Qatar banks set to struggle amid real estate exposure

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BANKING OUTLOOK: Landmark Advisory predicted a gloomy outlook for Qatar banks in a new report published on Monday. (AFP)

Qatari banks will struggle this year amid tight liquidity and over-exposure to real estate, a new report on Monday said.

Despite government support, the outlook for the banking sector in the world’s richest country is gloomy due to past "excessive lending" and "poor risk management", property consultant Landmark Advisory, the research arm of Dubai-based broker Landmark Properties, said in its latest Qatar real estate report.

Last month the government offered to buy around $4.1bn of real estate investments from Qatar’s banks as it moves to limit the fallout of the financial sector from the global crisis.

The Qatar Investment Authority (QIA), the sovereign wealth fund, is expected to buy further stakes in the financial sector later this year, after taking five percent holdings in all local banks in 2008.

The report was also bearish on the prospects for the Qatari property market, citing falling prices, weak demand and lack of mortgage availability.

Qatar’s population is growing due to a rising expatriate population employed mainly as labourers in construction and real estate but this would not translate into demand for housing as most workers are employed in special compounds, the report added.

The research said it was not Qatar’s booming petroleum industry that had fuelled rising population among expatriate professionals, rather it was real estate, which employs 45 percent of foreigners in the country and contributes only five percent to GDP.

By contrast five percent of all expatriates work in the petroleum industry, which accounts for around 70 percent of GDP, Landmark said.

Between the final quarter last year and end of the first quarter this year average freehold property prices fell 25 percent to 30 percent in Qatar- driven mainly by sharp value declines on the billion dollar island mega-project The Pearl.

Qatar’s banking sector has assets worth $110bn - the fourth largest in the GCC - according to research by Shuaa Capital, the Dubai-based investment bank.

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READERS' COMMENTS

Not a surprise to those on the ground
Posted by John Smith, Doha, Qatar on Wednesday 10 June 2009 at 14:17 UAE time


Qatar is a Country of 1.2 Million people. Only 750,000 Of those are "economically active" and less than half of that number earn above what we would describe as "minimum wage" yet Qatar has at least 7 commercial banks. In the "good times" they managed to generate huge profits, how was this achieved ? by revaluing their real estate portfolios upwards to reflect the booming prices. They then paid dividends on these "profits". As is obvious now that was not a sensible or honest long term practice that would only lead to one place, ruin.

Now if you want to know the state of the property market in Qatar and Dubai you have to look no further than the fact that all the banks have now sold their ENTIRE property portfolios to the government. They would not have sold these assets if they thought they would ever be worth something. The assets are worthless and all the banks now know it.

On a related point much was made of the Government stepping in early to recapitalise the local banks. It is for the very reason I outline above that they did this. The banks are technically insolvent, the government realised what had happened and had to step in to stop a meltdown in the sector.

The troubling thing for everyone although not admitted is that along with the real estate right off and the recapitalisation most loans to locals will be written off. In normal circumstances those people would not be able to borrow again for a considerable amount of time. In Qatar, however, the economy is reliant on high spending locals to keep it going.

The local economy has recently entered into a recession masked purely by an increase in GDP due to LNG output. Headline figures of 10% growth fail to tell the whole story in Qatar perhaps Arabian Business will investigate.

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