Avoiding a building boom and bust in Qatar

30 January 2011

Qatar’s real-estate sector has been buoyed by Doha’s World Cup success, but developers must be aware of the risk of creating accommodation oversupply once the tournament is over

Key fact

Qatar plans to more than double its stock of hotel rooms, from 45,000 to 99,530 by 2022

Source: MEED

The news that Qatar had secured the Fifa World Cup in 2022 was met with delight by landlords and developers in Doha. One prospective resident viewing a property on The Pearl was promptly informed that the QR1.4m ($384,400) asking price had been revised to QR1.6m.

[The village model] is more flexible in its use afterwards as it can be leased to residential users

Mark Proudly, DTZ

Property experts say renewed market confidence will inevitably lead to inflated prices over the coming months, but as the market fundamentals have not changed, this should correct itself in the longer term. General market sentiment before the win was that the worst was over and prices had begun to level out following the downturn of 2009-10. This, coupled with strong population growth forecasts of 3-4 per cent a year, was bringing confidence back to the market.

“Our view is that the market is starting to stabilise and reach a point where better quality accommodation is still leasing, with secondary and tertiary space more difficult to rent out,” says Mark Proudly, Qatar-based associate director of property consultant DTZ.

Property deflation in Qatar

Stratification in the market has been a side effect of new developments that have created high-quality office space and luxury residential properties. Tenants are getting better quality premises at lower prices and are abandoning less salubrious offices and villas for new builds. But the sheer volume of properties that have become available in the past two years has exceeded demand.

The metro, and transport projects in general, would really benefit [from a PPP arrangement]

Abrahim Akkawi, Ernst & Young

According to the Qatar Central Bank, property deflation was the single biggest driver for the inflationary drop in 2009. In its financial stability report published in October, it stated: “During 2009, the inflation was -4.9 per cent, after peaking at 15.2 per cent in 2008. The principal driver of the deflation is the real-estate sector, where the rents have fallen steeply. Given the volume of new housing supply expected to come on stream, the real-estate sector is expected to remain weak, which is likely to dampen the overall inflationary outlook.”

This creates an interesting conundrum for the Qatar 2022 Committee and the government-backed developers instrumental in providing the additional accommodation capacity required for hosting one of the biggest events in the world. Accommodation is needed for all 32 teams, along with a minimum of 60,000 hotel rooms for visiting fans. But this must be provided in a way that reduces the risk of flooding the market with hotel rooms. “A key challenge is what to do with the accommodation after the event. Compared to demand now, there could be a huge oversupply,” says Proudly.

For the visiting teams, the accommodation model typically used for a World Cup consists of a hotel paired with a training site. These pairings are for the exclusive use of each team, and although the Qatari bid says it can provide this solution (12 of these hotels are yet to be built), it also proposes another idea to Fifa. It has introduced the idea of ‘village clusters’, where two villages would each house 16 clusters of luxury housing and training facilities. The idea comes from the Olympic Village model and has been well received by Fifa. The football authority called the idea innovative, but highlights that it relies on several key assumptions to succeed. These are that teams like the idea, the cooling systems at the training sites are effective and the grass is of high quality.

Experts say that in terms of its legacy, the village model has more potential for long-term use and mitigates some of the risk of flooding the market with hotel space post-2022. “This is perhaps a better idea as it is more flexible in its use afterwards as it can be leased to residential users,” says Proudly.

Floating hotels in Qatar

In terms of hotel rooms, the bid team intends to far exceed the Fifa minimum requirement. It plans to expand the current 45,000 capacity to 99,530 – more than doubling the current stock. In total, it means 140 new properties will be constructed in the areas surrounding the stadiums, with the biggest proportion of guests residing in Doha (37,000) and Al-Wakrah (40,000). The Al-Wakrah stock also includes temporary accommodation for 6,000 fans on cruise ships at the New Doha Port, where new luxury passenger terminals will be able to host a number of liners. This was done on a smaller scale at the 2006 Asian Games, when three liners housed 2,500 visitors, many of whom were staff for the event.

Qatar accommodation drivers
Host cityPopulationStadiumExisting hotel roomsPlanned hotel rooms
Al-Daayen36,592Lusail Iconic Stadium012,000
Al-Khor187,156Al-Khor Stadium 01,000
Al-Rayyan422,877Al-Rayyan Stadium, Education City Stadium, Al-Gharafa Stadium, Khalifa International Stadium1,0003,000
Al-Shamal11,229Al-Shamal Stadium0530
Al-Wakrah119,729Al-Wakrah Stadium27,00013,000
Doha841,591Doha Port Stadium, Qatar University Stadium, Sports City Stadium17,00020,000
Umm Salal44,177Umm Salal Stadium06,000
Total1,663,351 45,00055,530
Source: 2022 Fifa World Cup Bid Evaluation Report: Qatar

Construction of the 140 new properties will, in the short to medium term, boost real-estate projects that stalled following the regional downturn. One project where progress is expected to accelerate is the enormous 35-square-kilometre Lusail development in the Al-Daayen area, which hosts the ‘Lusail Iconic Stadium’. No hotel accommodation exists at the moment, but by 2022 the area will provide 12,000 rooms for World Cup visitors.

