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Tue 22 Jan 2008 02:05 AM

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Qatar plans cheap housing offensive

State hands over land to developer to build low-cost homes in attempt to beat inflation.

Qatar said on Monday it planned to build cheaper homes, control building material prices and give land virtually free to a state-affiliated firm to try to rein in housing costs, which drove inflation to a record high last year.

Accommodation costs in Qatar surged 29% in the year to September 30, lifting inflation to 13.73% in the Gulf state which has the world's third-biggest natural gas reserves. Inflation hit a record 14.81% in March.

"Inflation is being caused by real estate and because the cost of building and raw materials and the cost of construction has grown," finance minister Youssef Hussein Kamal told newswire Reuters in an interview.

As with other states in the GCC, Qatar is constrained in the fight against inflation because it currency peg to the dollar peg forces it to track US monetary policy at a time the Federal Reserve is cutting interest rates.

Qatar's central bank has shadowed the Fed in cutting interest rates by 100 basis points since September 18. Unable to use interest rates, Qatar, like its neighbours, is turning to price controls and other measure to rein in prices.

Qatar will provide Barwa Real Estate, the country's largest property developer by market value, with land at "nominal prices" to build "low-cost" homes in the next two years, Kamal said. He did not give details of how much the land or homes would cost.

Barwa will build 2,000 such housing units this year and 6,000 next year, Kamal said. Barwa is an affiliate of state-owned property developer Qatari Diar and complies with Islam's ban on lending on interest.

Qatar would also sell bonds soak up liquidity and reduce the maximum ceiling on rent price rises to tackle inflation, Kamal said.

Inflation in Qatar could cool slightly this year to 10.7% from 12.2% last year, economists polled by Reuters said last month.

Qatar, the world's biggest exporter of liquefied natural gas, is investing record revenues from energy exports to develop infrastructure, tourism and financial services, ratcheting up demand for homes and offices.

A law passed in 2006, allowing investors from outside Qatar and its five Gulf Arab neighbours to lease property for 99 years, has also stoked prices.

Rent for a four-bed room villa surged to $53,000 a year at the end of June from $25,000 in 2005, property consultancy CB Richard Ellis said in October.

Another property consultancy, Colliers International, estimated last year that the average monthly rent for a two-bedroom apartment in Doha had risen from $1,100 in 2005 to $2,800 in 2007.

Rising building material costs were part of the problem, Kamal said.

The government had set up a business, Qatar Raw Materials, to manage building materials supplies and control prices, Kamal said.

Qatar expanded capacity at ports to prevent bottle necks from driving up the cost of foods and other raw materials, he said.

Qatar's riyals has tumbled with the dollar to record lows against the euro last year driving up the cost of imports from Europe. Qatar pays for about a third of its imports in euros.

"The only thing that is a concern is the increase in the price of food. This is not just in Qatar but the world and we are taking measures to control this," Kamal said, without being more specific. (Reuters)

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