Doha s Residential Market Market Performance, Trends and Affordability

White Paper Residential Market and Affordability Levels Doha November 2014 Doha s Residential Market Market Performance, Trends and Affordability

Introduction Ian Albert Regional Director Middle East Colliers International ian.albert@colliers.com Peter Bibby Director Qatar Country Manager Colliers International peter.bibby@colliers.com Mansoor Ahmed Director Development Solutions Colliers International mansoor.ahmed@colliers.com Colliers International Supply scarcity in Doha s housing market offers a strong foundation for opportunity. Average rental rates in 2014 have increased by 14% compared to average rentals in 2013. Sales prices have also witnessed an upward trend, albeit increasing by a lower rate of 6% during the same period. Despite attempts by developers to meet the acute supply gap, the compounding undersupply has resulted in unaffordable accommodation costs, both within the highend as well as the mid-market developments. Affordability is a relative measure, especially in a growing real estate market, such as Qatar, with one of the highest per capita incomes in the world. A commonly accepted guideline for housing affordability is when accommodation costs are within 3 of a household's gross income. In the latest income and expenditure survey by the Qatar Statistics Authority (2012/2013), expatriate households spend 34% of their income on housing. This percentage is only likely to increase in the future given the acute undersupply in the market. With 7 of households in Doha (excluding blue collar workers) earning between QAR5,000 and QAR19,999 per month, the majority of residents can afford rental levels between QAR1,700 and QAR6,800 per month. While the provision of affordable housing involves important social and economical values, our focus in this whitepaper is aimed at highlighting Doha s overall residential market performance, trends and some strategies for addressing the growing demand for affordable housing towards a sustainable and competitive asset class. The availability of affordable housing not only improves worker and employer attraction and retention, but it also increases the overall spending power of households. These households can then afford to improve their existing quality of life by increasing their spending on vital social infrastructure facilities such as better levels of education and healthcare for their families. Colliers International is a global leader in commercial real estate services with over 15,800 professionals operating out of more than 485 offices in 63 countries. Colliers International delivers a full range of services worldwide that includes: valuations, consulting, appraisals, brokerage, asset management and research, within the residential, commercial, retail, hospitality, healthcare, education, infrastructure sector, Public Private Partnership (PPP) and economic and industrial free zones. In MENA Colliers International has provided leading advisory services through its regional offices located in Dubai, Abu Dhabi, Riyadh and Jeddah since 1996. The latest annual real estate survey by Euromoney named Colliers International Best Advisor in the MENA region, UAE, Qatar and Saudi Arabia. 2

Existing Residential Landscape Doha s existing housing stock of approximately 129,000 units comprises of apartments being 66%, with the remaining 24% being villas. While a limited 5% of apartments are owner-occupied, the ratio of owneroccupied villas are significantly larger at 45%. The majority of these villas are owned by Qatari nationals. Doha s housing market has been affected by an acute shortage for years. There is little or no vacancies in the residential market. Growth in housing stock fails to meet the growing number of households. The number of households has risen considerably in recent years, due to a sharp rise in the growth of the population. Exhibit 1: Distribution of Residential Units in Doha The housing shortage in 2014 is at 37%, approximately 47,500 homes. The expectation is that the shortage will increase further up to 85% in 2018. Doha currently has approximately 1.2 million inhabitants and 727,000 households. This is expected to increase to 1.7 million inhabitants and 1 million households by 2018, translating to an increase of 9% (CAGR) in relation to the current level. With the supply shortage increasing annually, the accommodation costs have also been escalating. Quality developments, in close proximity to vital social infrastructure facilities such as schools, hospitals and retail facilities together with good accessibility / road networks, remain more competitive than developments that lack such facilities. As illustrated in Exhibit 3, the majority of residents in Doha are within a kilometer to asphalted roads and retail outlets. Exhibit 2: Households in Doha by Types of Ownership 10 24% 8 21% 6 79% 4 95% 2 76% 5% Owned Rented Villa Apartments Apartment Villa Source: Qatar Statistics Authority Source: Qatar Statistics Authority Exhibit 3: Distribution of Households in Doha by Proximity to Vital Community / Infrastructure Facilities 10 9 8 7 6 5 4 3 2 3 22% 29% 39% 48% 96% 6 33% 2 Hospital / Health Center Shops (Food Items) Primary School Asphalted Road Less than 1 km 1-5 km More than 5 km Source: Qatar Statistics Authority Tenant and investor preference are towards developments with accessibility to healthcare facilities, schools, retail and road networks 3

