Real es­tate prices in Qatar hit record highs in June after ris­ing 28.9% year-on-year ac­cord­ing to the Real Es­tate Price In­dex (REPI) pub­lished by the Qatar Cen­tral Bank (QCB), its most re­cent data. The av­er­age prices for land, com­mer­cial and res­i­den­tial

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Qatar Cen­tral Bank's real es­tate price in­dex says that the real es­tate prices in the coun­try have risen by 28.9% year-on-year and the av­er­age prices for land, com­mer­cial and res­i­den­tial prop­er­ties in June were 20% higher than the pre­vi­ous peak of Septem­ber 2008.

The in­dex showed that real es­tate prices were 18.5% higher in June than in Jan­uary, based on Min­istry of Jus­tice data on land and prop­erty trans­ac­tions. It is not just prices that are ris­ing, but also the num­ber of trans­ac­tions be­ing con­ducted. Ac­cord­ing to a re­port from prop­erty de­vel­oper the Ez­dan Hold­ing Group, y-o-y sales jumped by nearly a third in June, with land pur­chases mak­ing up an in­creas­ing pro­por­tion of trans­ac­tions. Of the 627 deals struck in June, 446 were for plots of land, in­di­cat­ing in­creased ac­tiv­ity from de­vel­op­ers rather than sales of com­pleted units or re­sale ac­tiv­ity.

With prices and de­mand out­strip­ping sup­ply, there is some con­cern the real es­tate sec­tor could im­pose un­wanted pres­sures on the econ­omy, ac­cord­ing to a re­port by the Samba Fi­nan­cial Group. The re­port, is­sued at the end of July, said that while the y-o-y rate of price growth had mod­er­ated some­what com­pared with 2013, ris­ing de­mand would con­tinue to push up prices in the short to medium term.

Sup­ply & de­mand

Other econ­o­mists sug­gest the large in­creases in real es­tate prices are in line with the fun­da­men­tals of Qatar's fast-grow­ing econ­omy and rapid pop­u­la­tion growth.

“While base (pop­u­la­tion) and in­come ef­fect com­bined have in­creased by 345% since 2006, the QCB REPI has only risen by 326%, sug­gest­ing that real es­tate prices con­tinue to be jus­ti­fied by Qatar's eco­nomic fun­da­men­tals,” said QNB Eco­nomics in a note pub­lished at the end of Au­gust. “Fur­ther rapid in­creases in real es­tate prices could, how­ever, sig­nal over­heat­ing and a po­ten­tial for another real es­tate bub­ble,” it added.

Ac­cord­ing to the Samba study, de­mand is be­ing fu­elled by an in­flux of for­eign work­ers en­gaged on in­fra­struc­ture and de­vel­op­ment projects, though this pres­sure on sup­ply will likely ease to­wards the end of the decade as the pace of projects is scaled back.

The res­i­den­tial mar­ket will re­main sig­nif­i­cantly un­der­sup­plied for at least the next five years, ac­cord­ing to prop­erty con­sul­tancy, Col­liers In­ter­na­tional. “Doha re­mains an up­beat mar­ket that is ex­pand­ing in terms of over­all of­fer­ing while also bring­ing depth to the mar­ket,” said the firm in a re­port pub­lished in June, adding that Doha had a short­fall of almost 50,000 res­i­den­tial units. With a pro­jected com­pound av­er­age growth rate of just 3% per an­num, down from ear­lier es­ti­mates of 8%, Col­liers said the sup­ply/de­mand gulf would not be bridged quickly.

Qatar's pop­u­la­tion in­creased at dou­ble-digit rates last year, and, as labour re­quire­ments gather pace across all sec­tors, this gap is set to widen sub­stan­tially, fu­elling price and rental costs.

The rise in pop­u­la­tion num­bers is also fore­cast to feed into de­mand for re­tail and of­fice space. How­ever, in the case of the lat­ter, de­mand will re­main sub­dued due to high lev­els of space al­ready avail­able or sched­uled to be com­pleted over the course of this year and next.

Prop­erty de­vel­op­ment driv­ing bank lend­ing

The growth in real es­tate ac­tiv­ity and sub­se­quent rise in the build­ing sec­tor to meet this de­mand are driv­ing bank lend­ing lev­els. In July, the QCB is­sued a re­port show­ing that loans to the real es­tate and con­tract­ing sec­tors ac­counted for just over 20% of all credit ad­vanced by Qatar's com­mer­cial banks. Ac­cord­ing to the bank, of to­tal loans of QR546 bil­lion ($150 bil­lion), QR109.2 bil­lion ($30 bil­lion) had been di­rected to the real es­tate and con­trac­tor mar­ket, of which QR84.81 bil­lion ($23.3 bil­lion) was to the for­mer.

This high level of lend­ing to the sec­tor leaves Qatar's banks ex­posed should there be a sharp down­turn, rat­ings agency Stan­dard & Poor's warned in May, say­ing set­backs to the prop­erty mar­ket – though un­likely – could pose a risk.

Surg­ing de­mand for prop­erty could prompt de­vel­op­ers to launch more projects through the end of 2014 and into 2015. Real es­tate prices and rental costs will con­tinue to climb for the fore­see­able fu­ture, though with the ex­pe­ri­ence of the eco­nomic down­turn of 2009 still fresh, reg­u­la­tors will likely move to con­tain any bub­ble, should it threaten to emerge

BY OLIVER CORNOCK The au­thor is the Re­gional Ed­i­tor of Ox­ford Business Group.

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