The global dip in oil prices might just have had a domino effect on the local ecosystem in Qatar. Slashed budgets, evident downsizing and a freeze in recruitment drives, stalled projects and affected capital expenditures of major oil and gas players are all regional after effects of the extreme volatility of oil prices, and it all comes down to the consequence this will have on the real estate market in the country.
Property owners and real estate brokerage agencies feared the rental market may ease due to supplies exceeding demand and the demand being hit by a stagnant or even reduced population of expatriates. However, with oil prices expected to average at around USD 57 – 58 per barrel this year, some rental market operators maintain that despite falling crude rates and excessive housing, there is no pressure on rents so far.
“We don’t expect rents to be affected by the declining oil prices in the global markets,” said an official from Ahmed Hassan Bilal Trading and Contracting Company, real estate developers, in remarks to bq. The company’s higher-end apartments command monthly rents that range from QR 16,000 for a fully furnished two-bedroom unit to QR 25,000 for a three-bedroom unit. “We don’t expect the rents to go down. They may, however, remain stable if oil prices don’t pick up,” the official insists.
A real estate brokerage company official working in the Pearl-Qatar, also said he did not think rent prices would go down. “Prices may stabilize in the coming months mainly because of the promises of increased supply,” the broker said. Companies like Al Asmakh Real Estate Company are far more optimistic as they expect the real estate sector in Doha to soar by nearly 20 percent in the first quarter of this year. According to them, their apartment rents continue to remain stable, upwards of QR 12,750 a month. An official of the company tells bq he thinks this trend will continue over the next three to four months.
Several more projects are expected to be underway in 2015, in Lusail City in particular. “Despite falling oil prices, Qatar has the project pipeline, the political impetus, and the financial reserves to continue project spending as it prepares to host the FIFA 2022 World Cup,” says Ed James, director of Analysis at MEED Projects. “With around USD 30 billion worth of projects, 2014 witnessed a 25 percent increase in project spending as compared to the year 2013, and there will continue to be an upward trend in project activity,” he adds.
The other side
Against the predictions of several industry experts of oil prices averaging at USD 75 per barrel in 2016, if oil prices continue to be low and further affect business sentiment, rents will definitely drop. “In that case, the government could ask us to lower rents in order to help attract people,” presumes the Al Asmakh official.
A real estate market observer, though, says it is highly unlikely for the state to intervene in such a situation since property owners could themselves be forced to lower rent due to stagnating or reduced demand. The government had intervened in the real estate market in 2008 when the population was rising steeply and housing stocks were dwindling due to large-scale demolitions in Doha, as a result of which landlords were increasing rents at their convenience. The state enforced a law putting a ceiling on rent increases. The caps were lifted two years later.
Even a steady curve or a slight increase would still mean a lower price than the USD 115 per barrel high it had reached, before dropping to USD 45 bn per barrel earlier this year.
Market observers say, despite what real estate owners and brokerage agencies as well as developers have been suggesting, it’s now a known fact that a large number projects have either been shelved or rescheduled. “Details related to either shelving or rescheduling of mega projects with a combined value of at least USD 28 billion are already in public domain,” according to local media reports.
Qatar, in fact, began prioritizing its infrastructure development projects well before the market was hit by an oil price crash, said Abdullah Al Khater. An investment and financial expert, he told the local daily that Qatar had to prioritize projects because so many multi-billion dollar construction projects were putting tremendous pressure on the construction sector.
Al Khater was of the opinion that focusing on FIFA 2022-linked projects and re-scheduling other projects will somehow have a bearing on the rental market. “Who knew that oil would become cheaper and affect projects in Qatar and, in turn, hit the demand for housing in 2015,” he questioned.
The International Monetary Fund has already warned that Gulf States must cut state-funded jobs and inevitably the axe will fall first on positions held by expatriates. “Firm limits need to be placed on public sector jobs and wages, and it should be clearly communicated to people that they should not expect to obtain a public sector job,” the IMF recently commented.
