In 2016, Qatar is expected to have a fiscal deficit for the first time in the past 15 years, a situation which is expected to stay unless oil prices do not move beyond USD70 (QAR255) per barrel range. Lower oil prices for the next four to five years could mean a cumulative deficit between QAR200 and QAR300 billion. However, markets are hopeful that oil prices would move upward, and the impact will not be this severe.
The country’s real estate market, especially residential and retail, are highly dependent on the government spending on capital and current expenditures. Given Qatar is facing a fixed deadline for the 2022 World Cup, major capital expenditure increased in 2015, but the government was successful in bringing down the current expenditure (not including wages and salaries) level by a whopping 45 percent. That said, the country is expected to continue spending on the committed capital projects (although certain projects integral to the World Cup have been prioritised with increased efficiency), which should keep the market stable for a significant period, and hence would not bring any sudden impact on the real estate sector.
Therefore, in our view, Qatar’s real estate market is expected to remain stable in 2016. We do expect some corrections in the land property transactions. If we analyse the property prices growth, land price in Qatar alone has doubled over the past few years. Given this price surge, most of the projects have become unprofitable. We believe the year 2016 will be a year of market correction. Based on the recent trends, the land prices in Doha, Rayyan and Wakra have already started exhibiting signs of reduced speculation.
Real estate transactions in Qatar are still dominated by land transactions – an indicator that it still is in an early stage of development.
Historically, Qatar has not been a destination for significant external investment. Given real estate markets are expected to be stable over the next few years, oil prices climbing back to comfortable levels, and also in view of the maturing of Qatar’s legal and regulatory system, we believe the investors would start to prefer Qatar. Based on our discussions with developers, we understand that property transactions and new purchases are happening, but at discounted prices. The same is expected to continue in 2016.
In general, real estate transactions in Qatar are still dominated by land transactions – an indicator that it still is in an early stage of development. However, there are signs of emerging maturity, which is evident from the fact that the proportion of land transactions have come down to around 35 percent in 2015 from 69 percent in 2011. For most developed markets, this ratio has been seen to be in the range of five and 10 percent.
In Qatar’s residential asset class, we see a high captive demand for the middle-income segment category housing, resulting in very high occupancy of more than 80 percent. However, for the luxury apartments and villas, occupancy is significantly lower. We foresee no major deviation in this trend until the supply in the middle-income segment matches the inherent demand. This may also mean marginal growth in the low- to middle-income segment, given the continued demand-supply mismatch.
Speaking of commercial properties, the current occupancy level in office real estate in Qatar is around 65 to 70 percent. We foresee this will remain stable in the next few quarters, with a slight upward push in occupancy due to an increase in skilled white-collar workforce in the near future at a faster rate than the quantum of future supply.
Last year, Qatar witnessed an addition of 5000 keys to its hospitality stock, while approximately 8000 keys are expected to be added in 2016. Assuming 60 to 70 percent of this planned supply actually hits the market, downward pressure on occupancy and prices is inevitable. Signs of pressure in occupancy and prices are visible now, as occupancy in February 2016 was 16 percent lower than the occupancy during a similar period last year.
On the retail front, the current supply of major organised retail developments is around 850,000 square metres (sqm), and the occupancy is around 90 percent. Close to 1.5 million sqm of additional future supply is at various stages of construction, and will be delivered in the coming quarters. As a result, we foresee a significant price correction in the organised retail category with a shift towards partial transference of the business risk from tenants to developers, that is from a pure rental model to a revenue-sharing model in the coming years. Major malls currently in the pipeline include the Mall of Qatar, Doha Mall, Tawar Mall, Doha Festival City, Northgate Mall, Markhiya Mall, and Place Vendôme Qatar.