& The Housing Market 1st Quarter | 2020 Considerations for the residential sector amid COVID-19 outbreak

www.valustrat.com Remarks from Mr. Pawel Banach General Manager ValuStrat Qatar

We recognize that these are uncertain and unprecedented times for you and your families, friends, colleagues, businesses and investments. All of us are facing unique challenges and threats in this environment-some of you quite acutely. The current pandemic has also adversely affected the real estate market, as we keenly await some level of stability to return, regressing fundamentals continue to dampen property market prospects.

Of course, this crisis extends far beyond real estate market, it has devastating effects for society as a whole. But the fact remains that property-like most sectors-will be affected directly or indirectly. At the time of this publication, it is too soon to predict the extent to which the market will react, given we don’t know how long the crisis will sustain in Qatar or abroad. It is important to remember that there has been some positive signs. ValuStrat analysis of Chinese property market-the first country to be affected by COVID-19-shows that after an initial hard shock, it has bounced back relatively rapidly. In addition, analysis of previous SARS pandemic of early 2000s indicate similar trajectory, where there is cautious optimism that a strong public response to slow the spread of the virus and provision of financial support to affected households and businesses can counter the projected economic fallout to a certain degree.

Even during less difficult times our firm specialised in helping clients navigate change and uncertainty. As COVID-19 and the resulting economic consequences continue to evolve, we are closely monitoring the capital markets and speaking with all stakeholders of real estate market. Key findings of what we gathered is reflected in the Q1 2020 Qatar housing report. We will continue to be a sounding board for our clients and other market participants as we collectively assess opportunities as well as challenges in the current environment.

We are offering range of product and service solutions across the real estate sector allowing to understand and substantiate proper measurements against possible "russian roulette"in real estate sector. We will continue to serve our clients, to the best of our abilities and with a positive mindset which helps us advise our clients with every challenge they are facing and capitalise on opportunities.

Sincerely Yours,

.01 Our Team

Pawel Banach, MRICS Declan King, MRICS General Managing Director & Manager Group Head - Real Estate

Haider Tuaima Anum Hasan Head of Real Market Research Estate Research Manager

Anthony Fernando, MRICS Marwen Azri Property Valuation Senior Property Manager Valuer

.02 Q1 2020: COVID 19 and Housing Market

In this special market update, ValuStrat shares perspectives on existing trends impacting the stakeholders in the residential sector amidst COVID-19 pandemic.

Pre COVID 19: 2019 Residential Market Trends

The residential sector of Qatar has been grappling with subdued demand, growing supply and deteriorating performance indicators (rents, prices and occupancy) since 2016. However, in 2019 there were two discernible trends:

1) Tenants Trading Up: The correction of rents over the past few years has allowed tenants in Qatar to move to premium apartments within the same community or prime locations. Due to price differentials being much lower than in previous periods tenants were finding more value in cost to change. This was corroborated by an increase in occupied units and a rise in volume of transactions by 72% YoY in The Pearl during 2019. In addition, there was a steeper fall in rents by an average of 8-12% YoY in secondary locations compared to prime locations where rents fell between 5-8% YoY

2) Slowing down decline in prices and rents: As per ValuStrat Price Index (VPI), residential capital values fell on average by 2.4% per quarter from 2017 to 2018. However, during 2019 values fell by 1.3% per quarter. Similarly, residential asking rents fell on average by 3.4% each quarter from 2017-2018 and it fell marginally by 1.5% quarterly in 2019

These trends were expected to continue in 2020 and it was projected the prices and rent might stabilise in some areas of Qatar after a continuously receding trajectory since beginning of 2016

.03 COVID 19: Policy Response from Government of Qatar

With the advent of COVID-19 pandemic came an external shock which initially started spreading in December 2019 in China, albeit, migrated to Qatar towards the end of February 2020. The crisis brought upon by COVID-19 pandemic has potentially impacted all aspects of society. Local, regional and national governments are responding to containing the virus by implementing various measures. In Qatar we have seen a swift imposition of policies to restrict the spread of the virus:1:

• Suspension of inbound flights except transit and • Public events and gatherings are also prohibited cargo • Changes in healthcare services in Qatar’s • Suspension of public and private schools and healthcare system such as stopping some universities. Adoption of distance learning elective health services except for emergency cases • Lockdown affected streets of Industria Area (Streets No 1-32) • Public health awareness campaigns and intensified food inspections to ensure health • Closure of cinemas, theatres, children's play compliance areas, gyms, money exchange locations, wedding venues, museams and home services • Imposition of work from home for minimum 80% of employees in the private sector. The workplace • Closure of non-essential retail stores and bank timings in both government and private sector branches in commercial complexes and shopping will be six hours from 7 am to 1 pm (excluding centres with the exception of shops, food outlets stores selling food stuff, pharmacies and and pharmacies restaurants that do deliveries)

