business VIEWPOINT QATAR’S REAL ESTATE: A VIEW ON GROWTH ENABLERS POST 2022 QATAR'S REAL ESTATE MARKET IS CURRENTLY GOING THROUGH ONE OF ITS MOST CHALLENGING TIMES. AT ONE END, THE MARKET HAS BECOME HIGHLY TENANT-FRIENDLY BUT REMAINS AN EXPENSIVE PLACE TO LIVE AND WORK WHEN MEASURED AGAINST COMPARABLE REGIONAL MARKETS. BY ANURAG GUPTA AND RISHU GUPTA PMG real estate rental indices for is expected to remain unchanged in the beyond 2022 will help the market plan residential and office sectors have first half of 2020. and target real estate supply. reduced between 25% and 30% Besides, the recent slowdown in liquidity, Kby Q4 2019 from its base quarter Globally, real estate market feeds on slower population growth, lower tourist Q1 2016. [See Chart 1: KPMG Quarterly future investments, and Qatar is no flow due to regional geopolitical issues Rental Index – Qatar]. Market sources different. Greater communication from and oversupply in some of the core real and behaviours suggest that the scenario the government on investment plans estate segments leave developers with no 28 QATAR TODAY > JANUARY 2020 UPGRADING INFRASTRUCTURE First, Qatar’s budget for 2020 is based on an oil price of $55 per barrel, whereas the average price in 2019 has been in excess of $60 per barrel [See Chart 2: Brent Crude Price 2019]. Given that approximately half of Qatar’s GDP is still hydrocarbon-dependent, this comes as a great support to enable widespread development. With the recent large project announcements, it is clear that government spending has moved beyond FIFA-related expenditures and the bulk of spending is shifting towards upgrading the core infrastructure of the country. Key notable projects in the long term are the Sharq Crossing project, expansion “WITH THE RECENT LARGE of water and electricity networks, major highways such as Sabah Al Hamad PROJECT ANNOUNCEMENTS, Highway, development of sewerage IT IS CLEAR THAT networks in different regions of the GOVERNMENT SPENDING country, investment in gas facility expansion from 77 million tons per HAS MOVED BEYOND FIFA- annum, to 110 million tons per annum RELATED EXPENDITURES among others. AND THE BULK OF SPENDING PUSH FOR HIGHER FDI IS SHIFTING TOWARDS Second, Qatar’s new foreign direct UPGRADING THE CORE investment (FDI) law, which allows 100% foreign ownership in almost all sectors, is INFRASTRUCTURE OF THE an audacious step. The new plan touches COUNTRY.” on aspects of business ownerships, fast- ANURAG GUPTA track approvals, right to approach both Director and Head local and international courts in the case Real Estate and Valuations Advisory of disputes, etc. KPMG Qatar Smooth implementation of the FDI law will be the key to its success. It was noted that government is making efforts to understand the implementation challenges it would face so that focus remains on the quality not the quantity of FDI. It will take some time to measure the effectiveness of the new FDI Act; however, it does exhibit government’s choice but to wait and watch for positive commitment and determination in signals. creating a vibrant economy. MORE FUNDS FOR EDUCATION In this think piece, we review Third, it was noted that government’s recent initiatives undertaken by the focus on the healthcare and education government and how they will set out sector is growing. Between the two, the a road map for sustainable economic education sector has seen the highest growth in the coming decade. growth -- 78% over the past two years in Based on our analysis, we identify quite a terms of budgetary allocations. few events that are working well and can This is an area where a significant gap help in creating greater confidence and exists and opportunity is open for the clarity among economic stakeholders, private sector to play a larger role. Over thereby strengthening Qatar’s real estate the past few years, gaps in K-12 segment market. was addressed with the establishment JANUARY 2020 > QATAR TODAY 29 business VIEWPOINT Chart 1: KPMG Quarterly Rental Index - Qatar. Source: KPMG Qatar Research and Analysis of a large number of schools with this sector, we saw that the government basis, healthcare remains the highest international curricula within and on has been highly active in seeking foreign spend category amongst major projects the outskirts of Doha; however, more private universities to set up branches in segment. Private sector involvement schools with specific curricula or specific Qatar. has been largely limited and most of the locations are still in demand. A few of the latest proposed additions action occurs only through government Regarding higher education, due to the include Oryx Universal College in agencies. We