Qatar Real Estate 112007

Global Research

November 2007

Real Estate

Qatar Real Estate Sector

Qat

ar

Things are looking bright...

Global Investment House KSCCReal Estate ResearchSouk Al-Safat Bldg., 2nd FloorP.O. Box 28807 Safat13149 KuwaitTel: (965) 240 0551Fax: (965) 240 0661Email: [email protected]://www.globalinv.net

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Omar M. El-Quqa, CFAExecutive Vice [email protected] No:(965) 2400551 Ext.104

Faisal Hasan, CFAHead of [email protected] No:(965) 2400551 Ext.304

Abeer GoudaFinancial [email protected] No:(965) 2400551 Ext.501

Walid Samir Aly MohamedFinancial [email protected] No:(965) 2400551 Ext 218

Dr. Sandeep GuptaFinancial [email protected] No:(965) 2400551 Ext.504

Table of Contents

Summary ....................................................................................................... 1

Macro-economic Overview .......................................................................... 3

Key drivers of the Qatari Real Estate Sector ............................................ 6

Qatar Real Estate Market ........................................................................... 21

Residential Sector ...................................................................................... 26

Commercial Sector .................................................................................... 29

Industrial Sector ........................................................................................ 32

Tourism Sector .......................................................................................... 35

Qatar Real Estate Outlook .......................................................................... 38

Players Profiles ............................................................................................. 39

Global Research - Qatar Global Investment House

�Qatar Real Estate Sector ReportNovember 2007

Summary

Qatar’s economy maintained its growth momentum in 2006 as gross domestic product (GDP) rose to a record high of QR191.9bn (US$52.7bn) at current prices. By achieving a nominal GDP growth of 24% in 2006, GDP per capita reached a record level of US$62,914 which places Qatar among the wealthiest countries in the world.

As per the data from the Planning Council, the impressive average GDP growth rate of 30.9% over the last three years had its impact on all economic sectors. Building and construction sector’s growth rate was about 17.7% in 2006 on top of the previous year’s growth rate of 36.1%. The sector’s contribution to Qatari GDP was 5.4% in 2006 as compared to 5.7% recorded in the previous year.

The government has been very supportive to the real estate sector through issuing various laws that allowed foreign ownership in designated areas in Qatar. According to a law announced in June 2004 non-Qataris were allowed to own real estate properties in any of the three projects - Pearl Island, West Bay Lagoon and Al Khor Resort. Besides, the government has also announced a law in February 2006 regarding the sale and lease of real estate in Qatar. Citizens of other GCC countries can own land and residential units in specific areas namely Lusail, Al Kharaij and Jebel Thiyab after the approval of the cabinet while expatriates can lease properties in 18 specified areas for 99 years on a renewable basis.

The real estate sector in Qatar has been in a boom since the last few years as several large and small scale projects are going on in the country. Moreover, the booming domestic economy is the key factor underpinning the real estate demand in the country. High growth in population, very high per capita GDP and abundant resources entailing rapid industrial expansion have all been vital to the growth of the sector as well.

Moreover, the inflow of new expatriates induced the demand for new housing. Expatriates are largely the target market for many of the prominent projects. Looking forward, industry sources estimate that the number of families expected to shift to Qatar in the next 2-3 years would exceed 200,000, while around 500,000 families at least are expected to shift in by 2012.

Similarly, the level of government expenditure has been a very important factor impacting the growth of this sector in the economy. The government of Qatar embarked on an aggressive infrastructure revamping plan. The Public Works Authority unveiled projects worth a total of QR25bn for the five years 2005-2009 in Qatar. The five-year plan includes 32 road projects, 19 buildings, and 6 drainage works.

Reflecting the increased interest in real estate and construction sector, credit extended to housing and construction accounted for 6.3% of total domestic credit in March 2007 up from 2.1% in 2001. The increased interest in the real estate sector resulted in the increased share of credit to land, housing and construction over the years. According to QCB data, credit extended to land, housing and construction continued to grow at high rates over the period 2002-06. It reported the highest average growth rate of 75.2% over the period to surpass the growth rates in total domestic credit and credit extended to the public sector, at 23.6% and 5.9% respectively.


