Real-estate growth knocked by oversupply in Qatar

19 September 2011

While certain parts of Qatar, and Doha in particular, have seen interest in property sales increase, the development plans across the country do not reflect the current level of demand

Key fact

Since 22 July 2010, Qatar has recorded sales transactions worth a total of $7.15bn, with Doha sales accounting for 51.3 per cent

Source: Century 21 Qatar

The real-estate sector in Qatar at the moment is a mixed picture. Supply continues to outstrip demand for both residential and commercial property, meaning that downward pressure continues to be exerted on rents. At the same time, property consultants and local estate agents say demand is rising, particularly for commercial space.

Data collected by the real-estate department of the Justice Ministry and analysed by real-estate agency Century 21 Qatar, shows that sales transactions are increasing. In late May, sales reached a record high of QR1.29bn ($354m).

“The hot spots are around North and South Doha,” says Diaa Noufal, head of research at Century 21 Qatar. “Part of it is related to the [2022 Fifa] World Cup, but there is other urban development under way. There is set to be a lot of activity over the next five to 10 years.”

Doha popularity

Century 21 Qatar says 51.3 per cent of all sales transactions since 22 July 2010, were conducted in Doha, with 21.6 per cent in Al-Rayyan, 12.3 per cent in Al-Wakrah and 6.3 per cent in Umm Salal. Most of these were land sales transactions worth $4.3bn and accounting for 60.7 per cent of activity. In total, Qatar has recorded transactions worth $7.15bn since mid-July 2010.

Since the start of 2011 up to June, apartment rents declined … 5 per cent, while villa rents declined 3 per cent

Diaa Noufal, Century 21 Qatar

Given the economic growth enjoyed by Qatar, the popularity of Doha’s city centre suburbs is not surprising, but state-led investment is also giving a boost to new areas of real estate. In Umm Salal for example, situated north of Doha, is the country’s biggest real-estate scheme – the 38-hectare, 200,000 residential capacity Lusail project.

Despite its slow start (the official launch was the end of 2005), locals report a surge in activity at the site in recent months. This is not surprising, given that the enormous mixed-use development forms an integral part of Qatar’s World Cup plans. It is set to contain 22 luxury hotels and the principal World Cup 2022 venue, the 86,000-capacity Lusail National Stadium. This is alongside new districts, such as Entertainment City, Energy City and the Marina District, all of which will be connected into Doha city centre by a local light rail system and the metro red line. Further inland, a 45,000-seat stadium will be constructed at Umm Salal, linking into the city centre along the green line of the Doha metro. This is set for completion in 2021.

To the south of the city, Al-Wakrah is enjoying growing popularity, ranking third-most popular area for sales over the past year with transactions worth $836m. Competitive land prices, new projects such as the Wakra Mall, a new waterfront development, and the planned construction of a metro line to the area are all boosting its attractiveness. A new 45,000-capacity football stadium for the World Cup is also planned, which will be reduced to 25,500 seats after the event.

…The market remains oversupplied for residential and commercial space

Other areas marked for growth include along the west coast adjacent to the planned Qatar Bahrain Causeway and at Al-Khor in the north east, where developer Barwa is building its long-awaited Urjuan project. Launched in November 2008, the scheme had an estimated development value of $10bn and would house 63,000 residents. It was originally set for completion by 2013, but is understood to have been on hold since 2010. In March 2011, the project received a boost when Barwa announced it has signed a deal to provide 300 apartments and 50 villas to Pearl GTL by 1 January 2014.

Local investors

For now, most activity is located in Doha and a recent feature of the market has been an increase in the value of transactions. “Exceptional transactions at high prices were seen in investment areas such as Al-Sadd, Bin Mahmoud and Al-Dafnah,” says Noufal. There were also several deals to sell entire multi-storey buildings including a tower in West Bay and a hotel.

Qatar property sales transactions *
(Percentage of $7.14bn)
Residential compound3.2
*=By type, 22 July 2010-August 2011. Source: Century 21 Qatar

In general, sales transactions have been dominated by local investors. Although Doha has 18 zones within which international buyers may purchase property, sales continue to be Qatari-led. Land sales are done in private between the government and developers although some plots, like at Lusail, are advertised. According to the Lusail Real Estate Development Company, 140 plots, equivalent to 76 per cent of the area, had been offered for sale by early 2011. In total, 80 per cent of the buyers were local, 15 per cent GCC nationals and 5 per cent other international buyers.

Although foreign interest in Qatar is increasing, agents say most new enquiries are assessing the market. In addition, firms say several regulatory changes would be required to make the system more transparent if Doha wanted to encourage more international investors. On the positive side, Qatar’s visa system, which allows foreign property owners a 99-year residency permit, has been well received and makes the market more attractive than other countries in the GCC, which continue to limit residency for investors.

Depressed rental market in Qatar

On the rentals side, the market remains depressed with new supply continuing to outstrip existing demand, even if demand is rising in some areas. “On the residential market, there is quite a lot of new supply to come over the next two years, so I would say it is under more pressure than the commercial market where the level of availability is stabilising more,” says Mark Proudley, Qatar based associate director of property consultant DTZ.

DTZ estimates apartment rents have fallen by 30-40 per cent since the peak of mid-2008. Data from Century 21 Qatar shows the falls have continued through 2011, although there was a slight uplift at the start of the year. “On average, since the beginning of 2011 up to June, apartment rents declined [about] 5 per cent, while villa rents declined 3 per cent,” says Noufal.

According to DTZ, there is less downward pressure on commercial rents, with Proudley even foreseeing rises in 18 months’ time for the best quality space. “Although there is still new supply coming onto the market, the growth in new supply is not as great as it was in 2008 and 2009, so I actually see in the short to medium term rental rises on the commercial side because of increased demand,” he says.

Real-estate companies report that much of the new commercial demand is coming from sectors such as construction, engineering, law firms and financial services companies. In addition, many firms are expanding and taking advantage of the competitive deals now available for tenants taking larger volumes of space.

“Existing companies are expanding and new companies are coming in because they are looking and thinking Qatar is a good place to be. There is certainly a lot of optimism about Qatar at the moment,” says Proudley.

Optimism there is, but the market remains oversupplied for residential and commercial space. DTZ estimates there are 3.4 million square metres of office space in Doha today, with 1.3 million sq m in the Diplomatic District. This is compared with 680,000 sq m in the area at the end of 2008. As a result, vacancy rates are currently estimated by DTZ at 21 per cent, compared with 14 per cent in March 2010 and below 5 per cent prior to the downturn.

Stabilised rates for office space

Despite this, the rental rates for high-quality office space in locations such as West Bay have stabilised, says DTZ. Since the first half of 2010, monthly rental prices have remained at about QR230 a sq m, down from QR300 a sq m in mid-2008. Commercial rents have continued to decrease in 2011 with Century 21 Qatar reporting a 9-per cent drop since the start of the year.

Agents predict the market will pick up over the latter part of 2011 as the seasonal holidays end and demand returns. Local investors are certainly foreseeing a recovery and expect new areas of development with transaction values increasing. Developers and investors in Qatar are casting their nets wider than central Doha in anticipation of new public transport systems. Only time will tell if demand will be sufficient to absorb the new stock.

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