Media reports revealed that a huge contingent of fresh labour force was expected to get involved in the upcoming and existing projects. Temporary suspension or shelving of these projects could mean a lesser inflow of foreign workers. With the population unable to grow and reach expected levels this year, the demand for housing is bound to be affected, pushing rents down. With curtailed projects slicing away housing demand, supplies are expected to remain ample.
“Houses are not made overnight. You plan in advance and it takes at least three to four years before a house or a complex is built,” said a property market observer as a matter of fact. He said the new housing supplies that have come on the market were all planned three to four years ago in anticipation of rising demand due to the exploding population.
There has been a decline in the country’s population for two months in succession (December 2014 and January 2015) despite a growth of a record 10.1 percent in 2014. The increase in the whole year was by 190,000. In December 2014, the population dipped 34,000 over the preceding month to a little over 2.23 million (2,235,431), while in January 2015, the population was further down by 11,000 to over 2.22 million (2,224,583), according to figures released by the Ministry of Development Planning and Statistics.
In January, though, the drop could have been because of a large number of Qatari and expatriate families being out of the country vacationing during their children’s school holidays for the spring. This has been a trend in Qatar for the last five years according to Qatar Statistics Authority data reports, where the population in December and January is markedly less because of school holidays, so it would be too soon to speculate if this is an actual population drop.
According to another observer, the litmus test for Qatar’s rental market, for both housing and office space, will be at the start of the long summer break this June. “There are chances of rents easing as people may leave on vacation. Some may not return due to possible layoffs,” said the observer. “I see rents declining in the summer months.” He further reiterated the population may not grow as anticipated.
The spending situation
Qatar’s Economy and Commerce Minister, H.E. Sheikh Ahmed bin Jassem Al Thani himself forecast a rather long spell of low crude rates. He told the World Economic Summit in Davos late last January that oil prices may average USD 60 a barrel by 2015-end and may take at least two years to touch the USD 100 per barrel mark.
The Minister told the Davos meeting that Qatar had enough reserves from surplus revenues in recent years when oil prices were peaking at all-time highs in the world markets. “So lower world oil prices will in no way hinder our plans to host FIFA 2022,” he said.
Qatar’s current budget (2014-15) is based on an oil price of USD 65 per barrel. However, the next budget year that will begin this April will be based on a lower crude rate, the minister said. The budget will be interim as the fiscal year will end in December 2015. In January 2016, the new financial year will begin and that will follow the Gregorian calendar (January to December). The 2016 budget will be based on USD 55 a barrel.
The Minister of Finance, H.E. Ali Shareef Al Emadi, announced separately in January that Qatar’s crude was sold in the global markets for an average USD 85 per barrel, well above the price at which the budget has been based. In other words, in January at least, Qatar did not run the risk of posting a budgetary deficit.
That said, however, Qatar has announced a ceiling on allocations for spending in the 2016 budget. The cap is fixed at QR 140 billion (USD 38.44 bn), much below the spending in the current budget. Of course, priority in the 2016 budgetary allocations is to be accorded to FIFA 2022-related projects, a local newspaper reported.
An indication of Qatar’s booming rental market easing in the near future also comes from Qatar Central Bank’s (QCB) Real Estate Index, according to a media report.
The QCB’s RE Index tracks real estate prices in the country, reflecting the trend. The Index had peaked at a record high of 263.5 points in November of 2014 and hit 255.6 points (down three percent) the following month.
The Index had, though, jumped 34.6 percent in 2014 over 2013 when it was only 189.8 points, showing that real estate had become quite expensive last year. “Not exactly, but the Index in a way points to the situation as regards rents as well,” said yet another property market observer.
However, IMF explained, “Qatar has ample policy space to deal with unexpected circumstances in the short term. Fiscal buffers and remaining natural resources are sizeable and spending is unlikely to be affected by a drop in hydrocarbon prices or market volatility in the near term.” Some real estate market observers are, though, of a similar opinion, but those looking forward to a stabilised rent regime, say if the population goes down or remains stagnant over the next few months, that will indeed impact house rents.
Among a difference in expert opinions and speculations, volatile oil prices, trimmed projects and mass lay-offs, it’s only a matter of time before we see the real effects of these external factors on the local real estate market.