2 Qatar Real Estate Sector Report November 2007

Analyzing real estate industry by segment revealed that, generally, almost all real estate sectors in Qatar are in high demand, and are in short supply. However, supply has been extremely deficient in the residential sector in particular, leading to a sharp increase in prices and rents. During 2007, prices continued to increase significantly. According to Mazaya index, the average price per sqm has varied between a high of QR2,240 per sqm during February, and a low of QR1,756 per sqm in June. On the rental front, rents continued at increase at higher pace through 2007. Average monthly rent of a 2-bedroom high-end apartment rose from QR3,274 (US$900) in 2002 to QR4,000 (US$1,100) in 2005 to QR10,185 (US$2,800) in 2007. Looking forward, we do not expect the demand/supply gap in the residential sector to narrow in the short term especially in the high end segment.

On the commercial front, the economic boom and the increasing number of foreign companies opening up in the country have rendered Qatar short of office space as vacancy rates are currently less than 1%. Accordingly, the shortage has induced large hikes in prices and rents in the commercial segment. Rentals are reaching as high as US$70 per sqm during 2007 in hot spots such as West Bay which continued to position itself as the main hub for multinational corporations. Similarly, shopping malls have tremendous opportunities in Qatar given the current scenario of the economic boom and increased demand. Retail segment rentals’ followed an upward trend for the last three years supported by the limited available shopping space. Average shopping mall rents ranged between a low of US$480/sqm to a high of US$960/sqm per annum during 2007. Looking forward, we do not expect a correction in prices and rents for the commercial segment in the near future until new supply is delivered.

The industrial segment is also expected to further boost the burgeoning real estate sector in Qatar given the current level of industrial activity, and the level of support offered by the government. The government is encouraging business and industry through offering, among other things, low-interest loans; free road, water, and electrical hook-ups; subsidized electricity and water; land leases at minimal cost; and protective tariffs and tax incentives.

As for tourism, Qatar considers the sector as key to its economic diversification plan. Accordingly, the country is focusing on building international awareness for its potential as a tourist destination. Thus, Qatar unveiled a comprehensive tourism master plan that identified Qatar’s major target markets to be education, sport, meetings, incentives, conferences and events activity and medical tourism as good prospects. Looking forward, tourists’ numbers are estimated to more than double to reach 1.5mn by 2010 as compared with 600,000 in 2005. Moreover, Qatar capacity is expected to expand as Qatar Tourism Authority plans to have 50,000 hotel rooms in the country by 2016.

The high pace of construction activity raised the inevitable question as to whether there is enough demand to meet this supply. We believe that there are high levels of demand and there is likelihood that this level of demand will be sustained or even increase going forward. Looking forward, we do not expect a market correction in Qatar in the short term. However, increasing supply expected to be delivered during the period 2008-2010 might have a slight impact on average price levels. We expect prices to continue their upward trend however at lower rates. Moreover, we expect a leveling off of prices in both the leasehold and freehold markets for the medium term when the new supply comes on stream.


November 2007 Qatar Real Estate Sector Report �

Macro-economic Overview

Qatar’s economy maintained its growth momentum in 2006. Qatar’s gross domestic product (GDP) rose to a record high of QR191.9bn (US$52.7bn) in 2006 at current prices as compared to QR154.5bn (US$42.4bn) recorded in the previous year, registering a growth of 24.2%. By achieving a nominal GDP growth of 24% in 2006, its GDP per capita reached a record level of US$62,914 which places Qatar among the wealthiest countries in the world.

Qatar has taken several steps to attract foreign investors. Towards this end it has set up an international financial center, Qatar Financial Center (QFC), which is aimed to attract international financial institutions and multi-national corporations to set up their offices and to forge closer partnerships with international business houses. All companies setting up their offices at the centre are entitled to a three-year tax holiday, full repatriation of profits and 100% foreign ownership.

