- Special Pages
BY MOBIN PANDIT
DOHA: Qatar’s banking regulator has launched a real estate price index, an indication that property prices are literally spiralling — a trend experts say might impact price stability in the country.
Considering that nearly 129,000 newly-recruited foreign workers arrived in the country in 2012, and the influx is expected to continue as more development projects are launched, the pressure on housing is bound to grow, sending rents soaring.
Qatar Central Bank (QCB) on Wednesday launched a real estate price index that tracks the price movement of real estate in the country since August 2006.
The regulator said that to prepare the index, it had begun collating information on real estate sale transactions from the Ministry of Justice (which has a real estate registration division).
Based on the data, a monthly series of real estate indices has been developed. The QCB, however, added on its website that due to lack of information on location, age of buildings, number of rooms and available amenities — whether the houses are furnished or unfurnished — adjustments had to be made to ensure accuracy.
Financial year 2009-10 was chosen as the base year in close consultation with the justice ministry. The index shows an upward movement in demand, especially for land and villas, after December 2010, apparently fuelled by Qatar’s successful bid to host the 2022 football World Cup.
While the overall index grew 19.7 percent in 2011 to 148.59 points, the index for land rose an incredible 33.7 percent to 137.89 points. The indices for residential properties and villas grew 14.3 percent and 12.4 percent, respectively. All the increases took place barely a year since December 2010.
The index was quite low at 72.1 points in August 2006, when the country’s population began to explode and large-scale demolitions for beautification and expansion began, leading to acute housing shortages. It peaked at an unbelievable 192.2 points, suggesting that real estate prices rose more than 2.5 times after mid-2006. Then it nosedived to almost 86 in the aftermath of the global financial crisis, when the real estate sector was hit worldwide.
The index shows real estate sale transactions also rose between 2010 and 2011, from 5,159 to 6,409.
The QCB said the purpose of the index is to provide guidelines on real estate finance to the local banking sector on the need for proper classification and submission of information on a regular basis. “This (the index) is expected to provide the necessary checks and balances as regards credit flow to the real estate sector,” QCB said on its website. “The rationale behind these guidelines is to enable banks to continue lending to creditworthy borrowers.”
Banks remain heavily exposed to the real estate sector. By the end of third quarter of 2012, or last September, for instance, the credit dispensed by banks to this sector amounted to a staggering QR81.62bn ($22.36bn), accounting for more than 15 percent of the total lending by the banking industry (QR481.33bn, or $131.87bn).
Banking industry sources say that despite their heavy exposure to the real estate sector, banks have to rely on private real estate valuation agencies (who assess market value of properties) in the absence of scientific valuation methods as regulated by a law.
This, according to banking industry sources, is a tricky thing since prices keep fluctuating and there is no credible benchmark to assess the value of a property.
“Land or property prices depend purely on demand and supply,” said prominent businessman,” Ahmed Al Khalaf, adding that there is no system whereby a property’s real market value can be assessed.
And most of the time the price also depends on the seller or the buyer. The price would depend on how desperate one is to sell or buy a property,” Al Khalaf told this newspaper yesterday.
Citing an example, he said land prices in Ain Khalid are much lower than those in Thumama locality despite the former being close to Salwa Road and the Industrial Area. “There is demand in Thumama, and no one knows why.”
Banks, he said, normally lend 70 percent of a property’s value to a borrower who must hypothecate the land (on which the property is located). Banks don’t provide loans to buy land.
Incidentally, this newspaper reported yesterday that Qatar is preparing a draft law that would regulate the profession and process of real estate valuation in the country and it is expected to be ready sooner rather than later.
According to Al Khalaf, real estate prices are rising as mega development projects are being launched and people expect an increasing influx of foreign workers. “Land prices are going up as a result.” He said he feared house rents would rise unless the government intervenes and develops newer areas where housing stocks could be built to accommodate the newly-arriving workers.