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Tue 18 Sep 2012 11:27 AM

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Doha commercial rents surge 200% in some areas - report

The rise has led to calls for officials to draft a law to contain the increases

Doha commercial rents surge 200% in some areas - report
State-owned property developers Barwa Real Estate and Qatari Diar are set to spend QR100bn ($27.5bn) over the five years to 2016 on commercial and residential projects

Doha has seen a 200 percent rise in commercial rents in some areas of the city in recent weeks and industry players have called for action to curb the growth, it was reported this week.

Analysts told the Arabic daily Arrayah the rise in commercial rents was due to the government’s acquisition of Souq Najada and the Musheireb Street, which had led to shortage in commercial space.

The rise has led to calls for officials, including the Urban Planning and Development Authority, to establish a committee to investigate the situation and draft a law to contain the rise of in rents.

Qatar's ambitious economic policies have sustained double-digit growth rates while much of the world has struggled over the past few years. But the gas-rich Gulf state may now be overreaching, as a building boom threatens a glut in its property market.

State-owned property developers Barwa Real Estate and Qatari Diar are set to spend QR100bn ($27.5bn) over the five years to 2016 on commercial and residential projects, according to a national development strategy unveiled last year for the country of 1.7 million people.

The government is backing that with promised public investment worth $95bn during the period, over $65bn of which is expected to be on infrastructure.

The construction frenzy has led to a jump in lending to the real estate sector. But much of the property market is weak, with rents and prices falling. Lending into such a weak market could hurt banks' balance sheets while worsening the real estate slump by increasing supply of new homes and offices.

Qatar's successful bid to host the 2022 soccer World Cup is part of this strategy, and should provide massive demand for accommodation and retail space.

For now, however, the real estate market is oversupplied. A review by consultants Jones Lang LaSalle in November showed that office space vacancies were around 20 percent in the capital Doha, and would continue to increase as new supply appeared.

In the eyes of some analysts, the concern is that Qatar could come to resemble Dubai not just in its diversification strategy, but in overextending itself in real estate. Dubai operated on a "build-and-they-will-come" model for most of last decade, only to suffer a property crash in 2008 and 2009. This forced a $25bn debt restructuring at state-owned Dubai World, whose impact still echoes in the economy of the United Arab Emirates.

"We are concerned about the development strategy being pursued by the Qatari state in particular as it seems very similar to that in other regional countries," said Raza Agha, Middle East and North Africa economist at RBS.

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