Qatar came third among GCC states in terms of inward FDI by attracting nearly US$1.5bn as per the World Investment Report 2006 released by United Nations Conference on Trade and Development (UNCTAD). In a significant boost to drive its international profile, Qatar has managed to attain a non-permanent seat on the UN Security Council (UNSC), with a two-year term that began on January 1st, 2006.

With respect to policy initiatives, Qatar continued to inaugurate laws and regulations aimed at making its investment environment more investor friendly. After taking a milestone move in 2005 by setting up Qatar Financial Centre (QFC), the country took a major step in its legal history with the official inauguration of the new international, independent judiciary for the center. The Court and the Regulatory Tribunal of the Centre have been designed to provide the legal infrastructure that is essential for any successful, modern, forward looking financial centre such as QFC.

The government has been also very supportive of the real estate sector through issuing various laws that allowed foreign ownership in designated areas in Qatar. Besides the law announced in June 2004 that allowed non-Qataris to own real estate properties in any of the three projects - Pearl Island, West Bay Lagoon and Al Khor Resort. The government has also announced a new law in February 2006, where the Emir of Qatar ratified two cabinet decisions regarding the sale and lease of real estate in Qatar. Citizens of other GCC countries can own land and residential units in specific areas namely Lusail, Al Kharaij and Jebel Thiyab after the approval of the cabinet while expatriates can lease properties in 18 specified areas for 99 years on a renewable basis.

On another front, Qatar has been enjoying strong trade surplus with revenues mainly generated from hydrocarbon exports. As per the preliminary data released by the Qatar Central Bank, the country recoded a surplus of QR14.1bn for the year 2005-06 as against QR18.9bn achieved in 2004-05, recording a decline of 25.4%, due to the increase in the government’s total expenditure, which grew at a faster rate of 41% to reach QR50.8bn as compared to a growth rate of 18% in revenues which stood at QR64.9bn.


� Qatar Real Estate Sector Report November 2007

Table 01: Estimates of GDP by economic activity at current market prices(in QR mn) 2004 % of

GDP2005 % of

GDP2006 % of

GDPCAGR % (2004-06)

Oil & Gas Sector 62,922 54.5 92,071 59.6 118,707 61.9 37.4Agriculture & Fishing 210 0.2 216 0.1 233 0.1 5.3Manufacturing 11,995 10.4 13,042 8.4 14,098 7.3 8.4Electricity & Water 1482 1.3 2,209 1.4 2,424 1.3 27.9Building & Construction 6,425 5.6 8,744 5.7 10,291 5.4 26.6Trade, Restaurants and Hotels 6,148 5.3 6,869 4.4 7,616 4.0 11.3Transport & Communications 4,020 3.5 5,114 3.3 5,612 2.9 18.2Finance, Insurance, Real Estate & Business Services

9,925 8.6 14,785 9.6 15,760 8.2 26.0

Other Services 12,385 10.7 11,514 7.4 17,168 8.9 17.7Total Non Oil & Gas GDP 52,590 45.5 62,493 40.4 73,202 38.1 18.0Total GDP 115,512 154,564 191,909 28.9% change 34.8 33.8 24.2

Source: Qatar Central Bank and Global Research

High crude oil prices and increased production during 2006 had led to a record of double digit growth rate in the oil & gas sector. The oil & gas sector has grown, though at a lower rate, at 28.9% in 2006 as compared to 46.3% growth recorded in 2005. At the same time the growth rate of non-oil & gas sector declined to 17% in 2006 as compared to the growth rate of 19% in 2005.

Analysis of GDP by economic activity reveals that the contribution of the oil and gas sector improved from 59.6% in 2005 to 61.9% in 2006. The contribution of non-oil & gas sector to the GDP declined in 2006 to 38.1% from 40.4% in 2005. Apart from the oil & gas sector, all other sectors have witnessed decline in their contribution to the GDP in 2006, with the exception of other services. Among the non-oil & gas sectors, the major contributor to the GDP in 2006 was finance, insurance, real estate & business services sector, accounting for 8.2% followed by manufacturing sector at 7.3%. Other services accounted for 8.9% of GDP, while building & construction accounted for about 5.4% and trade, restaurants & hotels sector accounted for 4.0% of GDP.

