Housing shortage in Qatar continues despite new supply

Despite an influx of high-end real estate developments coming on-line in recent years, rapid population growth in Qatar has created a shortage of affordable housing, particularly for middle-class families and single workers. Although the government is seeking to address the issue with plans to crack down on illegal housing and relocate workers to areas outside of Doha proper, over the shorter term affordable units are expected to remain in short supply, creating opportunities for both new builds and redevelopment of existing residential areas.

Population Growth

A rising shortfall of affordable housing has been driven in large part by rapid population growth – the state’s population grew by 9.2% in April 2016 year-on-year (y-o-y), reaching 2.56m, after tripling between 2004 and 2014 to 2.26m. Property prices have also been spiking, with Qatar Central Bank’s real estate index rising by 14.3% y-o-y in December 2015 after hitting an all-time high of 310.4 in November 2015, compared to 263.4 a year earlier. This has translated into a serious shortage of residential units, with investment bank Alpen Capital reporting in June 2015 that total demand for residential units stood at 177,000 units in 2014, compared to total supply of 129,000 units. Residential demand was forecast to reach 266,000 units by 2018.

Although a number of high-end residential developments have come on-line in recent years, largely concentrated within The Pearl-Qatar, which will offer more than 18,000 residential units by 2018, and Lusail City, which is expected to accommodate 200,000 residents on completion, affordable housing for single workers and middle-class families remained in short supply in 2015. In 2016 there were signs of increasing vacancy in some areas, according to real estate firm DTZ’s first-quarter 2016 Qatar report. The availability of prime residential accommodation increased due to a combination of new apartment building completions and reduced demand. DTZ said the increase in vacancy has led to stabilising rents, and in some cases even decreases for prime apartments and villas in certain residential compounds.

Bachelors

According to the Ministry of Development Planning and Statistics, the male population totalled 1.9m, some 75.7% of the total population as of April 2016. With single male workers representing the largest population demographic in the state – Qatar had an estimated 1m labourers working within its borders as of late 2015, a number forecast to rise by between 7% and 10% over the next five years – affordable housing for low- and middle-income workers has been in increasingly short supply, with real estate consultancy Deloitte estimating the state will require between 500,000 and 1m affordable residential beds prior to 2022. Ghassan Oueijan, managing director of Nakheel Landscapes, told OBG, “There needs to be a unified system to provide for affordable, quality labour accommodations for contractors. Otherwise, they will find other ways to cut costs, with the prices now increasing drastically due to the demand in the market for camps.”

Middle-Class Families

The residential shortfall is not limited to single workers. Homes for middle-class families will also remain in short supply, despite thousands of new high-end residential units due to come on-line in the coming years. Real estate firm Colliers International had already reported in November 2014 that there is not enough low- and mid-cost housing in development to keep up with the state’s fast-growing population. Although 8200 new residential units are expected to become available between 2015 and 2018, for an average annual supply increase of 3%, population growth is simultaneously forecast to average 11% annually over the same period, meaning the market will remain undersupplied over the medium term. In early 2016 the supply of residential accommodation increased, and should continue in 2016 as new projects reach completion.

Rent Relief 

According to Colliers, 70% of households in Doha (excluding blue-collar workers) earn between QR5000 ($1372) and QR19,999 ($5490) per month, meaning that the majority of residents can afford rents between QR1700 ($466) and QR6800 ($1870) per month. Numbeo, a statistical website which compiled data from 2200 contributors to determine the cost of living in Doha, reports that rent for a one-bedroom apartment in the city centre averaged between QR5088 ($1400) and QR8108 ($2220) as of December 2015, while a three-bedroom apartment rental averaged between QR9670 ($2650) and QR15,122 ($4150) per month.

While rents were rising in many neighbourhoods in 2015, residential rents were falling for the first time in seven years in January 2016, according to Doha News. Although the state’s overall population continues to climb due to the rising number of blue-collar workers, residential vacancy rates in some areas suggest that the number of middle- and high-income expatriates is staying the same or declining due to cost savings initiated by energy companies, health care providers and government-funded organisations.

Challenges

Future development of affordable housing faces several notable challenges, one of which is lack of enforcement of labourers’ housing regulations. A shortage of housing inspectors has allowed illegal accommodation to flourish in recent years, with local media reporting in 2015 that as a result of the housing shortage, some tenants and landlords were building illegal makeshift structures on rooftops, or illegally partitioning apartments and villas in areas such as southern Madinat Khalifa.

The government has already doubled the number of active inspectors from 150 to 300, and plans to further increase this to 400 in the near future, with labour reforms expected to lead to the closure of a number of illegal dwellings in the future.

As with all other segments of the real estate sector, land prices also continue to pose a challenge to development of new low-cost housing. Prices soared by 92.7% y-o-y in December 2014 alone, while The Big 5 Hub reported in May 2015 that land prices in central Doha averaged $570 per sq foot, a significant rise compared to April 2014, when 47 plots of undeveloped land located within The Pearl-Qatar mixed-use development were sold for $359 per sq foot.

Stakeholders have suggested that the government examine the possibility of releasing new sections of land in certain areas, which could be allocated exclusively for low-cost housing and potentially developed under a public-private partnership (PPP), creating new opportunities for private sector investment in the sector, as mandated by the Qatar National Vision 2030 development plan.

Omar Bahgat, vice-president and regional manager of ECG, told OBG, “Due to the changing finance regime in the country and the number of large-scale works that still need to be done it would make sense for the government to look at alternative financing mechanisms such as PPPs.”

New Products  

In a September 2015 interview with The Edge magazine, Edd Brookes, general manager of DTZ Qatar, said that private developers are already moving away from higher-income units to provide labourer accommodation that meets government standards, which include a maximum of four people per room, a minimum of 4 sq metres of living space per person, and on-site health facilities for all residential units housing more than 100 people.

Indeed, real estate and construction stakeholders are increasingly recognising the variety of opportunities available in this segment, with two quasi-government businesses moving to launch new projects aimed at meeting the shortfall.

Ezdan Real Estate, for example, announced plans to redevelop and renovate 7200 residential units in Al Wakrah and Al Wukair in November 2015, which are already home to more than 70,000 residents, while Barwa Real Estate announced in July 2015 that it plans to invest QR15bn ($4.1bn) in new capital expenditure to double its 2014 rental operating income by 2020.