The Arabian Gulf state faces an oversupply of real estate inventory ahead of the FIFA World Cup 2022
By Kedar B Grandhi - International Finance
Qatar is all set to host the FIFA World Cup in 2022. The previous two countries which hosted this quadrennial tournament, namely Brazil and Russia, saw their real estate sectors take a hit after the staging of this prestigious event. Will real estate in Qatar, the world’s richest country in terms of GDP per capita, follow suit?
According to consulting group ValuStrat, the Gulf nation is already witnessing a softening of its real estate market. Its Q2 2019 Real Estate Market review report states that there is a continuing correction of rents and capital values across residential, retail, and commercial verticals.
According to the report, the residential segment saw an overall 6.3 percent annual decline in capital values. This was, however, just 0.8 percent when compared quarterly. With regard to rentals, the segment saw a 5.6 percent decline year-on-year and a 1.5 percent decline when compared to the previous quarter. The commercial office space took a bigger hit with median rents declining 14 percent year-on-year and 4 percent on a quarterly basis. The best performing segment turned out to be retail. Amid competition from newer regional malls, asking rents in relatively older shopping centres had reduced by an estimated 5 percent when compared on a yearly basis.
Anum Hasan, Senior Market Research Analyst at ValuStrat Qatar, told International Finance that this softening is not new and has been going on since the first quarter of 2016, when oil prices started declining. While the prices of this natural resources, which is the primary contributor to Qatar’s GDP, has bounced back, the real estate rentals and capital values have not.
She said that this softening in the Qatar real estate sector was in part due to the Government’s financial consolidation programme that comes amid the FIFA World Cup preparations. Considering hosting the event provides a sense of pride for the host country, Qatar is said to be leaving no stone unturned to ensure presenting itself as a vibrant country to not only the fans who will be visiting the FIFA World Cup but to entire world which will have its eyes glued to it, during the event.
In this regard, Hasan said, the government of Qatar was allocating more of its capital spending towards projects related to this event. These included a metro with three lines, several stadiums, two new cities, namely, Msheireb Downtown Doha and Lusail, roads, and much more. To offset these huge expenses and to improve operational efficiencies, Hasan said the government had reduced spending on the general real estate market including leasing of luxury villas and so on for their employees.
Meanwhile, Vaughn Weatherdon, Head of Real Estate Investment and Advisory at Qatar’s investment group QInvest, told International Finance that the current softening happened amid an oversupply of inventory and that the 2022 FIFA world cup was just one of the reasons for this. “Real Estate rent and price are both functions of supply and demand. In all sectors, there has been a significant increase in supply, in excess of demand growth. Supply is anticipated to continue growing in the near future. There are a number of reasons for this supply growth, including preparation for the FIFAWorld Cup 2022 and the longer-term development plans.”
He further added that the hosting the world cup was just one single event among many others that were responsible for driving development in the country. “We don’t expect the event itself to have a lasting impact on the market, other than the increased supply particularly in the hotel space required to accommodate the event. There should be elevated levels of occupancy and rate during 2022 but thereafter the Qatar real estate sector should revert to a more normalised level.”
When International Finance queried Weatherdon on when and how the situation could improve, he said the market could not be predicted but “a sustained increase in demand (particularly white-collar jobs growth) could signal a change in market direction.”
With regards to the future outlook, Hasan was quite positive. She said while there is a downtrend currently, the rate of decline in rentals had decelerated overall and even stabilised in a few locations. She added that the downtrend could further stop and the rentals and unit prices could both stabilise and hit a plateau by mid or end of 2020. These, she added would continue to remain stable till the FIFA world cup 2022.
Hasan added that after the world cup, both rental prices and unit values of Qatar real estate could decline for a year or so. This she said was because many people and expats working on projects related to the world cup or the world cup itself, would leave the country once the event concludes, thereby leading to a decline in demand for both residences and commercial office units. This, she added was a trend seen in both Russia and Brazil, the countries that had hosted the FIFA world cup in 2018 and 2014 respectively.
She was however quick to add that the medium-term outlook for Qatar real estate looked positive, indicating that Qatar could even be an exception or rebound back much quicker. This, she said was due to the supportive government Qatar had. She gave the example of the recent freehold property law passed by the country in the first quarter of this year.
Hasan explained that the freehold law for Qatar real estate would allow foreigners to come and own properties in the country, similar to Dubai. While this would take some time to become effective, it would allow opening the sector to foreign investors. This, it said would further make real estate in Qatar self-sufficient like in the developed nations, further reducing the sector’s dependency on the government alone for financial injection.
Apart from this, Hasan said the government could further host new events of similar size after the world cup or even further inject money into the Qatar real estate sector after the event like it has been doing historically. Such possibilities, she concluded could further boost this sector going forward.