
Unemployment was 0.1% in 2019, unchanged from a year ago and the lowest level in the Middle East, according to the MDPS. Qatar’s highest-ever unemployment rate was 3.9%, seen in December 2011. This year, the jobless rate is projected to rise to 0.4% due to the pandemic.