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The supply and demand fundamentals of Qatar's property market are changing rapidly. For years, Doha's residential market had a significant housing shortage.
"But that situation is already reversing. The assumption was that Qatar's booming economy, based on petroleum exports, had attracted large inflows of expatriate professionals. However, this assumption does not bear close scrutiny,"said Jesse Downs, Landmark Advisory's Director of Research and Advisory Services.
Qatar's petroleum industry employs only 5% of all expatriates, but accounts for roughly 70% of GDP. Construction, however, employs 45% of all expatriates, but contributes only 5% to GDP.
Ms Downs explained that, "Since a large portion of construction workers live in labour compounds, they do not contribute to demand for individual housing units. So, it is misleading to assume that Qatarfs recent population growth is matched by a comparable increase in residential demand."
The report shows that between mid-Q408 and end-Q109, average freehold sale prices fell 25%-30%.
"The declines were heavily weighted toward The Pearl, where average unit prices dropped 35%, indicating a sharp fall in demand from foreign investors," said Downs. Average prices for units in the Zig Zag Towers and Lusail also declined, but only 10%-15%.
Turning to the rental market, average villa rents fell 15%-20% in the first two months of 2009, while apartment rents remained stable. Ms Downs explained that, "Compared to Q408, when average rents fell 5%-10%, Q109 shows us that apartment rents are more resilient, especially for smaller units, while villa rents are subject to stronger declines."
In terms of mortgages, lending to expatriates has become increasingly uncommon and carries prohibitive restrictions. LTV ratios and loan periods have fallen, while minimum salary requirements have risen considerably.
"In the year ahead, liquidity will be problematic for Qatari banks, whose loan-to-deposit ratios exceed 100%," said Downs. "Despite government intervention, excessive lending and poor risk management have left Qatari banks over-exposed to real estate assets, which are now depreciating due to falling demand."
Ms Downs also described how soaring revenues from petroleum caused a real estate bubble in Qatar. "The capital glut caused extraordinary inflation and subsequent de facto negative interest rates. The result was a real estate bubble inflated by a positive feedback loop. Negative interest rates encouraged widespread borrowing for property investment, which caused inflation to soar and, therefore, worsened the negative interest phenomenon. This prompted even more borrowing and real estate speculation."
Posted by Rana Mesbah
