Qatar's real estate prices soar by 20 percent in last six years

The real estate market in Qatar continues to soar with average prices for land, commercial and residential properties in June standing at 20 percent above their peak in September 2008.

The data provided by the Real Estate Price Index (REPI) published by the Qatar Central Bank (QCB), could suggest a potential overheating of the real estate sector, stated the country's top lender Qatar National Bank (QNB) in its report.
 
However, closer analysis, indicates that the increase is still within the fundamentals of Qatar’s fast growing economy and rapid population growth, it added.

The QCB publishes the REPI on a monthly basis on its website. The index was developed to measure the average increase in real estate prices in Qatar. It is based on Ministry of Justice data on land and property transactions published on a weekly basis.

According to the latest data, the REPI increased 21.5 percent in the first half, showing a significant acceleration compared with the 6.2 percent increase in the second half of 2013.

Are these large increases in real estate prices in line with economic fundamentals or a sign of another real estate bubble? To answer this question, we compared the real estate price index to two measures of fundamentals in the economy.

One measure is based on push factors affecting real estate prices. The other measure is based on price movements in the economy. Both measures suggest that real estate prices continue to be in line with economic fundamentals.

First, real estate prices in Qatar have recently been pushed up by both a base effect (population) and an income effect (income per capita). The base effect is the large increase in population experienced since mid-2012.

As population grows, the demand for housing increases, pushing up real estate prices. The income effect arises from the higher GDP per capita as a result of the rapid economic growth over the last few years. As per capita GDP rises, more income will be spent on housing, pushing up the value of real estate properties, said the QNB in its report.

According to experts, Qatar’s real estate prices remain well within fundamentals. "Non-hydrocarbon GDP is estimated to have increased by over 500 per cent since 2006, compared with 326 per cent for the QCB REPI and 141 per cent for the CPI. As long as real estate prices do not exceed the nominal expansion of the domestic economy, real estate prices are expected to be sustainable," they stated.

Overall, both measures presented above suggest that Qatar’s real estate prices continue to be in line with economic fundamentals.

Qatar’s fast growing economy and rapid population growth seem to justify a rapid increase in real estate prices, which remains in line with other nominal developments in the economy, it stated.

Further rapid increases in real estate prices could, however, signal overheating and a potential for another real estate bubble, the report added.