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46 Qatar today
the riyal estate
By sindhu nair
in 2011, architectural firms and real estate companies with projects that still occupied drawing Boards hoped those would finally materialise and move on to the construction sites. they hoped that the successful Bid to host the 2022 fifa world cup would Be a catalyst for government investment in infrastructure and real estate development. this was expected, not only to enhance the real estate offer in Qatar, But also give it a significant Boost; creating employment, population growth and generate strong demand for assets.
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the riyal estate
ut the beginning of 2011 didn't see any spectacular change. With high supply in the commercial office spaces, rents dipped and no huge amendment was recorded in the residential spaces. Into the third quarter of 2011, small but notable signs are felt through the real estate sector. Government capital expenditure on projects is continuing to rise with the figure now at QR760.79 billion ($209 billion) of which 40% is earmarked for infrastructure; banks have begun dispensing credit to individuals to make investments in real estate. As a result, the real estate sector that has been sagging since the onset of the global recession is now showing signs of a welcome revival. Qatar Today talks to the experts in the sector to find what the sector needs to do to attract more investment. The regional issues Jones Lang LaSalle, the world's leading real estate investment and advisory firm, in its 2011 Middle East and North Africa (MENA) Real Estate Investor Sentiment Survey, indicated that although investment appetite exists, the region is missing out on significant regional and global capital flows because of the shortage of investment grade product and the lingering price gap between buyers and sellers. The report highlights two clear trends. First, the amount of overseas capital allocated to investing in MENA real estate is negligible, and second, although local investors are seeking to increase exposure within the region – particularly in those countries considered stable like UAE and Qatar – activity is limited by the type of product available and asset pricing that does not fully
incorporate local market risks. In a region awash with liquidity, the lack of tenable investment opportunities leads investors to deploy capital overseas. Clearly the MENA real estate markets have the potential to capture a much higher proportion of capital flows from both international and regional buyers. Unlocking this potential, however, will require a few adjustments – an increase in the product available, a willingness of owners to transact with greater transparency and realistic pricing that is benchmarked against global markets. Jones Lang LaSalle, Head of Capital Markets for MENA Region, Andrew Charlesworth says: "Whilst recent events have created some uncertainty across MENA, there are areas within the region, particularly the GCC, where there remains a reasonable level of demand among local investors. The problem is one of finding and securing the right product at a price that makes sense." Transparent rules While transparency and fair pricing seem to be the big hurdles in the GCC region, the Qatari government has started taking steps to make the sector more transparent. One such step was to ensure the accountability of the real estate agents in the country with a law soon to be announced which states that only Qatari nationals can practice as real estate brokers. Under the new legislation, firms found in violation of any of the provisions of the law will have their licenses suspended for three to six months. Firms engaging in the business without a license will be fined QR50,000 ($14,000) according to the law. While there is a bit of ambiguity on all the facts, the law is aimed to regulate real estate agencies and
"the risks are the lack of transparency in the market and the lack of clarity aBout the delivery of development schedules, which are Being addressed. it's getting the structure put in place, such as the aBility to secure a residency, that still needs to Be streamlined and fixed."
