1. Weekly Commentary
QNB Economics
economics@qnb.com.qa
November 24, 2013
Falling Land Prices in Qatar Should Keep a Lid on Rental Inflation,
According to QNB Group
QNB Group expects falling real estate prices to
slow down the rate of increase in rent prices.
The Qatar Central Bank (QCB) produces a Real
Estate Price Index with data going back to 2006.
This index shows that prices spiked in 2008,
before collapsing in 2009 as the ripple effects
from the global financial crisis spread around
the world. Following the crisis, Qatar’s real
estate prices picked up steadily, rising 109%
from July 2009 to May 2013. However, from May
to September this year, the QCB’s real estate
index shows a drop in prices of 6.2%.
Accordingly, QNB Group expects rents to
increase at a slower rate going forward.
Real Estate Price Index (2006-13)
(Index)
% change
-6.2%
200
175
+109%
150
125
100
75
Sep-13
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
50
Sources: QCB and QNB Group analysis
QNB Group has analyzed data purely on land
transactions in Qatar, based on weekly
statistics published by the Ministry of Justice
(MoJ), which indicates that the cost of land has
fallen in the last five months. This is likely to
ease upward pressures on rental inflation,
enhancing the competitiveness of the Qatari
economy and relieving concerns that the real
estate sector is again experiencing an assetprice bubble like in 2007-08.
The QCB index includes prices for land, villas
and residential buildings. According to QNB
Group, the fundamental driver for real estate
prices is the cost of land. If land prices rise, the
price for villas, apartments and other real estate
prices are also likely to go up.
According to QNB Group, the rise in the QCB
Real Estate Price Index up to May 2013 was
mainly related to the acquisition of land for
major projects that are being implemented in
Qatar, particularly land for the Doha metro,
large shopping malls and mixed-use real estate
developments, such as Msheireb and Lusail.
Now that these projects have reached the
construction phase, much of the land is already
secured and this could be leading to an easing in
real estate prices.
QNB Group’s analysis of land transactions
indicates that the price of land has been falling
from July 2013 through the first half of
November (on the basis of a 12-month moving
average, which reduces the impact of seasonal
factors and single large transactions).
QNB Group also examined the impact of
changes in land prices on inflation. Land prices
are a fundamental driver of rents in Qatar. Land
is the main component of the cost of building,
developing and buying real estate. To recoup
costs, landowners and real estate developers
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2. Weekly Commentary
need to raise rents in line with rising land prices.
Therefore, after land is purchased and
construction is completed, rents are likely to
move in the same direction as land prices. QNB
Group confirmed this relationship in Qatar,
finding that there is a strong positive correlation
(84%) between land prices and the rental
component of CPI lagged by six months. In
other words, rents tend to follow land prices
with a six month delay.
Land Prices and Rents (2011-13)
(Indices, 12-month rolling averages)
Average Land Prices
150
Rent CPI
100
6-month lag
50
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13 Nov-13
Sources: MoJ, Qatar Statistics Authority and QNB Group
Rental prices are a key component of domestic
inflation, accounting for 32.2% of the consumer
price index (CPI) basket. Most of the remainder
of the CPI is determined by international prices.
Rents in Qatar fell consistently from the
beginning of 2009 until the second half of 2012,
but since then they have risen. Annual inflation
in the rental component of CPI averaged -6.9%
in 2010-12, but reversed in 2013 to reach 6.7% in
the year to August. Average land prices changed
direction before rents, beginning to rise in the
first half of 2012 rather than the second half.
QNB Economics
economics@qnb.com.qa
November 24, 2013
Therefore, the drop in land prices since July
2013 is a leading indicator that the increase in
rents is likely to slow in the next few months. In
line with this, annual rent inflation slowed to
6.2% in October 2013 from 6.7% in August.
QNB Group expects to see a further slowdown in
rental inflation going forward to below 6%.
The rapid population growth could potentially
drive up rents owing to stronger housing
demand. However, based on QNB Group’s
analysis, population growth appears not to have
had a significant impact on land prices or rents.
This could be due to oversupply of real estate or
because a large share of incoming laborers is
going into low cost temporary housing, which
reduces demand pressures in the main rental
markets. Therefore, QNB Group expects rent
inflation to slow over the next six months owing
to lower land prices.
Low rent inflation in Qatar has important
implications for macroeconomic stability,
financial soundness and competitiveness. A
slowdown in real estate inflation should
alleviate any concerns that the sector is
entering an asset-price bubble or that the
economy is overheating. Furthermore, more
stable rent inflation should help keep the cost of
living down, making Qatar a more attractive
relocation destination for expatriate workers,
drawing in more talented labor and helping to
raise the competitiveness of the Qatari
economy. Low rent inflation and stronger
competitiveness
should
help
encourage
investment and lending, supporting economic
growth and the diversification of the Qatari
economy.