Qatar's housing market remains depressed
June 19, 2017
Qatar's nationwide real estate price index dropped 9.8% during the year to end-Q1 2017, according to the Qatar Central Bank (QCB), in contrast to the spectacular 13.37% rise during the same period last year. When adjusted for inflation, the fall is even bigger at 10.63%.
During the latest quarter, real estate prices fell by 1.1% (1.4% in real terms).
At The Pearl-Qatar, a QAR36.4 billion (US$10 billion) Riviera-style development located on the coast of Doha, second-hand freehold apartments are currently priced from QAR13,000 (US$) to QAR15,000 (US$) per square metre (sq. m.), with newly built houses priced above QAR17,000 (US$) per sq. m., according to DTZ Qatar.
Qatari real estate has 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% in real terms) from a year earlier.
- In 2014, the real estate price index soared by 34.67% (31.81% in real terms) from a year earlier.
- In 2015, real estate prices rose by 14.39% (10.75% in real terms) from a year ago.
However in 2016, the housing market slowed sharply, with the value of real estate transactions plunging by about 50%, after reaching an all-time high in 2015. Real estate prices fell by 4.08% (-5.23% in real terms) in 2016.
Surprisingly, demand has been rising recently. In April 2017, residential property sales increased, both in number and value, by 5.8% and 36%, respectively, as compared to the same period last year. However, demand is expected to fall againin the second half of the year and the overall housing market is expected to remain depressed in the medium term, because of the recent decision of several Arab countries, including Saudi Arabia and Egypt, to cut diplomatic ties with Qatar.
The Qatari economy grew by a modest 2.7% last year, after growing by an annual average of 4.2% during 2012-15, and 15.7% in 2008-11. The IMF expects the Qatari economy to expand by 3.4% this year and by another 2.8% in 2018, but these projections were released two months before the diplomatic tension occurred.
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.
Yields in Qatar are excellent at around 12%
Qatar rentals have tripled in the past six years. Yields are now excellent. “A landlord who has just bought a new five bedroom house for QAR1.8 million (US$494,105), a good quality house, is renting it out at QAR18,000 (US$4,941) per month,” says Parry. This rental translates into a annual gross yield of 12%.
Rentals of QAR25,000 – QAR40,000 (US$6,863- US$10,980) are more usual houses in West Bay, an upscale residential district. Then there is West Bay Lagoon, which is even more expensive.
“There is a very limited supply of condominiums at the moment, only 2-3 buildings,” says Parry. “All that will change when the Peal of the Gulf comes on stream in the Q1 of 2008.”
Income tax ranges from moderate to high in Qatar
Rental Income: Rental income is considered a business income and taxed at a flat rate of 10%.
Capital Gains: Capital gains derived from business activities are taxed at a flat rate of 10%. Otherwise, capital gains are not taxable.
Inheritance: There is no inheritance tax in Qatar.
Residents: Resident individuals are not subject to tax on their income and capital gains, provided that these are not derived from business activities. Business income and capital gains are taxed at a flat rate of 10%.
Transaction costs are very low in Qatar
Transfer fee is levied at 0.25% of the property value. Other costs when buying property are very minimal, such as authentication fees of documents. It takes around 13 days to complete the process of registering a property.
The laws are mildly pro-tenant
b>Rent: Under Law No. 4 of 2006 in effect from February 2006 to February 2008, annual rent increase is limited to 10%. The implementation of the rent cap is widely expected to be extended.
Tenant Security: There are in theory only three reasons the landlord can give to force his tenant to leave: non-payment of rent, moving in of close family, and to demolish the property. However, there are reports that this law is often not observed, and that landlords are using fictitious demolition plans to squeeze their tenants out.
Sharp economic slowdown, big budget deficitQatar is one of the fastest growing economies in the world. The country is the world's biggest exporter of liquefied natural gas (LNG). It has also more than 15% of the world's proven gas reserves. Qatar has one of the highest GDP per capita in the world in 2016, at US$60,800. Its wealth has grown at breakneck speed from 1998 to 2012, particularly since the Iraq War.
In the early 1990s, the country launched LNG projects to tap the massive gas deposits at the 6,000 sq. km offshore North Field. The gas wealth was estimated at around 25 trillion cubic metres, 15% of the world’s total gas deposits.
The country’s economy grew by an average of 21% from 2006 to 2008. And despite the global crisis, there were further spectacular growth rates of 12% in 2009, 19.6% in 2010, and 13.4% in 2011.
However, economic growth has slowed sharply in recent years. Qatar’s economy grew by just 2.7% in 2016, after expanding by 3.6% in 2015, 4% in 2014, 4.4% in 2013, 4.7% in 2012.In fact, last year’s growth was actually the lowest in two decades.
The economy is projected to grow by a modest 3.4% this year and another 2.8% in 2018, according to the International Monetary Fund (IMF). However these projections might be lowered as the diplomatic rift in the region continues to escalate.Qatar's economy is now adversely impacted as key transport links are now being severed, making it difficult for the country to import and export goods.
Credit rating agency Standard & Poor’s has lowered Qatar’s long-term credit rating from ‘AA’ to ‘AA-’, with negative outlook.
During the first week of June 2017, the Qatari riyal (QAR) dropped temporarily to its lowest level in twelve years. The riyal is essentially pegged to the US dollar.
A ballooning budget deficit is also another problem. The country’s budget deficit surged to 17.9% of GDP by end-2016, in sharp contrast with a surplus of 5.1% of GDP in the previous year, according to Qatar Central Bank. It was actually the first deficit in 15 years, as low oil prices weigh on revenues.
Last year, Qatar’s external debt also climbed to a record 131% of GDP, from 105% in 2015, 79% in 2014, 80% in 2013, 85% in 2012 and 77% in 2011.
In April 2017, overall inflation was 0.6%, down from 0.9% in the previous month and 3.4% in the same period last year, according to Qatar Statistics Authority (QSA). While there are no official figures yet, consumer prices are expected to rise sharply, as its neighboring countries cut transport links with Qatar, making it difficult for the country to import and export goods.
In 2016, overall unemployment was 0.2%, the lowest in the Middle East, according to QSA. Qatar’s highest-ever unemployment rate was 3.9%, seen in December 2011.
The country’s population reached 2.58 million in 2016, up by 6.5% from a year earlier, reflecting the large influx of expatriates. Foreigners and expatriate residents account for about three-fourths of the population. 82% of the population lives in Doha and Al Rayyan, according to the QSA.
Qatar will host the 2022 FIFA World Cup. In preparation for this, the country has been locked in a massive infrastructure development which involves spending of more than QAR264 billion (US$100 billion).