Demand Vs. Supply Doha has suffered from a continuous undersupply of residential units resulting in increasing house prices making living in Doha unaffordable for many. According to the latest census, Doha had a total of 97,555 units in 2010. Colliers International estimates that by the end of 2014 this number will exceed 129,200 units. An additional 8,200 units are due to enter the market during 2015 2018. Despite a 3% annual increase in supply, high population growth rates of approximately 11% per annum are expected to continuously keep existing market fundamentals in an undersupplied market. Research conducted by Colliers indicates that approximately 44% of the existing residential stock consists of two bedroom units, followed by 36% of three bedroom apartment units. In contrast, the majority of demand recorded is for one and two bedroom units with requirements for three bedroom apartments remaining limited. While all Qatari and GCC nationals can own property on a freehold basis, non-gcc nationals are limited to The Pearl Qatar, West Bay Lagoon, Lusail and the Al Khor development. Exhibit 4: Distribution of Apartment Supply in Doha 10 9 8 7 6 5 4 3 2 6% 36% 44% 15% Apartment Supply 1BR 2BR 3BR 4BR Exhibit 5: Doha Residential Demand and Supply Residential demand is clearly defined by nationality. While the majority of Qatari nationals live in villas (63%), the majority of non-nationals live in apartments (51%) 4

Rental Affordability: QAR 1,700 QAR 3,400 p.m Rental Affordability: QAR 3,400 QAR 6,800 p.m Rental Affordability: QAR 6,800 QAR 10,200 p.m Rental Affordability: QAR 10,200 QAR 13,600 p.m Rental Affordability: QAR 13,600 QAR 17,000 p.m Rental Affordability: QAR 17,000 + p.m Affordability in the Rental Market Affordable housing takes many different forms, and this whitepaper uses the term to define all housing units at levels affordable to average households in Doha. Analysing the latest available income and expenditure surveys published by Qatar Statistics Authority (2012/2013), suggests that average expatriate households in Doha spend approximately 34% of their income on housing (household spend of Qatari nationals has been excluded from this analysis since 82% are home-owners). The average spend on housing in Doha is considerably higher compared to a number of established international benchmarks, such as the Department of Housing and Urban Development (USA) and NSW Government (AUS), where the accepted definition of affordability is for a household to pay no more than 3 of its annual income on housing. In the UK, The National Housing Federation defines affordable rent levels at 25% of household income. Colliers rental affordability analysis excludes those earning less than QAR4,999 per month, since this income category are generally blue collar workers and are provided with labour accommodation. The distribution of income levels in Doha suggests that 11% of total households are earning less than QAR4,999 per month. As households in this income category which is generally provided with accommodation by their employers (mainly comprising of contractors, hospitals, hotels and retailers), are living in alternative accommodation facilities, they are omitted from the study. An analysis of monthly household income levels also suggests that 7 of Doha s total households earn between QAR5,000 and QAR19,999 per month. This income bracket, can afford rental levels between QAR1,700 and QAR6,800 per month. Households earning between QAR20,000 and QAR39,999 a month can afford rentals ranging between QAR6,800 and QAR13,600 per month. This market represents 25% of total households in Doha. The highest income bracket represented by households earning QAR40,000 and above per month are a limited 5% of total households. Rental affordability at this top tier of the market starts at QAR13,600 per month. 7 of households in Doha can afford monthly rentals between QAR1,700 and QAR6,800 Exhibit 6: Monthly Household Income Distribution in Doha & Rental Affordability Levels 45% 4 Represents 7 of Doha Households Represents 25% of Doha Households Represents 5% of Doha Households 4 35% 3 29% 25% 2 15% 18% 5% QAR 5,000 - QAR 9,999 QAR 10,000 - QAR 19,999 QAR 20,000 - QAR 29,999 7% QAR 30,000 - QAR 39,999 3% QAR 40,000 - QAR 49,000 2% QAR 50,000 + *Excludes those earning < QAR 4,999 5