During 2004-2006, the oil & gas sector achieved a CAGR of 37.4%, while non-oil & gas sector grew at a CAGR of 28.9%. Among the non-oil & gas sectors, the growth rate of electricity & water was the highest at 27.9% during 2004-06. The sector is witnessing increased activity mainly due to growing consumption of both these utilities thanks to rising population and also due to the increase in industrial as well as real estate activities in the country. Building & construction sector grew by 26.6% which was followed by Finance, insurance, real estate & business services and transport & communications at 26% and 18.2% respectively. While other services and trade, restaurants & hotels services sectors achieved a CAGR of 17.7% and 11.3% respectively during the period under review. The activities in the trade, restaurants & hotels sectors is expected to increase further as business events are gathering pace in Qatar. The two only sectors that registered single digit CAGR were agriculture & fishing and manufacturing at 5.3% and 8.4%, respectively.



Among the non-oil and gas sectors, except building & construction, trade, restaurants & hotels and other services sectors, all the sectors registered single digit growth rates in 2006. The highest growth was recorded by other services at 49.1% which reported a decline of 7% in 2005. The building & construction sector is in midst of a boom since the last few years as several large as well as small scale projects are going on in the country both from the public as well as private sector enterprises. In 2006, trade, restaurants & hotels services sector recorded a growth of 10.9% on top of the growth rate of 11.7% in 2005. Both sectors “Transport & communications” and “electricity & water” recorded a growth of 9.7% each in 2006.

Looking forward, the current trend of strong crude prices and higher oil production should further boost the economic growth of Qatar. Oil and gas output as well as export volumes are expected to increase because of the continued government and foreign private sector investments in new projects in the energy sector. Qatar’s Minister of Finance and Acting Minister of Economy and Commerce expects that by 2013 the size of Qatari economy to reach US$100bn. However, any softening of oil prices or decline in OPEC production quotas in the coming years could lead to a slowdown in the growth rate of the economy.



Key drivers of the Qatari Real Estate Sector

The booming domestic economy is the key factor underpinning the real estate demand in the country. High growth in population, very high per capita GDP and abundant resources entailing rapid industrial expansion have all been vital to the growth of the sector.

Booming economy and increased government spendingAs per the data from the Planning Council, the impressive average GDP growth rate of 30.9% over the last three years had its impact on all economic sectors. Building and construction sector’s growth rate was about 17.7% in 2006 on top of the previous year’s growth rate of 36.1%. The sector’s contribution to Qatari GDP was 5.4% in 2006 as compared to 5.7% recorded in the previous year. Similarly, the level of government expenditure is a very important factor impacting the growth of this sector in the economy. Due to the realization of budgetary surpluses for several years, the level of government spending has also increased significantly. For the fiscal year 2005-06, Qatar has expended QR50.8bn as government expenditure and for the fiscal year 2006-07 it earmarked QR54.6bn.

Data on GDP by expenditure type were available only up to the year 2005. It revealed that the domestic demand grew at a higher rate of 39.6% in 2005 as compared to 31.7% in 2004. Gross fixed capital formation (GFCF), which is mainly the capital spending by the government, formed a large part of the domestic demand, and grew at a higher pace of 49.1% in 2005 on top of 34.4% growth in 2004, thus indicating increased government spending on investments and mega projects. It is also important to note that, GFCF contribution to GDP has been increasing over the years from 23.4% in 2001 up to 33.6% by the end of 2005. Similarly, it reported the highest CAGR of 36.6% over the five years period 2001-05. Private consumption grew at a lower rate of 39.7% in 2005 as compared to 42.7% in 2004. The growth in domestic demand was backed by the growth in government final consumption, private consumption and gross fixed capital formation.

