Plunging house prices in Qatar
Maria de Guzman | October 04, 2018
The crisis in Qatar has caused a dramatic decline in housing prices and costs. The country´s diplomatic rift with fellow Gulf nations caused the real estate price index to fall by 16.65% during the year to end-Q2 2018, according to the Qatar Central Bank (QCB). When adjusted for inflation, the price decline was 16.77%. During the latest quarter, real estate prices fell by 6.8% (-6.5% inflation-adjusted). Rents have also fallen across the board.
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.
Too many completions, though permits are down
The market isn´t being helped by an unprecedented high flow of completions. The consulting firm ValuStrat predicts a potential oversupply of 50,000 residential units in Qatar by 2020. In 2018, ValuStrat projects completions of around 12,800 housing units, up from 2017´s estimated total new supply of 6,625 units.
True, the number of residential building permits was down by 18.2% y-o-y to 162 units in June 2018, according to the Ministry of Development Planning and Statistics. Villas account for around 46% of all new residential building permits issued, followed by houses (45%), other types (6%), and apartment buildings (3%).
The municipality of Rayyan issued the most number of building permits in June 2018, at 28% of the total issued permits. Doha came in second place, with a 24% share, followed by the municipalities of Al Wakrah (22%), Al Da´ayen (13%), Umm Slal (4%), Al Khor (4%), and Al Sheehaniya (4%).
In the long term the housing market slowdown is not expected to last, given the country’s rapid population growth of around 7% per annum in the 10-year period up to September 2017, according to DTZ Research.
"Future demand for residential property will be driven by population increases. It is anticipated that the majority of the population increase in the coming years will be generated by expatriates in the service industry, as construction projects complete," according to DTZ Research.
DTZ also expects that there will be a rise in demand for ´affordable´ residential properties due to the expected boom in the service sector as the 2022 FIFA World Cup comes near.
At The Pearl-Qatar, a QAR36.4 billion (US$10 billion) Riviera-style development located on the coast of Doha, second-hand freehold apartments are currently priced from QAR 9,000 (US$ 2,473) to QAR11,000 (US$ 3,022) per square metre (sq. m.), with newly built apartments priced from QAR12,000 (US$ 3,297) to QAR16,000 (US$ 4,396) per sq. m., according to DTZ Qatar.
Moderate to good rental yields; rental price correction continues
Gross rental yields for residential properties in Qatar range from 4.3% for villas to 6% for apartments, according to leading consulting firm, ValuStrat.
Rents of prime residential properties stopped rising in 2016, and softened in 2017 by between 10% to 15%, according to DTZ Research.
"The influx of supply continues to put downward pressure on rents in residential and commercial sectors," says Banach of MRICS-ValuStrat Qatar. "In the short term, due to projected expansion in supply, both sectors may continue to incur market corrections. "
About 59% of all occupied housing units in Qatar are rented, according to QSA. The average expat household in Qatar spends more than a third of its annual income on rent, according to Colliers International.
Prime apartment rents, 2017:
- One-bedroom apartments rent for around QAR 9500 (US$ 2,610) per month.
- Two-bedroom apartments rent for around QAR 12,500 (US$ 3,434) per month.
- Three-bedroom apartments rent for around QAR 15,000 (US$ 4,121) per month.
Interest rates and the mortgage market
Qatar Central Bank has kept its overnight lending rate unchanged at 5% as of June 2018. During the same period the overnight deposit rate was increased from 1.75% to 2%, while the repo rate was unchanged at 2.5%.
In 2017, the amount of real estate loans outstanding, which include land purchases, property developments, and residential and commercial buildings, increased by 13.24% y-o-y to almost QAR 148 billion (US$ 40.59 billion). The size of Qatar’s mortgage market is estimated at 15% to 25% of GDP.
Foreigners can buy in 3 massive freehold areas:
The Pearl is a QAR36.4 billion (US$10 billion) Riviera-style development, on a vast man-made island off the coast of Doha, the capital city. It provides over 40 kilometres of new coastline, linked to the mainland by a 4-lane, palm-tree lined highway. Doha’s international airport is only 20 km away. It was here that Qatar offered its first freehold properties.
Developed by the United Development Company, The Pearl-Qatar has 16,000 villas and 25,000 apartments.
West Bay Lagoon
West Bay Lagoon is a 2 million sq. m. private beachfront compound, centred on the Zigzag Towers. At the northern tip of Doha’s West Bay district, it is surrounded by artificial lagoons.
Barwa - Al Khor City
The Barwa - Al Khor project is a complete city, including seafront chalets, villas and elite apartments, covering 5.5 million sq. m. in Al Khor, 57 km north of Doha. The QAR30 billion (US$8.24 billion) Barwa Real Estate development will house 63,000 residents in 24,114 elite residential units. It also has hotels and sports facilities.
There are also 18 leasehold areas for foreigners
Foreigners can alternatively buy leasehold property for 99 years, renewable, in 18 designated areas, including the multi-billion dollar Lusail project, under Cabinet Decision No. 6 of February 2006. Foreigners can use the properties commercially or residentially, transfer the lease to another party, and sublet or rent.
Lusail City is an QAR164 billion (US$45 billion) waterfront community on the northern coast of Umm Salal, 15 km north of Doha. It is expected to house over 200,000 residents in 10 hotels, 3,000 villas, 12,000 apartments and retail areas.
Developed by Qatari Diar, Lusail will cover an area of around 21 million sq. m. This mega project, in 16 zones, will contain an Energy City costing QAR9.5 billion (US$2.6 billion), and an Entertainment City, costing QAR5.5 billion (US$1.5 billion). The Lusail Iconic Stadium is also expected to be built in the city. The massive development is planned to be completed by 2020.
Another mixed use development project is Al Waab City, owned by Nasser Bin Khaled Group, which covers about 1.2 million sq. m. Incorporating “green strategies” and sustainable design principles, it is estimated to cost QAR13 billion (US$3.6 billion). The development includes 2,411 residential units, 232,715 sq. m. of commercial space, and a 425 room hotel complex.
Another notable development is Asia Towers, which will have four 55-storey towers near West Bay. Each tower will contain about 1,600 residential apartments. Developed by Ezdan Real Estate Company, it is estimated to cost QAR2.5 billion (US$686 million).
Other leasehold property developments in Qatar:
- Musheireb (Area #13)
- Frij Abdul Aziz (Area #14)
- Doha Jadeed (Area #15)
- Ghanem Al Qadeem (Area #16)
- Al Rifa Al Hitmi (Area #17)
- Al Salata (Area #18)
- Bin Mahmoud (Area #22)
- Bin Mahmoud (Area #23)
- Rawdat Al Khail (Area #24)
- Al Mansoura & Bin Dirham (Area #25)
- Najma (Area #26)
- Umm Ghuwailina (Area #27)
- Al Khulaifat (north and south) (Area #28)
- Al Sadd (Area #38)
- New Mirqab & Al Nasser (Area #39)
- Doha International airport (Area #48)
- Al Dafna & Onaiza & Al Qitar (Area #60 & 61 & 63)
- Al Kharaij & Jebel Thiya (Area #69 & 70)
Slower economic growth in 2017 amid blockade
In 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.
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