Qatar chases untapped real estate markets

In line with many of its Gulf neighbours the country has launched its own landmark developments, in a bid to attract the business and tourism markets.

The $2.5bn Pearl Qatar currently under construction is one of the centrepieces of this internal growth.

The 985-acre land reclamation project, which bills itself as the Riviera Arabia, will be home to over 41,000 residents in an exclusive development of luxury housing and hospitality venues, similar to contemporary projects in the UAE and Kuwait.

But what makes Qatar stand out from its GCC neighbours is that its external investments go beyond the commonplace buying of stocks in blue chip companies or progressively larger expenditures into non-dollar real estate in the Eurozone and Asian economies.

Untapped markets

Increasingly Qatari companies have been taking the riskier, but potentially higher return, route of seeking out opportunities where other investors might fear to tread.

As well as more developed markets with stable returns, such as the foray into London real estate with the Chelsea Barracks deal, state-backed entities such as Qatari Diar have been taking the plunge into the unknown with a range of development investments in untapped economies.

As with its domestic Lusail project, scheduled for completion by 2010, many of the schemes being underwritten are community based, encompassing residential, retail, leisure and medical outlets. With each new venture the group is targeting sustainable developments, trying to cater to daily residential needs.

But it is not only developments at the top end of the market that are being targeted. The group’s recent $660m foray into Morocco, although centered around a luxury resort, also encompasses two-star hotels and amenities.

The gamble that Qatari Diar is taking is that this broad diversification to attract business from across the economic spectrum will bring in big returns. By being inclusive rather than exclusive the potential customer base becomes far larger.

Long-term gains

The principal strategy is the need to think in terms of long-term gains over the quick returns favoured by most speculative bodies. “All our projects are carefully thought out and are for the long-term,” agrees CEO Ghanem Al-Saad.

“They are sustainable and they are financially sound. They [the Qatari people] benefit from the success of Qatari Diar because our company is providing a sound, socially responsible investment strategy for the country’s oil and gas revenue. Of course, we compete in an open market, which requires a responsiveness and marketing acumen not usually found in a government enterprise.”

What stands out are the geographies that are being opened up. “We are often the leaders in developing markets, for example Sudan, Yemen and Djibouti and we see a huge potential both in the wider economies and in tourism” explains Al-Saad.

Developing economies

The idea behind many of the investments is the commercial potential implicit when targeting developing economies. Qatari Diar’s recent announcement of a new development deal in conjunction with the Cuban government is a good example of this.

With the handover of power from former leader Fidel Castro to his brother Raul the communist island is seeing the beginnings of change. The new administration has begun taking the preliminary steps to open the country up, paving the way for an end to the US economic blockade.

Once the walls finally come down, analysts expect a mad scramble by outside, specifically US, investment vehicles to take advantage of the cheap Caribbean real estate opportunities and cultural tourist attractions – and Qatar may have, very cleverly, found itself leading the charge.

“We have several projects in development – including the one in Cuba – in which the benefit could be described primarily as diplomatic,” notes Al-Saad. “Qatari Diar is putting its mark of quality and friendship all over the world.”

The possible strategy being that the goodwill generated by these investments in markets shunned by other financial groups will leave Qatari Diar in a prime position when further opportunities become available.

By investing in developments in untapped markets with little or no infrastructural support and untried commercial propositions, Qatar has so far only seen capital go one way, with little remittance in terms of real financial returns.

It may seem to be a gamble, but it is one that will be closely observed by groups like Qatari Diar’s financial and geographical peers. If it pays off the rewards are likely to be enormous.

See also:
Qatar invests $70m in Cuba
Qatar economic boom faces constraints