875 745 634 614 639 700 799 QAR per m² p.a. YOY % Growth AED p. a. YOY % Growth Rental Rates Due to the strong demand and limited supply in the housing market, rent prices have risen over the past few years, a trend which is likely to continue. The level of the average rent price (per m² usable area) has also witnessed a strong performance since 2012, driven by a combination of strong economic fundamentals and population growth in an already undersupplied market. This is shown in an analysis of average rental prices across apartments in key residential districts of West Bay, Al Sadd, Old Airport and the Pearl Qatar. Since 2008, rent prices have shown a cumulative rise of approximately 7%. Average rents in apartments, across Doha, increased 14% year-on-year (Q2 2013 Q2 2014). Areas in and around Doha Municipality have the highest demand in the rental market. This is among other factors, due to the majority of companies offering accommodation and transportation for their staff, and therefore, the need to be located in proximity to the Central Business District (CBD). High rentals already achieved in the Pearl Qatar, have witnessed 11% rental increases, while more affordable districts of Al Sadd and Old Airport have increased by 14% during the same period. Among the primary reasons for the higher YOY increases in Al Sadd and Old Airport is due to a number of new developments predominantly offering furnished units. Despite Pearl Qatar being a popular destination for luxury living, accessibility and traffic conditions when commuting to and from the Pearl and the CBD/West Bay is becoming challenging. Traffic is further exaggerated by the Metro works in the area, and is unlikely to be resolved immediately. Average rents in the Pearl Qatar have witnessed 11% YOY rental increases, compared to 14% achieved in West Bay, Al Sadd and Old Airport Exhibit 8: Average Apartment Rental Rates across Doha Exhibit 7: Average Apartment Rental Rates by Unit Type Q3 2014 250,000 200,000 150,000 100,000 50,000 0 Old Airport 14% 14% 14% Al Sadd West Bay Qatar Pearl 16% 14% 12% 11% 1BR 2BR 3BR Average YOY Growth 8% 6% 4% 2% 1,000 900 800 700 600 500 400 300 200 100-14% 4% -3% -15% -15% 2008 2009 2010 2011 2012 2013 2014 2 15% 5% -5% - -15% -2 QAR per m² p.a. YOY Growth 6

Rental Rates in Primary Apartment Districts According to Colliers Rental Affordability Analysis, households earning between QAR18,000 QAR28,000 can afford to rent apartments in Al Sadd and Old Airport. Households with a minimum income of QAR31,000 can afford apartments in West Bay, while renting an apartment in the Pearl would require a minimum monthly income of QAR 35,000. Exhibit 9 highlights rental options across popular apartment locations in Doha. Noteworthy, is that the majority of these apartments are affordable for a limited 3 of Doha s households. As illustrated in Exhibit 9, those earning QAR18,000 per month are not only limited to Al Sadd and Old Airport, but are also restricted to one bedroom units within these areas. Rental options for households with a monthly income of QAR28,000 includes larger 3 bedroom units in Al Sadd and Old Airport. While West Bay is affordable to households with a minimum monthly income of QAR31,000, the Pearl Qatar is affordable only to households with monthly incomes of QAR35,000 and above. These households represent just 12% of Doha s households. Popular Residential Districts of West Bay, Pearl Qatar, Al Sadd and Old Airport are affordable to 3 of Doha s Households Exhibit 9: Rental Affordability Analysis : Affordability in Popular Apartment Districts Pear Qatar Average Rentals 1BR 2BR 3BR 144,000 186,000 228,000 West Bay Average Rentals 1BR 2BR 3BR 126,000 163,300 204,000 Al Sadd Average Rentals 1BR 2BR 3BR 75,600 102,000 114,000 Old Airport Average Rentals 1BR 2BR 3BR 72,000 90,000 108,000 Household Monthly Income QAR 35,000 QAR 55,000+ QAR 31,000 QAR 50,000+ QAR 18,000 QAR 28,000+ 7

Rental Rates in Doha s Popular Compounds A significant number of Doha s compounds are rented as employee accommodation, predominantly to local/semi-government companies. Due to better connectivity to the city center areas, availability of community facilities, including schools, such compounds are becoming favoured choices for companies, although they are generally located 5km 10km away from the city center. Rentals within compounds vary significantly based on build quality, community facilities and the furnishings used. Lack of supply in this market has however increased rentals among both high-end compounds as well as more affordable compounds. Many of these units are leased for a longer term, and therefore rentals in compounds in Doha have increased by approximately during 2012 2014 (average apartments across Doha on the other hand increased 24% during the same period). While, most government/semi government corporations meet accommodation expenses of their employees, as part of their remuneration packages, Colliers analysis suggests that based on the existing rentals, a limited 12% of Doha s population can afford to live in such compounds. Rentals in Compounds are Affordable to a limited 12% of Households in Doha Exhibit 10: Rental Affordability Analysis : Affordability in Doha Compounds Legend Compounds in Doha 10 km 5 km 8 Average Annual Rental Rates (QAR) Apartments Villas 1BR 2BR 3BR 4BR 138,000 146,000 225,000 242,000 Minimum Average Household Monthly Income (QAR) Apartments Villas 1BR 2BR 3BR 4BR 33,800 36,000 55,000 60,000 8