AssociAte Director, DtZ
48 Qatar today
demand versus supply
ccording to the DTZ research report on the mar- new space. We expect over the next two to three years for the ket, the total current commercial stock in Doha market to be stable. With increased levels of demand, the overis estimated at 3.4 million sq mts of which 50% supply that we see at the moment will be soaked up. I can foresee is considered as Grade A stock. The Diplomatic in 2014, we'll have a small over supply with demand catching up District, regarded as Doha's central business dis- with supply and prices starting to go up again. Then projects like trict (CBD), accounts for just over 70% of the current Grade A the Lusail will start to come on stream, realistically that's not until 2014-2015 and we see a huge amount of activity there." stock. Al-Misned doesn't see real estate prices going down. "Rates At the end of 2008, there were 46 completed, high-rise commercial office towers within the Diplomatic District, providing have not declined considerably to date," he said. "With the 680,000 square mts of leasable accommodation. That figure now amount of new business coming to Qatar, I do not see the prices stands at 1.3 million sq mts, equating to a 92% increase in supply declining considerably, if they even do decline. The government has enforced new regulations on over 27 months. There is currently, businesses operating out of villas approximately 268,000 sq metres to now occupy space in commerof space being marketed as being office deMand by business sector cial buildings, so demand is startavailable to lease, producing a vaing to increase. cancy rate of 21% in comparison "With projects such as The with 14% recorded in March 2010. Pearl still nearing completion, The level of supply will continue and Lusail and Msheireb Properto grow over the next 24 months ties getting off the ground, there but at a reduced rate in comparison is a fair amount of supply enterwith the previous two years. ing the market. Although there DTZ forecasts that total office appears to be an influx of destock in the Diplomatic District mand, the question is whether or will reach 1.7 million sq mts by the not there is enough demand for end of 2012 if construction works all the high end supply of properare carried out according to schedties coming into the market. This ule without any major delays. is yet to be seen, but from our exThe first quarter of 2011 indiregistered office deMand perience working at the Pearl and cates continued optimism with West Bay, the demand is quite high 18 new companies registering refor this high end part of the real quirements totaling 50,560 sq mt. estate sector. Furthermore, Qatar In terms of the demand by sector, has introduced regulations to prethe Government was the most acvent oversupply and a Dubai-style tive occupier type, accounting for real estate bubble, " he says. 60% of recorded demand in 2010. Proudley says, "There is conGovernment Ministries leased a fidence in the market. A lot of number of towers in the Diplomatdomestic investment is going on ic District, equating to in excess of here and that's a big attraction. We 120,000 square mts of supply. That are seeing a lot of new companies was a key driver in the maintaining coming in and the construction of office vacancy rates over the year and engineering ones in particudespite rapid expansion in supply. lar have expansion plans for their Financial and Professional Ser(courtesy : DtZ reseArch ) operations. There are some new vices companies are the most active buildings under constructions, but private sector companies seeking I think the level of supply will slow down over say 2012 and 2013 new space. These sectors are supported by several Government backed compared to how much there was in 2008 and 2009." Al-Ibrahim says, "Considering the growth potential of the initiatives, such as the Qatar Financial Centre Authority. The International Monetary Fund (IMF) forecasts real growth in GDP economy, I don't believe we will have an oversupply. "Qatar's population is expected to double to 4 million between from the Non Oil & Gas sector to reach 11% over 2011, which indicates continued expansion and hence demand for commercial now and 2022, this steady rise in population is a key factor in successfully filling the demand-supply gap. Qatar is also set to space from these alternative sectors. Proudley says, "The Qatar market has an oversupply now, but invest QR72.8 billion ($20 billion) in tourism through to 2022 it's limited in comparison to Dubai, and because of the econom- and thousands of visitors are expected to travel to the country ic fundamental here we are seeing a big take up in demand for for the World Cup."
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the riyal estate
property developers and it will be implemented. The law is currently being discussed by the Advisory Council. The need for such a law was felt with the increase in cases of fraud committed by real estate firms who doubled up as property brokers. The draft of the proposed new legislation makes it mandatory that only companies owned by nationals will be granted a license to operate the agencies, and the Manager of such a company will have to be a national. Commenting on the impending law, one of the real estate agencies in Qatar, DTZ Associate Director, Mark Proudley says, "It's a positive step towards regulating the real estate market here and also in delivering a greater level of consistency of approach amongst agents. DTZ aren't all Qataris, but we are a Qatari company and we are licensed to operate as a real-estate agent. I think anything that introduces licensing is a positive step to increase levels of professionalism and accountability. "I think it's important for people making property deals to know that they are dealing with a body that has a professional approach and is to some degree regulated effectively." Another real-estate agency, Coreo, reflects similar sentiments. Its CEO, Khalifa Al-Misnad, says, "A regulated real estate market in Qatar will add much needed transparency to the market place, which is especially needed at this time when the world is looking at investing in Qatar's market be it from a rental or sales perspective. There have been incidents in the past unfortunately where purchasers and tenants have been scammed by individuals acting as 'real estate agents' – effectively anyone with a mobile phone could pose as one – so regulating the industry adds to consumer confidence." He adds, "It is difficult to quantify market data in a market place that is segmented with countless middle men. Now that transactions will be more centralised to the confines of real estate agencies, it will be easier to consolidate transactional data in the sector to better gauge the market value." Al Fardan Properties, COO, Muhibullah Mani agrees, "We can also expect stability in real estate prices with the introduction of the new law, while preventing superficial changes in market prices." Uncertain market? According to Dr Yousef Al-Horr, Chairman
of Gulf Organisation for Research & Development, who was previously the CEO of Barwa Real Estate, there is but a steady growth in the sector, but figures have yet to return to the high levels recorded during 2007. He says: "Land prices are quiet high and still increasing though transactions for huge projects are not happening as there is less liquidity in the market. This is because loans are still not as available as before – the market is too cautious. But there is movement in small villas and land deals aided by subsidies on land by the government and the loans offered to Qataris through Qatar Development Bank."
