The projected 7% growth in Qatar’s population this year will trigger demand for affordable housing, which has to be met to stabilise the real estate market and contain inflation in the country.
Qatar’s population grew by 9.5% in the year to March 2015 to reach 2.35mn, the “highest on record”, official data showed recently.
Population growth, undoubtedly, will feed into higher economic growth by boosting aggregate demand and investment in housing and services. But if investment in affordable housing is inadequate, rents will soar, resulting in higher inflation and market instability in the long-run.
The rapid increase in Qatar’s population has an immediate knock-on effect on many sectors of the economy, with real estate particularly susceptible to demographic changes.
Population growth has been accelerating mainly because expatriates come to work on new infrastructure projects. This is bound to put pressure on both commercial and residential properties with the result that rents may go up considerably.
The combination of rapid population growth and higher GDP per capita have already led to a strong increase in land prices.
According to official data, land prices increased 92.7% year-on-year (y-o-y) in December 2014. As a result, real estate developers raised rents in order to recoup higher land prices.
Accordingly, rent inflation rose to an average 7% in 2014, leading to overall domestic inflation of 3.3%. This is likely to continue over the coming years in line with the favourable outlook for the Qatar economy.
Qatar’s domestic inflation may accelerate and reach 3.5% this year and 4.4% in 2016, QNB said earlier. Some other economists say Qatar’ inflation may exceed 5% this year and rise further in 2016.
Urgent measures to tackle rising inflation in Qatar are required as it may take the sheen off the real GDP growth.
Historically, rising rents associated with population growth, were the main driver for inflation in Qatar.
Rents are likely to be a major swing factor in forecasts of consumer price inflation for the near term, experts have already warned.
Qatar’s inflation hit a record 15.2% in 2008, partly because of a building boom for the 2006 Doha Asian Games, logistical problems and bottlenecks, including difficulties in bringing enough building materials into the country.
Between 2005 and 2013, Qatar’s inflation averaged 4.05%, reaching an all-time high of 16.59% in June 2008 and a record deflation of 9.96% in December 2009.
In the past, when inflation surged and touched double digits, the government took very strong measures to contain it.
These included putting a ceiling on the annual rental increases and starting new affordable residential projects.
As discussed in these columns earlier, stern action must be taken against middlemen, who try to take undue benefits from the tight market conditions.
Only authorised persons must be allowed to deal with real estate. And each property lease must be under a scanner.
