Time to invest?

Foreign investors are seeing Qatar as an ideal place to purchase property, mainly due to the strong returns from Doha’s high rents, zero tax and the infrastructure boom
Time to invest?
By Erika Widén
Sat 08 Feb 2014 10:42 AM

Is qatar the most expensive place in the gulf in which to live? Research published last month certainly seems to indicate that it is. A series of articles from Cost of Living Reports (CLR) found that in a like-for-like comparison of seven measures, Qatar came out the most expensive overall, followed by the UAE, Saudi Arabia, Bahrain, Oman and Kuwait.

Heavily influencing the result, the figures show the average cost in Q4 last year to rent a two-bedroom apartment in Qatar was $42,930 a year, which was $15,540 more than the next highest average of $27,390 per year in the UAE, and 15 times more expensive than Bahrain ($2,849 per year).

In its analysis, Dubai-based CLR said luxury developments such as The Pearl as well as limited supply and high demand had driven up rental prices in Qatar, while the Bahraini real estate market had been hit by political turmoil in the country and an exodus of expatriates in 2011-12.

Foreign investors can purchase leaseholds in 18 designated areas, however full ownership of freehold property is restricted to West Bay Lagoon, The Pearl-Qatar, Lusail and Al Khor Resort. The most active market for residential sales is in the Pearl-Qatar, as expatriates prefer freehold property, and there has been a noticeable increase in the sale of apartments in recent months.

“We have seen an increasing interest in purchasing a property in Qatar, especially since last summer,” says Mirco Maurer, managing director of Engel & Völkers. “We assume this demand will continue. The main reason is the confidence of people in the local real estate market.

“Furthermore, we have a good number of long-term projects here and with the high rents and a further risk of an increase, many people decide to take a mortgage instead of paying a landlord.

“Just taking a two-bedroom apartment in a good location costs QR15,000 a month, so in just five years this adds up to QR900,000 in a landlord’s pocket. Wouldn’t it be better to put this money into a payment plan to own an apartment? Many people think so.”

Among the advantages of investing in a property in Qatar, adds Maurer, are the high rents and that fact that Doha has no personal income tax, which makes it an ideal place for expatriates to come and work.

“Foreign investors can invest a small amount of QR500,000 to QR1m, and generate a return of 7 to 8 percent — of course only if you purchase for the right price,” he says.

Johnny Archer, head of valuation, research and advisory of Asteco-Qatar agrees.

“Those investing in residential property in Doha can expect the benefit of strong returns, with rental income taxable at just 10 percent for international investors. There is also the potential for capital appreciation in the short to medium term,” he says.

He further elaborates on how a large number of owner occupiers are purchasing property due to an increasing confidence in the market, and to avoid paying the high rents Qatar is experiencing right now.

“Investors are also increasingly confident of the letting potential of property due to the expected population growth in the coming years,” Archer says.

In addition, following a dip in the property market between 2008 and 2010, the last two years have seen evidence of a recovery in the market with values increasing once again. The built environment of Qatar is expected to continue its rapid expansion, as the country looks to realise its National Vision for 2030, and meet the requirements for the 2022 World Cup. A positive gross domestic product (GDP) growth forecast for the country also supports the theory that Qatar will see a further boost to the property market in the coming years.

Archer also emphasises the highest demand for investment property is from Gulf Cooperation Council (GCC) and other Middle Eastern countries, including Lebanon and Egypt. Furthermore, investors from GCC states have the benefit of not being restricted to just the designated areas.

However, according to Maurer, there aren’t any actual statistical breakdowns on the nationalities purchasing real estate in Qatar. “But if I look to our clients, it’s very mixed. We have, of course, the GCC nationals and Western people, especially as the euro is still strong compared to the US dollar-linked riyal. On the other hand, we see more and more requests coming from Eastern Europeans, Iranian nationals, Indians, Chinese and other Asian countries.”

When asked whether investors prefer the secondary market versus the primary one, Maurer replies: “We have more activity on the secondary market. The prices are more attractive as many people bought some years ago for a good rate and can sell today clearly below the rates of developers and still profit.

