Higher land prices to push up rent
Published: Sep 21, 2014
Source: Peninsula Qatar


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Higher land prices to push up rent

With Qatar’s fast growing population rate continuing to push up land prices, the country is heading to higher rent inflation.

Land prices have increased 52.7 percent since the beginning of this year, leading to a 7.9 percent increase in rent inflation in August 2014.

The Ministry’s August data reveals that land plots continued to dominate real estate transactions during the last week of the month, representing 54.7 percent of the total deals in August compared to 45.3 percent of other transactions across the country.

Doha Municipality saw a transaction of 923 sqm plot for a high QR30m during the first week of this month.

The week also witnessed a top deal of 911 sqm plot for QR25m in Mamoura area.

“The cost of land is the fundamental driver for rent inflation. If land prices rise, rents for villas, apartments and office space will also go up to recoup the overall cost to landlords, albeit with a lag”, analysts at QNB Group noted yesterday.

“Land prices have been rising rapidly since March 2014, following a lull during the previous eight months. This rise has put pressures on Qatar’s rent inflation, which has been accelerating steadily since November 2012. In fact, rent inflation in August was the highest since end-2008. We expect this trend to continue into the remainder of 2014 and 2015, leading to a 4.2 percent and 5 percent increase in domestic inflation, respectively”, the analysts said.

Rising rent inflation is leading to a moderate acceleration in domestic inflation. This is countered by lower international food prices, which are keeping foreign inflation down. “Overall, we expect rising rents to cause inflation to rise to 3.4 percent in 2014 and 4 percent in 2015-16,” it said.

According to QNB Group, the combination of rapid population growth and higher GDP per capita are leading to a strong increase in the demand for housing, pushing up real estate prices. As the population expands and per capita income rises, both a base and an income effect push land prices higher. This is likely to continue over the coming years.

Counterbalancing these domestic inflationary pressures, foreign inflation has been on a downward trend this year as international food prices have been falling on record global food harvests and large stockpiles.

According to the International Monetary Fund (IMF), this trend is expected to persist into 2015. Lower international food prices would therefore result in lower food prices in Qatar.

“We also forecast other components of foreign inflation covering clothing and footwear; and furniture, textiles and home appliances to rise moderately, leading to a 1.1 percent increase in foreign inflation in 2014 and -0.6 percent in 2015,” QNB Group noted yesterday.

The trend of growing population and higher land prices is likely to continue into 2015 with moderately higher overall inflation. However, there is a risk that higher growth, large investment spending and the growing population could lead to supply bottlenecks in the economy. Under these conditions, domestic inflation could rise more than our baseline projections over the medium-term, QNB’s research note said.

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