Table 02: GDP by Type of Expenditure (Current Prices)(in QR mn) 2001 2002 2003 2004 2005Government Final Consumption 11,891 11,783 13,197 15,094 17,769Private Final Consumption 9,855 12,983 14,131 20,166 28,165Gross Fixed Capital Formation 14,917 20,454 25,892 34,808 51,886Increase in Stocks 3,673 2,557 3,977 3,756 2,953Net Exports 23,504 22,707 28,466 41,688 53,791 Exports 42,066 42,532 52,852 74,122 105,497 Imports (18,562) (19,825) (24,386) (32,434) (51,706)Grand Total 63,840 70,484 85,663 115,512 154,564Domestic Demand 36,663 45,220 53,220 70,068 97,820

Source: Qatar Central Bank and Global Research

On another front, the positive aspect of the fiscal spending in the last couple of years has been the increase in the capital expenditure, which would lead to improved economic activity in the future. The government’s developmental expenditure grew significantly by a whopping 130.8% in 2005-06 to reach QR18.1bn. The sustainable growth in capital spending helped to increase its share in total expenditures over the years from 19.4% during 2003-04, to 35.6% for 2005-06. On another front, the expenditure on salaries & wages has declined by 16.2% to QR6.7bn and interest cost increased marginally by 2.2% to QR1.9bn.


November 2007 Qatar Real Estate Sector Report 7

Table 03: Summary of Government Finance(in QR mn) 2003-04

(Actual)2004-05 (Actual)

2005-06* (Actual)

2004-05 (Budget)

2005-06 (Budget)

2006-07 (Budget)

Total Revenue 30,563 55,064 64,984 26,192 38,028 56,900 Oil & Gas 19,593 36,319 43,616 N A N A N A Non Oil & Gas 10,970 18,745 21,368 N A N A N ATotal Expenditure 27,187 36,102 50,833 28,352 37,810 54,600 Current expenditure 21,921 28,270 32,761 19,469 26,081 34,600 Capital expenditure 5,266 7,832 18,072 8,883 11,729 20,000Surplus/ (Deficit) 3,376 18,962 14,151 -2,160 218 2,300

*Preliminary Data, N A – Not Available

Source: Qatar Central Bank

Moving ahead, Qatar’s budget for the fiscal year 2006-07 can be considered as expansionary as it estimates that the government spending would grow by 44.4% as compared to 33.4% expenditure growth estimated in the budget for the previous year. The government also expects to register a significant amount of surplus as compared to that estimated for the budget for the year 2005-06.

The revenue for the financial year 2006-07 is estimated at QR56.9bn, which was based on an oil price of US$36 per barrel, while expenditures are estimated at QR54.6bn, resulting in an estimated surplus of QR2.3bn. As compared to 2005-06 budget, the allocation for capital expenditure increased by QR8.3bn (70.5%) to QR20.0bn while current spending has also increased by 32.7% to QR34.6bn in 2006-07.

Qatar and other GCC countries have benefited from high oil prices, which have improved the country’s public finances. The government spending, both capital as well as current, has been in line with the economic growth on the back of its LNG and oil production activities in recent years. Going forward, oil prices are likely to remain strong in the short to medium term, which will definitely support the government’s increasing spending especially the capital spending. However, the increasing spending needs to be monitored as capital spending has to be sustainable in the long term.

Increased expatriates flows and high proportion of youthGenerally, population is one of the main factors that affect real estate sector. Specifically, population is the major factor that depicts the demand side for almost all segments whether residential housing, commercial, industrial, office or even retail and tourism segments. Population demographics affect demand preferences in many ways. Arrival of new expatriates is directly related to increased business opportunities in a booming economy and the need for importing labor force from abroad. Moreover, it definitely implies increasing demand for new housing. Gender distributions among different age groups as well depict another part of the demand side. Similar to the fact that, higher proportion of population within the age groups (0-15 and 60 or more) indicates higher dependency ratios, higher proportion of population within the age groups 20-40 indicates higher proportion of population are moving to new houses thus implying higher demand.

As per the data available from the state’s Planning Council, population of Qatar increased to 838,065 by mid 2006, recording a yearly increase of 5.26%, which is inline with the CAGR for the last five years. The rapid increase in population over the last few years is



mainly attributed to the influx of expatriate labors due to the strong economic growth and its multiplier effect on all the economic sectors.