“For example, we sold most apartments on The Pearl last year for around QR12,000 to QR13,000 per square metre, while we see most developers listing their properties at QR17,000 and above. We are not saying that these are overpriced, but clearly the mentioned 7 to 8 percent return is not possible any more, and investors who see only around 5 percent or less return, might think other markets like Singapore, New York or London are more attractive (and more safe) investment if you’re fine with 5 percent or less return.”

On the other hand, Archer of Asteco-Qatar argues that the reason behind new properties commanding higher prices than second-hand units is often due to the higher quality construction and improved specification for newer buildings.

Also, given the amount of the ongoing construction and development in Qatar, there are occasions when investors have purchased a property before the entire infrastructure and services in the vicinity have been completed to their liking. “We would advise that anyone investing in property do their due diligence, not only into the property itself, but also the development of the surrounding area,” Archer says.

But Maurer of Engel & Völkers says this isn’t a huge problem.

“I don’t think that the foreign investors have to be worried about this,” he says. “We had no complaints so far and the handovers always went well. Anyway, we recommend everyone to spend a couple of hundred dollars and get a professional company to make a walkthrough, produce a snag list, follow up on issues and produce a handover certificate.”

In 2006, it was common to purchase offplan property in Qatar. However, clients today, due to differences in the sizes of units and quality finishing available, prefer to purchase a finalised residential unit.

“Purchasing property offplan was a feature of the overinflated property market in 2006, both in Qatar and internationally. Investors now approach property with a greater degree of caution, having witnessed the fallout of the property downturn in 2008. It is now rare to see investors purchase property in this way,” says Archer.

With regards to the alcohol ban placed at The Pearl-Qatar in December 2011, Archer explains that it is impossible to quantify how much effect the ban has had on sales on the man-made island.

“[The alcohol ban] was introduced during a period when property sales were slow. Anecdotal evidence would suggest that demand for property on the Pearl would improve if the ban was reversed,” he says. “The confidence of international investors was undoubtedly undermined to some degree as many expatriate tenants became less willing to pay the premium rents in favour of living in other areas.”

Maurer also says that he has not seen a decrease on sales after the ban.  “As you can see, prices are increasing, especially since the ban. I assume that many GCC investors even prefer the location now that there is no alcohol offered. Most complaints about this tends to come from Westerners, many of whom don’t live on The Pearl.

“However, I see some restaurant tenants were affected, as their concept was made for serving alcohol, and their investment into these restaurants was high, so they cannot achieve the required return without alcohol. For new tenants this will be fine, as they will adjust their restaurant concept before opening.”

Despite the quick rise in prices, there is no evidence to suggest that Doha’s real estate market is facing the kind of bubble that hit values after the credit crunch. But investors need to think long and hard before making any kind of purchase, analysts warn. For instance, at The Pearl-Qatar the various residential towers already finalised have not only a different layout but also a quality gap, depending on the tower, in addition to the view and the quality of the property management.

“Therefore, we advise everyone to take his or her time for some research,” says Maurer. “The quality of maintenance is different and of course the overall offered facilities and services within each tower.

“People should not just look at a price of QR12,000 per square metre and assume it is better value than a property worth QR15,000 or QR18,000. With more and more towers being completed, we will see in the future as well the differences in the rental rates, and clients will appreciate better layouts, balconies, quality and services and therefore the return on a unit bought for QR15,000 can be better than on one bought for QAR12,000,” he adds.

Maurer also says that (perhaps unsurprisingly) that Qatar is a better place to invest in comparison to the United Arab Emirates, given that there is currently no oversupply like in the UAE. He also argues that the UAE is at a higher point in its growth phase, whereas Qatar still has plenty of development still to go.

“Streets are getting ready, the new airport, harbour and the metro are under construction and we will see more demand in coming years,” Maurer says.

“Furthermore, Qatar is enormously rich due to its natural gas reserves and therefore will continue to grow, even if there are difficulties in the world economy as we have seen last years. For real estate investors this stability is a huge plus and will attract more and more people.”

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