He feels that there is lack of demand and this is stemmed by the fact that the government has not revealed all of its plans for 2022. Though the infrastructure plans have been revealed there is still ambiguity about other projects. This is echoed by property expert, Mansur Al-Mansur, who says in a local newspaper that the slow performance of the sector was normal as it was awaiting the announcement by the government about plans pertaining to the FIFA World Cup 2022. But the good news is that banks have been a bit more lenient in 2011. Experts believe that if the momentum of loan disbursal is maintained at January-May 2011 levels, the volume of credit dispensed to the real estate sector might cross the magical QR25 billion-mark by the year-end. Banks and real estate In the aftermath of the global recession that began raising its head in 2008, banks here were quite strict when it came to parting with cash for 'risky' property investments. The banking industry, post-recession, pursued a cautious lending policy as far as individual consumers and real estate investors were concerned despite the fact that the state propped up its exposure to the real estate sector with QR15 billion. There is enough liquidity with the banks now and the sagging real estate sector is looking up in anticipation of the launch of mega projects. "A lot of people are buying land and housing units in the hope that real estate prices will go up driven by increasing demand," a market source said, attributing the phenomenon to the country winning the 2022 bid. The total credit offered by commercial banks to the real estate sector, the second largest recipient of loans, grew, touching QR59.97 billion, in May 2011. This is in comparison to just QR39.19 billion during the previous year. As per the data by QCB, the realty sector constitutes 19.9% of total domestic credit. This signifies a change and the players in the market agree. Al-Misnad says, "We've seen a huge interest in people interested in purchasing in areas such as the Pearl, West Bay Lagoon, and even Lusail, where nothing has been built yet. One of the most dramatic influences of this change was Qatar being selected for the World Cup in 2022. Individual residents and investor confidence has increased due to the Bid win, and now people see Qatar
"it is difficult to Quantify market data in a market place that is segmented with countless middle men. now that transactions will Be more centralised to the confines of real estate agencies, it will Be easier to consolidate transactional data in the sector to Better gauge the market value."
50 Qatar today
as a viable place to invest and live. Qatar's winning bid has also had effect on the private sector moving forward with real estate projects that they had shelved in 2009 and 2010 due to the worrying economic conditions. This could be attributed to two factors; firstly, individuals are now looking at Doha as a home for the long-term and seeking credit to purchase real property, and secondly, infrastructure, housing, and hospitality projects have started to move forward requiring bank facilities. Proudley says, "The government is being very supportive and has invested a
the duBai deBacle
"we are witnessing a surge in the numBer of Business enterprises in doha due to its economic and political staBility, driving the demand for Both commercial and residential space and amenities. these are all positive developments that have helped strengthen the investment potential of its real estate sector, ensuring greater availaBility of credit resources."
