By Courtney Trenwith
Developers are calling on the gov't to take measures such as copying the Saudi tax on undeveloped urban land to help ease costs
Qatari developers are calling on the government to intervene and help ease the dramatic increase in land prices, which have soared by as much as three times their value in the past four years.
The cost of masterplan development plots has risen as many owners prefer to make profit flipping the land rather than developing it, numerous developers and investors said during Qatar Cityscape this week.
Mohamed Fakhro, the CEO of Tanween, the development management arm of Barwa, said Doha land prices had risen by 60-200 percent, depending on the area, in the past four years.
“This phenomenon will not stop unless the government starts to take an active role,” Fakhro said.
Doha land sales make up about 50 percent of all property transactions in the country, contributing to a somewhat artificial price inflation and making land a more valuable commodity than elsewhere in the world.
“We wouldn't see [50 percent of property transactions as land] in most developed countries,” Vaughn Weahterdon, from investment firm QInvest, said. “It's about 95 percent buildings [in other countries].”
Fakhro said the soaring cost of land meant developing was less feasible for those who did not have an existing land bank.
“In Saudi Arabia, Oman, Bahrain, we still make 20 percent-plus in a development. However, in Doha we're barely able to make double-digits. That doesn't entice equity,” he said.
It also discouraged development of affordable housing, a growing concern in Doha.
“Even though the demand is there,” Fakhro said.
“Unfortunately, we're all used to having double-digit returns and for a developing nation and for the risks of the region, that's the right climate to be in. For us to drop to single-digit returns as an investor, I wouldn't do it.”
Developers have shown support for Saudi Arabia's recent announcement it would tax undeveloped urban land, known as the “white land tax”. Despite some reservations about how or whether it would be fully implemented, it could help level Qatari land valuations, they said.
“I think the white land tax makes a lot of sense,” Weatherton said. “Once land is zoned for a specific development … [it should be] taxed if it's not developed.”
Hamad Al Hedfa, CEO of developer Mazaya Qatar, which has a significant land bank in Doha, said the value of the tax had to be carefully decided to ensure it was higher than any potential profit an owner would gain from holding onto the land, which presently was high.
He suggested forcibly trading urban land for rural plots if owners refused to develop.
“If an owner has land in Doha it has to be developed, otherwise you give him land somewhere out of Doha. It has to be bigger but smaller in value, this way you can create a new market, you can create another area where it can be developed because as of now, we know 80-90 percent of the work is concentrated in Doha,” Al Hedfa said.
His company was using the build-operate-transfer (BOT) model with the government, which he said was another viable solution.
Others called for the government to release more land.
Al Hedfa said part of the problem was much of the land had been inherited by owners who did not know how to develop, who had no interest in the industry or who speculated they could earn greater or easier profits by holding onto it.
Others bought the plots early in Qatar's real estate era, which has only mature in recent years, and were not capable of developing it, he said.
Deloitte's director of real estate advisory for the Northern Gulf, Nick Witty warned if land price growth did not slow soon and enable the development of affordable housing, residents would be priced out of Qatar.
“If investments into affordable housing is inadequate, rents in the lower end will experience inflation,” he said.
Rents in Doha have been typically rising by about 10 percent per quarter.
However, Qatar National Bank head of economics Joannes Mongardini said the growth in land prices was showing signs of easing.