believe that this scenario lack of higher education facilities in the partnership with Liverpool John can change if international patients right brand and price points, expats have Moores University (UK) and Savitribai markets are targeted by private players. Chart 2: Brent Crude Price 2019 Brent Crude Oil Price - 2019 - YTD Source: Oilprice.com (Price as of 1st working day of the month) traditionally chosen to send their kids Phule Pune University (India) which Qatar comfortably sits in the mid of 500 either to their home countries or to other are expected to commence operations million population and is one of the most foreign universities. in 2020. On the other hand, budgetary accessible countries in the world. This lost demand is up for grabs and spend on healthcare has remained ROLE OF PRIVATE SECTOR once again the private sector can tap constant at around QR22 billion for Fourth, over the past few years the into it. With our recent engagements in the past three years. On a stand-alone 30 QATAR TODAY > JANUARY 2020 government has turned to the private transfer the lease to another party, and sector to deliver several projects under sublet or rent. the public–private partnership (PPP) This is a welcome change to the framework. The groundwork for it has government's previous restriction to been underway since 2016-17 and is now three locations where freehold ownership at a very advanced stage. Although the was permitted and offers an opportunity country still awaits the PPP law to be to several residents who intend to settle ratified, the government has introduced in Qatar for the long term. various projects in the healthcare and LUSAIL THE FUTURE education sectors under this route. One interesting addition is Lusail which In one of the latest additions, the is now available to foreign nationals for government has invited private freehold ownership. Lusail is Qatar’s bidders to develop and provide flagship new city and is expected to be its facilities management services to eight new commercial business district (CBD) government schools across Doha on within a decade. a Design, Build, Finance, Operate, From a real estate perspective, it would Maintain and Transfer (DBFOMT) basis. help in attracting FDI and in promoting It is expected that similar arrangements a culture of “buying” as opposed to RISHU GUPTA will be rolled out for 37 more schools in “renting”. It is always beneficial to have Real Estate Consultant the future. Furthermore, similar projects KPMG Qatar investors skin in real estate as it helps in such as Sharq Crossing are expected stabilizing the economy in the long term. to be conceived under the DBFOMT structure. Several other initiatives such as free NON-QATARI OWNERSHIP economic zones, the completion of all Fifth, the Qatar Cabinet approved a draft metro lines, driving the building of the resolution of the Council of Ministers tourism sector through conducting following the implementation of Law sporting events, calling of large cruise No. 16 of 2018 on the regulation of non- liners, developing landmark buildings, Qatari ownership and use of real estate. etc., together paint a favourable picture In accordance with the law, non-Qataris for sustained economic growth. can now have freehold ownership of In summary, Qatar must prudently property in 10 areas while 16 areas have exercise its available options for growth been identified where they can use real and achieve a near-perfect balance estate for 99 years. [See Table 1: Areas between its current activities and for non-Qatari ownership and use of real future growth needs. A well-developed estate determined]. economic stability plan will go a long way Foreigners may use the properties for to enable the real estate sector to develop commercial or residential purposes, the right assets at the right time. Table 1: Areas for non-Qatari ownership and use of real estate determined West Bay (Zone 66), The Pearl-Qatar (Zone 66), Al Khor Resort (Zone 74), Rawdat Al Jahaniyah (invest- Freehold ownership ment area), Al Qassar (Zone 60), Al Dafna (Zone 61), areas Onaiza (Zone 63), Al Wasail (Lusail) (Zone 69), Al Khraij (Zone 69), Jabal Theyleeb (Zone 69) Msheireb (Zone 13), Fereej Abdelaziz (Zone 14), Doha Al Jadeed (Zone 15), New Al Ghanim (Zone 16), Al Re- faa and Old Al Hitmi (Zone 17), Aslata (Zone 18), Fereej Bin Mahmoud (Zone 22), Fereej Bin Mahmoud (Zone Long-term Lease 23), Rawdat Al Khail (Zone 24), Mansoura and Fereej Areas Bin Dirham (Zone 25), Najma (Zone 26), Umm Ghu- wailina (Zone 27), Al Khulaifat (Zone 28), Al Sadd (Zone 38), Al Mirqab Al Jadeed and Fereej Al Nasr (Zone 39), Doha International Airport area (Zone 48) JANUARY 2020 > QATAR TODAY 31.