coo, AL FArDAn properties
he social and political turmoil that has swept through the MENA region over the past six months (the Arab Spring) has had a positive but muted impact upon the Dubai real estate market. Increasing demand in some sectors of this traditional 'safe haven' has been insufficient to offset the impact of the Emirates widely reported excessive supply levels. The tourism/hospitality sector has been the major beneficiary of instability elsewhere in the region, with the diversion of travel to Dubai helping to stimulate a growth in visitor arrivals. With hotel room rates having fallen significantly over the past two years and the introduction of more budget properties, the market has become more competitive for visitors looking for a 'value for money' destination. This has helped push occupancies higher and improved the performance of hotels (particularly those located along the cities beaches). With more tourists from the rest of the region visiting Dubai, retail spending levels have also grown during 2010. Unlike the office and residential sectors (which continue to experience excessive levels of new supply), the supply pipeline was turned off in the retail market some time ago, with no major completions over the past year and this has provided the market with some 'breathing space'. While the influx of buyers from less stable markets in the region and the recent announcement that purchasers of residential properties in Dubai will qualify for three year residency visas are positive factors, these are unlikely to offset the ongoing impact of high levels of new supply over the next 12 months in both Dubai and nearby Abu Dhabi. Any recovery of prices is therefore likely to be extremely selective, with prices and rents continuing to fall in the overall market for some time yet. The expansion of Dubai's non oil economy over the past six months means there is some 'light at the end of the tunnel', but it remains too early to call the bottom of the property cycle in most locations of the city.
(From Jones LAng LAsALLe report on DubAi reAL estAte)
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the riyal estate
lot of money back into the market. There are several examples where they pumped money into the banks in terms of real estate debt to create greater liquidity in the market. Obviously this sector is one of the fundamental elements of growth of Qatar. I think at the moment there is a positive sentiment towards real estate here. We're at a stage in the market where we're expected to see growth in capital and rental values in the medium-term, so I think that positivity means that banks are more willing to lend funding to real estate projects." Mani is extremely positive: "The FIFA 2022 World Cup is a very important milestone that has opened exciting possibilities in the real estate sector, attracting local and foreign investors who are keen to tap into the wealth of opportunities associated with the numerous projects lined up for the next 12 years. Banking institutions are therefore quick to take advantage of the situation by offering more accessible and flexible credit facilities. "Moreover, we are witnessing a surge in the number of business enterprises based in Qatar, particularly in Doha, due to its economic and political stability, driving the demand for both commercial and residential space and amenities. These are all positive developments that have helped strengthen the investment potential of Qatar's real estate sector, ensuring greater availability of credit resources." Many individual investors opt for bank loans to build housing and office stock for rental income. However, despite banks becoming liberal in real estate lending, the Central Bank's rule that each bank's exposure to real estate does not exceed 15% of total customer deposits remains in place. QCB's regulations also restrict bank lending for a real estate project to 65% of a project's total cost with the remaining sum having to be organised by the borrower. Rules of ownership The 2011-2016 National Development Strategy (NDS) Plan proposes to allow expatriates become permanent residents here and ease the restrictions on them investing in real-estate. What prospects does this change in policy throw open? Proudley says, "It's at a very early stage at the moment, they have only started to release information on how the residency can be secured. There are some restrictions and we will have to see what they are to better
understand how it will affect the market." As of now, there are three zones that are absolute free-hold property, The Pearl, West Bay Lagoona and the future Barwa AlKhor resort. There are then 18 investment zones called 'user zones' which come under a 99year lease effectively. But there are no significant numbers being sold under those zones, says Proudley. "As of now, I think the market for expats is very much focused on The Pearl. The Al-Khor resorts are not built yet; WB Lagoon is majorly bought by locals or other GCC nationals because the
"a remarkaBle numBer of new Business opportunities have now presented themselves following the announcement of permanent residency permits for expatriates. although this will result in an increased demand for commercial and residential spaces, it will undouBtedly see a rise in expatriate Business start-ups that will further Boost the local economy."