1 https://www.gco.gov.qa/en/media-centre/press-release/

.04 COVID 19: Policy Response from Government of Qatar

The measures introduced are not limited to the ones mentioned above. In addition to this, government of Qatar also announced a QAR 75 billion economic stimulus package for private sector and real estate developers have announced various measures to tackle the economic fallout of the virus:

Policy Potentially Benefitting Sectors Time Period (Months)

QCB to establish appropriate All 6 mechanism to encourage banks to postpone loan instalments and obligation of the private sector for a grace period

Exemption of water and electricity fee Hospitality and Tourism sector, retail 6 sector, Small and Medium industries sector, Commercial complexes in exchange for providing services and exemptions to tenants and logistic areas

Qatar Development Bank (QDB) All 6 postpone instalment of all borrowers

Exemption from rents for the Small and Medium Industries 6 logistical areas

Exempting food and medical goods Healthcare and Food & Beverage 6 from custom duties Industry

Qatar Development Bank launched 100% Privately owned companies Loan will cover staff payroll and National Guarantee Program to (Minimum 51% ownership by Qatari rental payments for three month provide guarantees for local banks to partners) except those involved in (April, May and June), however it can grant loans to affected private real estate, construction or be payable for a period of 3 years companies for staff payroll and rental contracting payments

Doha Festival City, Barwa Real Retail, Commercial and SMEs 3-6 Estate, Katara, Qatari Diar, United Development Company (UDC), Woqod, Qatar Science & Technology Park (QSTP), Gulf Warehousing Company (GWC), Qatar Foundation, announced exemption of rent for their tenants limited to specific sectors

COVID-19 is estimated to impact all sectors of real estate in Qatar directly or indirectly. The restrictions on mobility resulting from policies implemented by authorities, abroad and in Qatar, to contain the spread has directly altered the way people socialise, work, eat, shop and travel. As a result, demand for spaces within real estate industry has notably reduced. It is projected to impact the residential sector indirectly as a result of potential adverse consequences of the pandemic on the economy. At this point in time, it is premature to predict the extent to which the local housing market will respond, as we cannot ascertain how long the crisis may prolong in local and international markets. Nevertheless, we can begin to assess certain trends in the housing market which are becoming evident with the passage of time.

.05 Residential Transactions

• Overall, during Q1 2020 transactional volumes of • Median transacted size for residential houses was residential houses decreased by 13% YoY and no QAR 2.5 million where the five largest ticket sizes change compared to Q4 2019. However, this fall exceeding QAR 30 million were seen in , cannot be fully attributed towards the advent of The Pearl, , Old Airport and COVID-19 as transactional volumes have been Muhammed. Majority of the largest transactions dipping annually since Q2 2019. during Q1 2020 occurred in March 2020

• As observed in previous years (2016-2019), • During Q1 2020, The Pearl and West Bay Lagoon volume has always picked up in March compared (freehold areas) saw transactional volume to January and February, though not in Q1 2020, decrease by 3% YoY and this can be attributed to where a notable fall in March 2020 was observed a notable fall in volume during March 2020. During the first two months of Q1 2020, volume was higher by 16% YoY compared to 2019

Transactional Volume of Houses (2016 - 2020) 214 210 203 204 188 186 185 184 173 170 168 168 164 163 161 160 160 159 153 154 151 146 146 144 145 140 136 136 133 129 129 128 125 124 124 112 109 108 105 101 100 99 97 91 91 90 90 87 78 57 55 Jul Jul Jul Jul Oct Oct Oct Oct Apr Apr Apr Apr Jan Jan Jan Jan Jan Jun Jun Jun Jun Feb Feb Feb Feb Feb Sep Sep Sep Sep Dec Dec Dec Dec Nov Nov Nov Nov Aug Aug Aug Aug Mar Mar Mar Mar Mar May May May May

2016 2017 2018 2019 2020

Source: Ministry of Justice

.06 VPI ValuStrat Price ValuStrat Price Index Index - Residential Q1 • Qatar’s ValuStrat Price Index (VPI), a 2020 valuation-based index (100 points base set in Q1 2016), that tracks change in capital values for a representative fixed basket of properties, showed an overall 3.4% annual dip in capital values for residential sector, with trivial quarterly fall of 0.5%

• The average capital value of a residential unit stood at QAR 7,876 per sq m. More specifically, apartments were QAR 11,435 per sq m and villas 70.8 QAR 6,105 per sq m VPI - Qatar Residential Capital Values • All freehold apartment locations monitored by the Base: Q1 2016 VPI saw capital values quarterly decline of less than 1%

