Fuelled by increasing disposable income and falling barriers; Qatar Real Estate Market Growth is Sus

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Fuelled by increasing disposable income and falling barriers; Qatar Real Estate Market Growth is Sus 21 - Oct - 2007

Kuwait Financial Centre ‘Makaz’ in its Qatar real estate report, forecasts the current growth rates in the real estate market in Qatar to be sustainable. The demand led price growth has been a reflection of the buoyant economic conditions in Qatar. Till 2003, Qatar GDP grew at a rate less than 8% p.a. Since 2003, the rate of growth has not dipped below 11%. The real estate growth has been supported by increasing disposables incomes and importantly the opening up of the sector to foreigners to buy real estate. This had resulted in the demand supply gap to widen in the last three years, with demand outstripping supply. The growth in economy has in turn resulted in an increase in the expatriate population. The factor of expatriate population is important in Qatar as expatriates form almost 67% of the population. In the last six years, expatriate population in the country has increased by 5% on a CAGR basis. Apart from this, in 2004, the Qatar government relaxed its real estate policies to allow foreigners to own real estate. in addtion, the increase in personal disposable incomes and the resultant change in preferences of consumers from apartments to villas, all of these drivers generated considerable pressure on an already stretched supply. Currently, demand is outstripping supply in all the spheres of Qatar real estate – Residential and Commercial (office, retail, hospitality, and Industrial) segments. Residential Demand, for both freehold and leasehold residential units outstrips the supply in Qatar. However, ‘Markaz’ expects the shortage ratio to narrow down going forward, as it expects Doha (Major housing market) to see more supply of housing units by 2010.Building permits issued to the residential sector have surged by 27% on a YoY basis in 2005. On the supply front, Apartments witnessed the highest growth (62.6%) in residential units completed in 2005. This is primarily attributable to the strong growth in expatriates in Qatar who prefer to live in apartments. ‘Markaz’ estimates that Qatar will require approximately 250,000 housing units by 2010, while supply would be around 244,000 units. Expatriates would account for approximately 75% (187,000 units) of the total housing units required. This would translate into an addition of 27,000 housing units every year on an average between 2008 and 2010. On the pricing of units and rentals, the scenario of demand outstripping supply has ensured greater appreciation in prices and rentals. Land prices in the major housing projects such as ‘Pearl Qatar’ have witnessed over 100% appreciation in the last twelve months. Average annual housing rents have increased by 47% between 2003 and 2005. Doha witnessed the highest growth in rentals among the major cities in GCC region, between November 2004 and November 2006. Rental level for a two-bedroom apartment in Doha in 2006 stood at $1,930 per month, which is almost three times of what prevails in Riyadh. Commercial The demand for the office space is also outstripping supply in Qatar. Due to this shortage, rents and prices have risen significantly in the office segment. The average annual office rents in Central Business District (CBD) of Doha, has increased by 37% since August 2005. This is primarily due to increasing number of foreign companies entering Qatar. Consequently, Doha in particular is experiencing strong demand for office space, with supply lagging by as long as eighteen months. Although new supply of office space is expected to come on stream in 2008, however, this additional space will not satisfy the buoyant demand. Hence, it is expected that rentals growth rates to stay firm in near term. However, the demand-supply gap is expected to narrow down between 2008 and 2010, causing rental prices to stabilize. Capital market representation & Performance of real estate stocks The real estate sector in Qatar is much smaller compared to countries like UAE, Saudi Arabia and Kuwait in terms of market capitalization. This can be observed from the fact that only Qatar Real Estate Investment Company features within the top 40 real estate stocks (in terms of market cap) in GCC region. on July 2007, the four companies- Qatar Real Estate Investment, Barwa Real Estate Company, Salam International investment and United Development Company accounted for only 6.7% of the total market capitalization of Doha stock exchange. On the performance front, real estate stocks in Qatar have outperformed the broad market index during the last year. However, the real estate stocks in the last year proved to be riskier than the benchmark index. Barwa Real Estate Company generated the maximum return, and United Development Company provided lowest return. While Barwa Real Estate Company proved to be the riskiest stock, United Development remained the least risky. Qatar supply – Shortage of housing units (1997-2010) Source: Markaz estimates ### About Markaz Kuwait Financial Centre 'Markaz', with total assets under management of over KD1.21 billion as of March 31, 2007, was established in 1974 has become one of the leading asset management and investment banking institutions in the Arabian Gulf Region. Markaz was listed on the Kuwait Stock Exchange (KSE) in 1997; and was recently awarded a BBB+ corporate rating by Capital Intelligence Ltd.