The most recent and detailed census data for the country are available for the year 2004. As per the census, about 66.7% of the population were males and the remaining 33.3% were females. Over the period 1997-2006, the male population grew at a higher CAGR of 5.4% as compared to the female population which grew at CAGR of 4.7%. The ratio of males increased to 68.9% in 2006. Moving ahead, this ratio will continue to tilt in favor of male population because of increasing labor demand in Qatar. This implies higher demand for housing as well as for other real estate segments.

Table 04: Population by Gender Males Females Total1997 Census 342,459 179,564 522,023% of total 65.60% 34.40% 2004 Census 496,382 247,647 744,029% of total 66.72% 33.28% (1997-2004) CAGR 5.45% 4.70% 5.19%2006 Update* 575,185 259,569 834,754% of total 68.90% 31.10% (1997-2006) CAGR 5.93% 4.18% 5.35%

*March 2006

Source: The Planning Council and Global Research

Moreover, the high intensity of youth population bodes well for the medium term demand for housing. The proportion of male population in the age group 25-34 is 25.5% of the total male population. One could conservatively expect 10% of the males in the age group 25-34 to move into a new house every year.

A more significant driver of housing demand would be the relentless flow of expatriates into the country, thanks to the high oil prices and rapid industrial expansion. Expatriates are largely the target market for many of the prominent projects. Economically active population had grown more rapidly in the last few years due to increased expatriates. During the last three years period 2004-2006 economically active population grew at a CAGR of 10.7% as compared to CAGR of 6.6% in the period 1997-2004, which more or less mirrors the growth in expatriate population. Going forward, considering the heightened economic activity, we would expect the growth to be even higher than this. Qatar being a relatively richer economy, the assumption of housing intensity for expatriates is at a higher level than that in other countries. Also, those working in government companies or MNCs do not mind staying in high-end homes as some companies pay as high as QR20,000 (US$5,500) per month for accommodation. Industry sources estimate that the number of families expected to shift to Qatar in the next 2-3 years would exceed 200,000, while around 500,000 families at least are expected to shift in by 2012. Moreover, industry sources are indicating even higher figures as all indicators are pointing towards an impending explosion in population. For example, one of the companies with a significant base in Qatar, namely Shell, has announced that it will have 250,000 employees coming into Qatar in the next five years.



Richest in the regionTalking about the level of wealth in the country, it is worth noting that the sharp growth in GDP boosted its GDP per capita to a record level of US$62,914 in 2006, the largest in the Middle East. This could be expected to increase further in the years to come, thanks to the oil and gas resources that the country possesses. Furthermore, employees in the oil & gas sector, which has both domestic companies and MNCs, are paid high salaries, rendering high-end accommodations affordable. High per capita income not only boosts demand for medium to high end housing, but also fosters the retail sector, which directly depends on the level of disposable income.

Another sign of the high income levels for the population in Qatar is the mix of employment represented by different categories of jobs. Elementary occupation, which includes most of the construction related works, forms 25% of the total employees, which is less than that in countries such as UAE. At the same time professionals and technicians form a relatively larger proportion in Qatar. Based on this data, the mix of employees working in different sectors (private, government and mixed) and the general salary levels in different vocations, we tried to estimate the demand for various levels of housing. We believe that out of the total upcoming housing demand, around 25% would account for the high end, 40% for the medium end and around 35% for the low end based on the recent statistics of the labor force occupational categories. This is a favorable mix tending towards medium to high end compared to the scenario in other countries.

Heavy spending on infrastructure continued even after Asian GamesGenerally when a country hosts a huge international event, almost all countries go on a construction and building binge to ensure adequate services and facilities for the event. Once the event is over, countries breathe easy. However, Qatar was a special case as the construction spree continued even after the Asian Games. According to the Construction World magazine, “the conclusion of the successful Asian Games has not heralded a full stop in construction- rather; it has opened a whole new book for new dreams to be translated into reality”.