This swathe of land, running along the coastline north of Doha, was officially launched in January 2006 as a mixed-purpose site, managed by the government development arm Qatari Diar Real Estate Investment Company. In 2008, the project was transferred to subsidiary Lusail Real Estate Development Company to manage. It is intended to eventually host 200,000 residents in 10 distinct districts. Preparatory works were started in late 2005 with the award of the $440m marine and earthworks contract to China’s Sinohydro. 

Major elements of the Lusail project include the Marina District, Energy City business area, Entertainment City and the residential development Fox Hills. Although Qatari Diar has successfully sold off plots to developers, buildings have been slow to materialise. Lusail administration complex director Magdy Youssef says the Marina District will be open to the public in 2011, and the first properties at the 1.6 sq km Fox Hills development will be ready for tenants in 2012.

Transport links to Qatar

The area will be served by a metro station and the new Lusail Expressway, and the renovated stadium is to be a permanent fixture. These key pieces of infrastructure, especially the metro, are expected to boost real estate in the area and enhance its popularity with retail businesses.

Plans for the Doha metro involve four lines with more than 300km of track linking the north and south of the city from Ras-Laffan and Lusail down to the airport and New Doha Port, as well as spurs westwards to Education City and Al-Rayyan. Property firms say the development of the light rail link is likely to create new pockets of popularity. “It could shift prime locations for things like retail property as owners look for good connectivity and an easy walk to the shops,” says Proudly.

The client for the project is Germany’s Deutsche Bahn, working in a joint venture with Qatari Diar as the Qatar Railways Development Company. It received pre-qualification documents for consultancy services in November.

With so many major projects planned and under way and a World Cup looming, the international spotlight will inevitably turn to Qatar. Real-estate investors from oversees who may be interested in the freehold real-estate market – which for now is limited to The Pearl and West Bay – are likely to ask questions about the lack of regulation in place to protect them. Escrow accounts, for example, are not required and developers can sell off-plan. Delays in delivery of the properties have historically been common, with investors carrying the risk.

Some construction professionals feel that using public-private-partnership (PPP) style arrangements for some of the country’s permanent infrastructure requirements could be one way to ensure timely delivery, especially for long-term projects such as transport and utilities. “You are able to get a project delivered on time and within budget under a PPP more easily than by using the traditional route,” says Abrahim Akkawi, head of infrastructure and PPP at advisory firm Ernst & Young. The company is working on regional PPPs, including the Kuwait metro and Abu Dhabi’s Mafraq-Ghweifat highway. “It is prudent to explore other ways of financing. Qatar requires a lot of new infrastructure, for which there is no legacy of internal capacity for operation and maintenance. A PPP brings this in automatically. Something like the metro, and transport projects in general, would really benefit,” he says.

Doha: A leading location

Whatever mechanisms Doha opts for in order to deliver its infrastructure, the impact on the real-estate market is set to be positive. “The World Cup can act as a catalyst for the development of Doha as a leading international location for business,” says Proudly. “Good quality public transport and general improvements in build standards will help the city become a better quality destination for companies.”

Qatar government budgets
(QRm)2007/08*2008/09*2009/10**2010/11***
Total revenues117,850136,278128,500127,500
Total expenditure, of which:84,90097,422102,000117,900
Current50,96964,56063,50074,400
Capital33,93132,86238,50043,500
Surplus32,95038,85626,5009,600
*=Actual; **=QNB Capital estimate; ***=Budget. Sources: Ministry of Finance & Economy; QNB Capital

The only cloud on the horizon is the potential for a post-World Cup glut of hotel and housing stock if population growth forecasts do not prove to be as optimistic as the Qatari government hopes. The Qatar National Vision 2030 masterplan says that doubling the hotel capacity is necessary to keep pace with economic growth. It expects that the 1 million people a year visiting the country today will grow to 1.2 million by 2015. The Qatar Statistics Authority anticipates that population growth will average 9 per cent a years until 2022.

Even if these growth expectations bear out, many of the incoming residents will be in the construction industry and are unlikely to rent five-star hotel rooms. Qatar has no ambitions to become a tourist hub so the risk of oversupply remains.

However, the government is both optimistic and pragmatic. Absorbing World Cup visitors in temporary accommodation and villas that can be converted for residential use will go some way to mitigating the risk.

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