Will Inflation Restrict Property Investment Potential in Qatar in 2007?

The rate of inflation in Qatar in 2006 was running too high at around 8% and regional analysts have warned that unless inflation is curbed, continuing high inflation will restrict the economic advancement and overall fiscal health of Qatar and so the question has to be asked – will inflation restrict property investment potential in Qatar in 2007?

There are many pressures on the government in Qatar to rein inflation in – they have international corporations considering the region in terms of timing an entry into a commitment in Qatar actually holding back on their decisions because of inflation, and they also have regional pressure from other GCC members who want member monetary union in the medium term.  These factors are putting huge pressure on the government to take decisive action to reduce inflation and one of the biggest contributors to the spiraling inflationary figures in 2006 was real estate and the lack of rental stock available which pushed rental rates up by as much as 64% in 12 months; but more units of property in Qatar are due for completion in 2007 which should see a significant easing of pressure on the property sector and inflation in general.

According to the Qatari Minister of Finance Yousuf Hussain Kamal, rental rates could drop by as much as 20% in the first eight months of 2007 which should have a very positive effect on inflation, and he further highlighted local efforts being implemented to drive inflation down to a sustainable annual 3% in the near term.  Just looking at the property market - there are projects in place to develop significant amounts of essential construction material locally as the construction boom taking place in Qatar has been hampered and dogged by exceptionally high import costs on core building components.  The Qatari government is working on promoting the need for sand processing plants for example, and for constructors to use locally produced materials where possible to reduce overheads.

In addition to all of these positive factors aimed at driving down inflation, Qatar is on course for an exciting 2007 in terms of its GDP growth when it should lead the GCC region.  There are plans to increase natural gas production by over 40% for example, and in a bid to continue the diversification of the nation away from dependence on oil and gas the Qatari government has committed significantly substantial amounts of their annual income to projects in the fields of education and healthcare for example.

Strong macro-economic conditions abound in Qatar currently and foreign direct investment is flowing freely and unabated.  International and regional confidence in the nation is strong, and as long as inflation is brought under control Qatar should still represent an interesting investment location.  While rental rates are expected to fall and the impossible demand/supply situation that saw current owners of property in Qatar profiting substantially in 2006 is coming to an end, medium term investments into property stock in Qatar could offer an investor an attractive investment commodity.

Other than inflation pressure, potential risks for a property investor to consider include the fact that competition across the Gulf region for the attraction of businesses, FDI and indeed skilled expatriate workers is now intense.  Quick profits are no longer considered derivable from real estate in the region, and despite Qatar’s continued diversification away from such economic dependence on hydrocarbons its reliance is marked and subject to external shocks in the world’s energy markets for example. 

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