Qatar’s real estate market is likely to shift further towards “better value proposition and affordability” due to decline in rentals because of the socio-economic impact of Covid-19, a new report has shown.
Such decline will vary across asset grades, coupled with increased level of vacancies, KPMG said and noted the short-term demand will be subdued across residential and office categories.
A combination of these will put “constraints” on the cash flows to landlords and debt serviceability of leveraged assets in the short and medium term.
Depending on the duration of disruption and pace at which normalcy will return, there can be significant delays in completion of under construction projects. This will further lead to stress on the cash flows for landlords, contractors and other service providers, in addition to potential cost overruns in projects.
Projects in early stages of design could witness realignment to current market conditions, such as change in design, size and/or postponement, KPMG noted in its report on the "Potential Impact of Covid-19 on the Qatar Economy".
“Financing will remain a challenge due to weak underlying demand in the short term. Existing borrowings will be stretched to match cash flows,” KPMG said.
Key recommendations to developers and landlords include easing cash flow pressure by deferring commitments.
For under construction properties, assess value engineering options through alternative materials, space redesign, etc.
It has been recommended to protect existing clients by providing temporary relief with clawback mechanism (where possible).
Another recommendation is to renegotiate contract terms with suppliers, lenders and other service providers.
In the medium to long term, recommendations to developers and landlords include reviewing value proposition to tenants through bundled offers.
The other medium to long term recommendations are balanced portfolio of properties with longer term (approximately three years) contracts offering cash flow certainty.
Recommendations to regulators include offering liquidity support to the system, waiver or deferment of fees and other government levies. The regulators may consider backing lenders to ease the shock, the report said.
They should consider introducing transparency and regulations through a dedicated regulatory body.
The regulators should also consider introducing international valuation norms and review lending/collateral norms.
In its key recommendations, KPMG urged lenders to defer repayments and customer obligations, raise liquidity in the balance sheet and reset shareholder expectations.
In the medium to long term, lenders should also review financing portfolio and adjust based on outlook. They should also review valuation norms and credit and collateral policies.