Director, tcAD, tpQ
sizes are much larger and they're at a much higher starting price. The prices are too high for a non-national to commit to unless they're determined to stay here long-term. I think The Pearl is the focus of the free hold market here." But Proudley feels it is still early to say what impact this change will bring. "I think it has to help to some degree as it gives people a bit more comfort. That said there are a lot of non-nationals that own property here, people who are not residents, so it won't impact them. It remains to be seen how many people take up this opportunity to gain a residency through this process." Mani is confident of the change and the aftermath, "This plan will surely make expatriates feel more secure with their investment activities in Qatar and encourage them to further enhance and expand their investments and business interests in the sector. This will also help attract more investors into the country, which will create more jobs, help sustain infrastructure development projects and provide the solid framework to achieve long-term sustainability." TPQ, Director of The Central Directorate of Development, Abdul Rahim Al-Ibrahim says of the property which first opened doors to expatriate ownership, "TPQ fulfilled its vision of being the ideal free-hold property-investment location in the region by issuing residency permits to non-national property owners, their dependents and next of kin. This will not only strengthen confidence in the Qatari real estate market but further demonstrate the commitment of HH the Emir, Sheikh Hamad bin Khalifa AlThani and HH the Heir Apparent towards the growth and development of Qatar. "A remarkable number of new business opportunities have now presented themselves following the announcement of permanent residency permits for expatriates. Although this will result in an increased demand for commercial and residential spaces, it will undoubtedly see a rise in expatriate business start-ups that will further boost the local economy." Risks in Investments Lack of products, mispricing, and limited financial availability thwarts transactions, portfolio restructuring and rebalancing of portfolio risk, according to a real-estate report by Jones Lang LaSalle. Proudley feels, "The risks are the lack of transparency in
52 Qatar today
"professional management is to Be made compulsory for all large units. adopting puBlic private partnership (ppp) model for innovation in the sector is also necessary. lastly the government should introduce incentives to firms for meeting the green policy."
eng MohaMMed al-kuwari,
An expert on green buiLDing systems AnD proJect mAnAger At QF
the market and a lack of clarity about the delivery of development schedules, which is being addressed. It's getting a structure put in place, such as the ability to secure a residency, that still needs to be streamlined and fixed. It's a learning process; these are schemes which haven't necessarily been done here before. They've taken lessons from other international organisations. There were some issues with hidden charges for properties, there's more clarity here now." Al-Misnad feels, "Risks associated with property investment are the same everywhere; just the risks vary depending on the political climate, economic conditions, etc. Fortunately, Qatar is politically and economically sound, and the largest risk factor would be over-supply." "Balancing supply with demand is a major concern. However, Qatar has a wise leadership and through its ambitious plans, strong fiscal and market-based monetary policy and tax/loan incentives, the nation has successfully managed to attract multi-national businesses and investors, who consider Qatar a safe haven for investment," says Al-Ibrahim. The way forward Eng Mohammed Al-Kuwari, an expert on Green building systems says that for the sector to improve an end users dialogue should be made mandatory in order to refine and understand their needs. "Professional management is to be made compulsory for all large units," he says. "Adopting Public Private Partnership (PPP) Model for growth and innovation in the sector is also necessary. Lastly the government
"But there is movement in small villas and land deals aided By suBsidies on land By the government and the loans offered to Qataris through Qatar development Bank."
dr yousef al horr,
chAirmAn oF guLF orgAnisAtion For reseArch & DeveLopment
should introduce incentives to firms for meeting the green policy and innovations. This will give the sector a huge thrust." Al-Misned says, "Investors are looking for a return on their investment and a safe place to put their money. Dubai attracted most foreign investors up until recent times, despite having no solid economical foundation to substantiate its growth. "Foreign investors are now looking at Qatar as the next big thing in the region as it is politically and economically sound, and has a series of significant projects in the pipeline which include everything from infrastructure to tourism and sports. What will drive the sector relies heavily on Qatar's vision of being the regions economical and political beacon." Al-Ibrahim said: "The national 2011-12 budget alone allocates approximately $16 billion for projects in infrastructure, education, youth welfare, and healthcare. "In addition, lucrative construction contracts worth $22 billion are also expected to be awarded by 2012, and Qatar is set to invest $20 billion in tourism through 2022. "Entrepreneurship, small and medium size enterprises (SME) are also protected through many government projects, while tax and loan incentives, and increased access to previously closed-sectors are also attracting foreign investors. As a result of all this, many investors are looking at Qatar as a profitable and secure long-term investment option. To correspond with this economic growth and the expected population rise, it is necessary to expand the real estate sector to meet both commercial and residential needs"
(with inPuts froM rory coen)
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the riyal estate
"real estate, a key Building Block in creating cities"
the gulf has entered a period of 'consolidation' where assets and oversupply must Be carefully reBalanced along with growth in more fundamental economic sectors, says ian lyne.