• For villas, 6 locations out of 13 clusters (, Umm Salal Ali, , Umm Salal Muhammed , Muaither and Al Waab) saw no quarterly change in capital values, except for which saw -0.5% a fall of 4% QoQ. The remaining clusters saw Quarterly Change capital values decline by less than 1% QoQ

-3.4% Annual Change ValuStrat Price Index - Qatar 13 Villa and 3 Apartment Locations Base: Q1 2016 = 100

120 100.0 96.3

94.2 QAR

90.9 3,011,073 100 89.8 87.2 84.9 82.7 81.3 77.7 75.8 75.0 73.4

72.8 Weighted Average Capital Value 71.8 71.2 80 70.8

60

40

20

0 QAR 7,876 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Weighted Average Value per SQFT 2016 2017 2018 2019 2020

Source: ValuStrat

.07 Residential Rents

• Median asking rents for residential units fell • Median asking rents for villas fell marginally 0.6% trivially 1% QoQ and 5% YoY during Q1 2020 QoQ and 7.3% YoY. Highest dip in rents ranging up to 3% were experienced in , • Median asking rents for apartments decline by 1% Duhail and QoQ and 4.6% YoY. Highest fall in rents ranging from 1.5% to 3% was experienced in areas of Al • Four bedroom villas experienced highest annual Dafna, Al Sadd, Al Muntazah and Fereej Bin fall in rents Mahmoud • Highest annual corrections were experienced in • One bedroom apartments experienced highest secondary locations for apartments while for annual fall in rents villas it was experienced in relatively prime locations such as , Abu Hamour, Duhail and Al Waab

Residential Median Asking Rents

-14.7% -5.0% -1.9% -1.0% Last 2 Years Last Year Last 6 Months Last Quarter

Source: ValuStrat

Insights from Brokers & Landlords

• No direct evidence of drastic downward adjustment in prices and rents of properties available on sale or rent, however landlords and sellers seem willing to increase concessions if tenants or buyers proceed to execution. For example, sale to asking price gap ranged from 5% to 10%, it is observed currently it may have increased to 15% • At least 50% decrease in new enquiries for rental or sale of residential units • Due to the new rules of social distancing followed by all residents of Qatar, open houses and one-on-ones with potential buyers are not feasible. Brokers are resorting to alternatives such as virtual tours. However, virtual viewing is still premature in Qatar and is slowly progressing • Tenants with lease expirations on the immediate horizon are considering short-term lease extensions as a temporary solution • Many tenants are preferring branded services apartments due to flexibility of leasing it over shorter time periods • A few bulk residential purchases or leasing contracts underway prior to the crisis have proceeded to close, most are on hold as tenants take a ‘wait and see’ approach to real estate decisions • Sellers are pulling out their properties off the market due to adverse expectations

.08 Residential Supply

• Total housing stock by end of Q1 2020 was approximately 299,100 units with the addition of 900 apartments and 500 villas during the quarter.. All new additions were during first two months of 2020

• Approximately 60% of the new additions came from Lusail with completion of Maison Blanches compound and towers in Al Kharaej district and Al Erkyah district

• Approximately, 8,600 units are projected to be added during the remaining quarters of 2020, assuming no construction delays

Insights from Major Real Estate Developers

• Some delays to be expected in completion of on-going projects due to reduced number of labourers and logistical adjustments in supply chain. Furthermore most developers are reluctant to release new supply in the coming three months due to expectations of slow down in demand and rent reductions • Liquidity was not quoted as a major problem amongst developers, as some have quoted approaching the banks for deferment of debt commitments or other facilitating changes in loan contracts for the next six months • Launches of all new real estate projects including residential developments has been postponed for the next 3 to 6 months in order to minimize risk and limit cash flow problems

.09 Looking Forward: Major Factors Which Might Impact Residential Sector

Shift to Renewals and Short-Term Extensions

There might be a shift towards lease renewals compared to new leasing activity. Tenants temporarily unable to physically tour new spaces and due to increased risk of shifting during this period prefer remaining within their existing premises. Landlords concerned about increasing vacancy are likely to provide short-term deals for existing tenants.

Decline in “Trading Up” Trend

Any potential decline in leasing activity and an increase in renewals/extensions could cause a short-term decline in the “trading up” trend observed since the past year. This might limit increasing occupancy of prime locations in the short term.

Possible rise in Vacancies

As per International Labour Organization (ILO) 25 million jobs are threatened globally due to full or partial lockdown measures implemented by different countries to reduce the spread of COVID-19. The worst affected sectors are reported to be food and accommodation, retail and wholesale, business services and administration and manufacturing. In addition to COVID-19, Gulf Countries Cooperation (GCC) countries including Qatar might have to bear the brunt of another crisis, fall in oil prices.

