“You must write a story on our property situation,” a local taxi driver instructs MEED on the short journey from the airport to Doha centre. “We are growing very fast but so are our rental prices. Something needs to be done.” Rising property prices are today the most talked about issue for Doha residents. On arrival to the city it is likely to be the first topic of conversation.
Surging demand for residential and office space in Doha spurred by double-digit gross domestic product (GDP) growth and Qatar’s newfound position as the largest liquefied natural gas supplier in the world is causing headaches beyond even those endured by neighbouring Dubai.
Research by real estate consultant Colliers International supports these complaints. It shows stratospheric growth in residential rental costs over the past five years.
Rental hikes, especially for domestic housing, are the main driver of property inflation, which topped 10 per cent in the first half of 2007. Doha’s Planning Council reported a 27.1 per cent increase in housing costs to the end of June, following 26 per cent hikes in 2005 and 2006.
Prices for four and five-bedroom villas have increased almost fivefold since 2002 (see chart, page 51). For high-income earners – with a salary in excess of QR 25,000 ($6,871) a month – rent for these villas has surged to an average of QR 25,200 a month this year compared with QR 6,369 five years ago.
Another Doha-based real estate firm estimates rents have doubled in the past two years alone, with prices for a three-bedroom villa increasing to QR 16,000 a month at the end of June from about QR 7,568 in 2005.
The average monthly rent for a two-bedroom, luxury apartment rose from QR 3,274 in 2002 to QR 10,188 this year, with rents in the popular West Bay area higher still.
More than 16,000 new apartments will be available in Doha by 2010, if all planned mixed-use projects and residential towers are completed on schedule. Yet calculating supply and demand is by no means straightforward. Qatar’s Planning Ministry estimates Doha will have a population of about 450,000 people in 2010, up from the current 380,000.
Questions remain over what type of workers are likely to settle in Qatar. “The government is banking on these being skilled workers with good disposable incomes,” one Doha agent tells MEED. “But the reality is that much of the population is made up of construction workers. The low-end housing they require is not really being factored into anyone’s plans.”
The surge in energy investment has also brought expatriates and GCC nationals into the country, who, although transient, have been lured to invest through a law passed last year, allowing property leases for 99 years in 18 designated areas. By contrast, GCC nationals are allowed to own land and dwelling units in three designated areas: Lusail, Al-Kharaij and Jebel Thiyab.
There was hope among residents that after last year’s Asian Games, residential units specifically built for the event would be made available to the public, easing some of the bottleneck in demand. But buyers complain that developers and an increasing number of ‘middle men’, aware of the sorts of prices they could now command, simply kept prices at the same level for locals.
“We have not seen rentals come down and there is a great deal of discontent as a result,” says Reg Barichievy, general manager of Colliers International.
Edward Brookes, director of DTZ Qatar, says supply is not growing as steadily as demand. “What tends to happen is that it’s not a nice, neat demand and supply curve,” he says. “All the land is going to come on in one big heap, but until that happens, the next few years are going to be tight.”
Commercial rental prices have also soared. Office rents have increased to about QR 300 a square metre from QR 175 just 12 months ago, according to DTZ Qatar.
Barichievy expects rents will stabilise at the current level of about QR 300 a square metre a month until 2009. “I do not think we will see that price really come down, but what we will see is that a lot of established companies and new entrants wanting to make their mark will migrate to West Bay,” he says.
The result is that prices for poor-quality business facilities currently used by companies through necessity will come under pressure.
As international companies jostle for position in Doha, another local property group reports that more than 70 companies are looking for office space, totalling between 115,000 sq m and 145,000 sq m in the next six months alone.
Much of the demand is from government ministries and energy companies, which together account for almost two-thirds of total rental requirements.
While many of these offices are looking to take on standalone headquarters to centralise staff, energy companies are expanding rapidly in line with the oil and gas-related project boom at Ras Laffan. Companies such as Ras Laffan Liquefied Natural Gas Company (RasGas) have established offices in several locations and are looking to consolidate operations into one building.
Despite the demand, the area earmarked to accommodate the majority of the growth, West Bay, has only five buildings due to be completed in the next six months that are not fully pre-let. The Dubai arm of property firm CB Richard Ellis estimates office rents have jumped about 20 per cent in the past year, while office occupancy rates reached 98 per cent in the first half of 2007.
One local economist says despite increased construction costs, the rental market has been able to maintain gross yields (development cost versus rental income) of 10-12 per cent.
A deeper resentment is also being harboured over local landlords’ hesitancy to rent out property when it is available. Many recently completed compounds remain vacant. An agent at one local property company tells MEED most landlords prefer to lease to a single company rather than individuals. “It is an arrogant approach,” he says. “But they can afford to be that way with the market the way it is. They know they will find a taker for the space sooner rather than later.”
The fact that landlords prefer to rent out the unit as a whole to a single leaseholder enables them to maximise monthly returns.
The government, often accused of being slow to react on delicate domestic issues, has hinted at the formation of a new law to tackle soaring rents. Prime Minister Sheikh Hamad bin Jassim al-Thani last week said studies were under way to identify the best way to tackle the issue.
At the same time, the government is pushing for more development. Several large sections of land have been allocated to companies such as Barwa Real Estate to build low-cost housing, while licences have been issued for cement and building materials manufacturing units to ensure construction materials are accessible locally at cheaper rates.
The demolition of historic buildings at Umm Ghuwailina has also been halted, while in October the cabinet created a central rents committee to set benchmarks for lease and rentals leased to any government agency.
The current rental law, which limits residential increases to 10 per cent a year – compared with a 7 per cent rental cap in neighbouring Dubai – expires in February 2008. While the move appears to have had some impact in Doha, landlords have found loopholes and are still managing to push increases through well above the 10 per cent ceiling.
Yet instances are already appearing where property owners are unwilling to renew contracts with their existing tenants on the pretext of renovating a house, in the hope of setting much higher rents before the new legislation appears.
One local Qatari economist tells MEED it is not just a problem for lower-paid workers. “I have personally seen my rents rocket since starting work in Doha in 2004,” he says. “I have a sympathetic landlord but I do not know if I will be able to renew my lease next year.”
Despite the presence of the law, stories continue to circulate that, with no official super-vision, property owners are flaunting regulations. The government’s decision to set up four rent courts following a ruling earlier this year by the Supreme Judicial Council may help to ease tensions.
Despite these moves, there will be an uncertain wait while the government, consumers and developers try to balance a booming economy with the needs of the local population.
“The market keeps changing each time we look at it,” says one Doha-based economist. “We think this strong demand will continue for some time, but there is an element of guesswork involved, which is always a slight concern.”
Most analysts agree that while projects in the pipeline will eventually feed Doha’s housing demand, it could be a prolonged wait.