19,500 16,667 13,333 11,917 12,125 12,775 13,500 QAR per m² YOY Growth 14,250 16,000 10,750 13,000 QAR per m2 YOY Growth Sales Prices Similar to the rental market, sales prices in Doha have witnessed an upward trend since 2012. In 2014, average sales prices across freehold units in Doha increased by 6% YOY. The Pearl Qatar remains a popular investment asset class, with Viva Baharia witnessing the highest YOY increase of 8% compared to all freehold developments illustrated in Exhibit 11. High sales prices in Viva Baharia is mainly due to the development s beachfront location, family-oriented environment and access to beach clubs, water sports and F&B units. Increasing rentals, and limited freehold supply in Doha s residential market is likely to improve investor appetite in the short to medium term. Exhibit 11: Average Sales Prices by Location 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 7% Porto Arabia - The Pearl 8% Viva Baharia - The Pearl QAR per m2 2% West Bay - Lagoon Plaza YOY Growth 4% Fox Hill - Lusail 9% 8% 7% 6% 5% 4% 3% 2% 1% Sales prices have increased 4% YOY. The highest increase was witnessed in Viva Baharia - Pearl Qatar Exhibit 12: Average Sales Prices Across Doha s Freehold Market 25,000 20,000 2% 5% 6% 5% 15,000-5% 10,000-15% -11% - -15% 5,000-2 -2-2008 2009 2010 2011 2012 2013 2014-25% QAR per m² YOY Growth 9

Developing Affordable Communities Successfully The increasing rental rates continue to be a concern for many expatriate households in Doha. With Qatar s population witnessing some of the highest growth rates in the world, the concern for more affordable housing solutions, both within the rental and the sales market, are only likely to be exacerbated in the short to medium term. Local developers such as Barwa and Ezdan have attempted to meet the demand for mid-market housing by constructing more affordable residential communities. However, given the significant undersupply in the market, economic forces of limited supply and increased demand have been met with higher rentals, which has resulted in an unaffordable housing market. Public Private Partnerships between developers and the government can assist to increase the availability of more affordable residential communities in Doha. Conclusion As seen globally, governments are actively involved in providing developers access to well located and serviced land, home investment partnership funds, and favourable developer financing options as active incentives for developers to develop affordable housing. Land infrastructure by the government is leveraged against social infrastructure and greater returns to the local economy. Revenues can take the form of fees for permissions, zoning, and utilities, or they can reflect sales, income, or fees generated by construction related economic activity. Having access to housing that is affordable by the majority of households clearly results in both social and economical benefits. With innovations in low-cost building technology (costeffective construction methods, and not low-build quality) being applied across the globe, developers in Doha can combine these mechanisms to effectively service the increasing demand for affordable housing. It is Colliers opinion that offering more government incentive programs, access to well located and service land, affordable developer financing options, and Public Private Partnerships will increase the availability of housing units that are affordable to the majority of households. Exhibit 13: Key Advantages of Developing Affordable Housing Increasing the Buying Power of Residents Reduced Cost per Employee Improving Worker and Employer Attraction and Retention Public Private Partnership (PPP) is a potential way for developing Affordable Housing in partnership with Private Developers Exhibit 14: Primary Benefits of Affordable Housing Economic Benefits Revenues can take the form of fees for permitting, zoning, and utilities, or they can reflect sales, income, or property taxes generated by construction related economic activity. Improving Worker and Employer Attraction and Retention. Increasing the Buying Power of Residents. Developer Benefits Incorporating revenue accelerators (retail / F&B, healthcare and educational facilities) within affordable housing communities are likely to increase the developers overall returns on the project. 10

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485 offices in 63 countries on 6 continents United States: 146 Canada: 44 Latin America: 25 Asia Pacific: 186 EMEA: 84 For further information, please contact: Ian Albert Regional Director Middle East +971 4 453 7400 ian.albert@colliers.com Peter Bibby Director Qatar Country Manager Colliers International peter.bibby@colliers.com Mansoor Ahmed Director Development Solutions +971 4 453 7400 +971 55 899 6091 mansoor.ahmed@colliers.com $2.1 billion in annual revenue 1.46 billion square feet under management Colliers International MENA Region Dubai United Arab Emirates +971 4 453 7400 15,800 professionals and staff About Colliers International Colliers International is a global leader in commercial real estate services, with over 15,800 professionals operating out of more than 485 offices in 63 countries. Colliers International delivers a full range of services to real estate users, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services and insightful research. The latest annual survey by the Lipsey Company ranked Colliers International as the second-most recognized commercial real estate firm in the world. In MENA Colliers International has provided leading advisory services through its regional offices since 1996. Colliers International currently has four corporate offices in the region located in Dubai, Abu Dhabi, Riyadh and Jeddah. colliers.com Copyright 2013 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.