It is early to predict increase in unemployments and eventual reduction in number of households. As per ValuStrat research, based on latest March 2020 population figures, the total number of households is estimated at 224,000 households, making the total oversupply exceed approximately 75,000 units. This oversupply is projected to increase by end of 2020 due to projected influx of supply in remaining quarters and probable fall in households. As per the latest Labour Force Survey published by Planning & Statistic Authority (PSA), 7% of the population (approximately 190,000 employed workers) are "Service workers and shop and market sales workers". Higher percentage than this might be under threat due to economic fallout caused by COVID-19 and fall in oil prices. As of now there is existence of anecdotal evidence of job losses during March 2020. Government of Qatar has introduced economic stimulus package to reduce the economic fallout and increase in unemployment. National Guarantee Program implemented through Qatar Development Bank was introduced to aid companies to pay wages of their employees for the next 3 months. The length of the crisis will define the extent of the loss. The longer the crisis persist, the harder will it be for the government to provide support, hence rise in vacancies is predicted with a medium-term lag.

Residential Supply 307,700 (Units) 299,100 297,700

2019 Q1 2020 Q4 2020* Source: ValuStrat .10 Looking Forward: Major Factors Which Might Impact Residential Sector

Decline in New Launches

Developers might face minor delays in under construction projects. However, logistical challenges, increasing uncertainty and possible liquidity issues caused by the crisis, may limit new launches in the short term.

Sales Slowdown

Negative impact on transactional volume is projected as sales are dependent on physical site visits and direct negotiations, which at the time are not feasible. This might be especially true for freehold areas which have a higher proportion of foreign investors. Additionally, many homebuyers might consider postponing their decision to stay away from project sites in the expectation of price correction.

Fall in Prices and Rents

ValuStrat Price Index (VPI) for residential sector and rents were falling quarterly by an average of 1.5% in residential sector prior to the crisis. However, any substantial fall in capital values or rents different from this trend will only occur if there are significant increases in vacancy over time stemming from various adverse economic effects of the pandemic. Therefore, at least in the short term, there is no predicted notable decline in prices or rent.

Depending on the length of the crisis, noticeable fall in prices and rents might occur with a lag. Residential projects with high vacancy rate likely will be the first to change prices or rent. While, resistance to repricing of new construction and highly renovated redevelopment projects is expected.

Increase in Attractiveness for Investment

Sellers who are willing to sell properties during this crisis might provide favourable deals for the buyer in the form of discount on asking sale prices. This coupled with reduced interest rates offered by banks has increased attractiveness of real estate as an investment option. As of Q1 2020, ValuStrat Price Index (VPI) has estimated average gross yield of residential unit in Qatar to be 5.05%, which have been increasing since Q1 2018. Good buying opportunities could include properties approaching end of their financing term or those with troubled operations. Residential sector is considered most favourable as it is predicted to generate relatively stable cash flow compared to more risky commercial real estate assets.

.11 How Can Help

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.12 About

ValuStrat Qatar is part of a leading consulting firm providing Advisory, Valuation, Research, Due Diligence, and Divestment services across a Strategic Partners of diverse range of industry sectors since 1977.

ValuStrat’s office network provides services to over 1,000 corporate clients including financial institutions, local corporates, multinationals, Financial Institutions governments, SMEs, family businesses and start-ups.

Some of the key sectors serviced by ValuStrat’s consulting team include real estate, hospitality, healthcare, education, manufacturing, retail, entertainment, transport, and FMCG. ValuStrat is a Royal Institution of Chartered Surveyors (RICS) Regulated Firm and the first company head quartered in all of MENA and Asia to be accepted into the prestigious RICS Tech Affiliate program.

Also accessible via Market Intelligence. VPI Simplified. ValuStrat Price Index

VPI Online www.valustrat.com/vpi-qatar

The ValuStrat Price Index for Qatar’s residential sector is constructed to represent the quarterly price change experienced by typical residential units within Qatar. The VPI is a valuation-based weighted price index that uses a data sample representing influential locations across the city and is built by our expert RICS Registered Valuers.

Research Methodology Copyright © ValuStrat LLC 2020 Every effort has been made to ensure the accuracy of this This document is the property of ValuStrat LLC and must document. New supply data covers all the eight not be reproduced or transmitted in any form or by any municipalities of Qatar. Only completed and under means, without the prior written consent of ValuStrat LLC. construction projects are included. The new supply data We welcome your constructive feedback and any does not include announced projects, and projects in corrections that may need to be made to this document. design phase. The new supply database does not take ValuStrat LLC does not accept any liability in negligence or into account most private building projects. Prices are otherwise for any damage suffered by any party resulting calculated from actual transactions extracted from the from reliance on this document. Ministry of Justice data that have been carefully cleansed to exclude duplicates and outliers. Rental data is derived from carefully chosen listings from predetermined areas and districts for commercial and residential properties.

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