54 Qatar today
he economic success of the Gulf has come from hydrocarbons but real estate has also been a key driver as a tangible asset and fundamental element of the substantial cities and world class architectural trophies across the region. Real estate is often taken to mean assets that are 'fixed' or 'real, such as land and buildings. Some suggest that 'real' is a form of 'royal' (French) and its Spanish equivalent (Real) both being Latin forms of anything associated with the king when all property was in effect in his gift. The 'riyal', common throughout the Gulf, is itself derived from the Spanish word real, the unit of currency originally issued by the crown. The scale of urban growth and the extent to which property, buildings and 'development' have contributed to the esteem and the national wealth of Gulf countries over the last two decades is remarkable. To the unwary first time visitor there often seems little or no logic to the size and scale of these cities. Population growth in countries such as Saudi Arabia has been significant with resulting urban growth, elsewhere much of the population is either transitory or imported with only a minority being from the host nationality. How did this come about? Did the population grow and create demand for accommodation or was it the other way around? Ironically, the majority of the population in many Gulf cities grew in sectors responsible for creating real estate, construction, infrastructure, engineering, building contractors, transportation. The on-going world economic crisis has often been blamed on the real estate market in America but the consequences and effects of local property 'bubbles' have also been felt around the world, not least in Dubai where prices have reputedly fallen by as much as 50% since 2008, even as more buildings have been completed. Speculation on virtual property – so
called 'off plan' selling – inflated an oversupply bubble which was ultimately filled with hot desert air. The resulting downturn in an economy heavily dependent upon development saw thousands of would be house purchasers and occupiers leave and further downward pressure on prices. Estate agents tend to describe these situations a 'market adjustments' and when there is no easy way out they point to the need for the market to 'work through the demand-supply mismatch' – code for wait a few years and you may get back what you paid for it. Generally, market-based systems are pretty efficient particularly in those sectors where production is strongly and quickly responsive to demand. But, real estate takes a long time to produce, especially when the planning, land assembly and design stages are taken into account. Demand, on the other hand, can change very quickly and in an industry which uses very large amounts of capital these contrary forces can be cataclysmic. This should not to detract from the incredible vision, speed and dynamism that typifies development throughout the Gulf over the last two or three decades. The rates of urbanisation, the spectacular architecture, the massive and robust infrastructure all provide world beating records. But much of the Gulf has entered a period of 'consolidation' where assets and oversupply must be carefully rebalanced along with growth in more fundamental economic sectors. The link between real estate values, supply and demand can be managed by better planning systems. Plans need to be much more than beautifully rendered real estate images; they need to be based on real growth, real incomes and real quality of life. In future, the capability of the market should be guided by the fundamentals and this is where the role of good plans and
planning systems is key. Take for example the London property market which, with one of the most onerous planning systems in the world, has still seen property values double on average every seven years over the last century. Plans need to be more than funky computer generated images and whizz bang ideas. A key role for planning departments across the region should be in monitoring supply and demand both of land and property. Managing development to maximise the return on investment in infrastructure and consolidate the value of location – proximity to amenities such as schools or health care as well as access to affordable transportation. Development needs to focus on quality of life in order to compete with all of those other cities that are seeking global talent. Ownership and participation in the property market are a vital means of spreading wealth and the growth of capital. As Gulf cities mature it is vital that institutions mature with them. Planning needs to be much more than land allocation and engineering. It will increasingly need to promote and guide the development industry in producing world class urban environments not just world beating buildings and exclusive developments. It will also need to manage the exuberance of the real estate markets so that the time lag between supply and demand as well as the gap between prices and affordability generates fewer tall storeys!
is mAnAging Director oF Future-DynAmix AnD FormerLy proJect mAnAger oF the Qnmp. iAn cAn be reAcheD At iAn.Lyne@FutureDynAmix.com
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