Foreign investment-friendly laws, Doha Metro opening and moderation in supply will help stabilise Qatar’s real estate sector, Qatar Central Bank has said in a report.
In the past few years, Qatar has been witnessing several developments that could act as harbinger of a new era in the real estate ecosystem, QCB noted in its just published 11th Financial Stability report.
This includes, among others, development of new locations for affordable rental housing and strategically linking them through new intercity highways.
“The opening of Doha Metro Lines augurs well for the properties located near metro stations by way of value appreciation of established hubs as well as by value unlocking of new locations under the metro network,” QCB noted.
The report noted that recent legislations brought by Qatar during the year like introduction of foreign investment-friendly laws such as legalisation of foreign ownership for various asset classes in select locations would provide a fillip to the real estate sector development in the coming years.
“Considering the above factors and the moderation in the leading indicator of supply, price in real estate sector is expected to stabilise going forward,” QCB said.
According to QCB, the “health of real estate in Qatar is critical to the stability of the financial sector” considering its share in the composition of the economy (6.1% of 2019 GDP).
Hence, it is imperative to closely and continuously assess the developments in the real estate sector so that vulnerabilities could be identified at an early stage and corrective action can be taken to avoid any shock impacting the stability of the financial sector.
Towards this end, the QCB examined (in detail) the developments in the real estate market based on the Real Estate Price Index (REPI) at a quarterly frequency.
In addition to the analysis of price index, the volume of transactions, median price per square feet, developments in various parameters are taken into account viz., demand-side (rental price movements) and supply-side factors (Certificate of Completion and Building permits), bank credit to the real estate sector, mortgage risk, performance of the listed real estate corporate entities to draw inferences and design appropriate policy measures.
For the year under review (2019), it was observed that the annual change in the REPI was at negative 8.3%; however, the volume of transactions witnessed a growth by 3.4%.
The demand side indicator as reflected in CPI rental data showed that the Index was on a declining trend.
CPI rental index, which exhibits high correlation with REPI prior to 2017, showed some divergence since mid-2017.
On the supply side, the number of completion certificate awarded by the authorities declined considerably for both residential as well as non-residential buildings during the year.
Moreover, the building permits issued, which provides a leading indicator of supply in the long-term also shows a “declining” trend, QCB noted.
Concomitantly with the decline in REPI, private sector credit to real estate sector contracted by 1.7%.
However, the real estate credit to developers, which holds a major share, increased during the year.
Credit to private housing and commercial housing, which together cover more than half of the private sector credit to the real estate sector declined.
In order to examine, the impact of declining real estate price on corporate balance sheet, QCB analysed the real estate companies (listed) interest coverage ratio and profit after tax.
QCB noted it observed that “most of the listed real estate companies’ interest coverage ratio is comfortable so that they will be able to service their debt.”