Generally, the level of public expenditure has been a very important factor in the growth of the real estate sector in Qatar. The government of Qatar embarked on an aggressive infrastructure revamping plan. The Public Works Authority unveiled projects worth a total of QR25bn for the five years 2005-2009 in Qatar. The five-year plan includes 32 road projects, 19 buildings, and 6 drainage works. Priorities were given to projects pertaining to the 15th Asian Games. Road projects alone until 2009 will be worth QR13bn, making it the biggest of the sectors.

Other mega projects in Qatar include the new international airport with an estimated cost of US$5.5bn. Works on this new airport will be carried out in three phases of which the first one will be accomplished by the end of 2008. When completed, the new international airport will handle about 50mn passengers per year.

Another mega project was the Olympic Games Village (Hamad Medical City), which served as a housing compound for sports delegations in the Asian games in 2006. After the games it became the Medical City, with 4 main hospitals, support services, nurses’ accommodation, and staff Club. The project cost was estimated at QR2.2bn.


�0 Qatar Real Estate Sector Report November 2007

There are also a series of landmark projects in Qatar such as Museum of Islamic Arts, National Library, Photography Museum, and the redevelopment of the Qatar National Museum.

Major increase in credit to the real estate sectorThe favorable demand scenario in the country is supported by a comfortable investment scenario. An increasing government surplus and expansions by corporates, especially in the industrial sector favored capital flow into the real estate sector. Credit off-take remained robust despite high lending rates, while liquidity trends continued to be buoyant aided by the current account surplus.

According to latest data from QCB, total credit facilities extended by banks have been increasing over the years. Total domestic credit extended by banks increased rapidly from QR34.0bn in 2001 to stand at QR94.8bn by the end of 2006. Such performance translates into a high CAGR of 22.7% over the period 2001-06. During the year 2007, extended credit grew even more to cross the QR100bn mark, reaching QR103bn by the end of March 2007. Looking forward we still expect the same trend to continue due to the booming Qatari economy and increased interest in almost all sectors especially, real estate and construction as well as services and industry.

Similarly, extended credit outside Qatar has been on the upward trend over the same period reporting a CAGR of 39.2%. This credit category more than doubled over the last three years to stand at QR7.8bn by the end of 2006 as compared with QR1.5bn in 2001.

Table 05: Total credit facilities over the years(QR Million) 2001 2002 2003 2004 2005 2006 Mar-07Public sector 16,529.9 16,814.8 19,931.5 18,469.5 18,650.2 21,536.8 19,689.6Merchandise 4,046.9 4,726.5 5,531.5 6,116.4 8,183.6 11,553.2 13,659.3Industry 607.0 936.7 750.4 1,059.9 2,418.8 2,078.0 2,396.6Lands 415.0 1,040.7 1,893.5 4,053.6 6,183.2 10,624.2 13,810.1Housing & Construction 717.8 246.5 1,433.7 1,658.1 3,357.7 5,120.7 6,445.6Credit to Lands, Housing & Construction

1,132.8 1,287.2 3,327.2 5,711.7 9,540.9 15,744.9 20,255.7

Personal loans for consumption 8,881.9 9,639.9 11,503.1 14,085.3 24,730.9 35,177.1 37,157.8Services 1,065.3 812.4 1,865.1 2,383.5 2,942.1 7,245. 7,962.6Others 1,746.7 1,749.9 437.2 467.5 899.8 1,437.1 1,865.3Total domestic credit 34,010.5 35,967.4 43,346.0 48,293.8 67,366.3 94,773.0 102,986.9Outside Qatar 1,485.9 246.6 441.5 1,189.1 2,367.5 7,774.8 7,254.8Grand total 35,496.4 36,214.0 43,787.5 49,482.9 69,733.8 102,547.8 110,241.7


Analyzing extended domestic credit by category revealed that –on average- two main categories (credit extended to Public sector and personal loans for consumption) accounted for more than 65% of total extended credit over the period 2001-06. Credit to merchandise accounted for 12.5% on average for the period followed by credit to lands, housing and construction that accounted –combined together- for 9.5% on average. However, it is important to note that the share of credit extended to both categories “land” and “housing and construction” followed an increasing trend over the years on the account of credit extended to “Public sector”. By the end of March 2007, credit extended to land stood at 13.4% of total domestic credit as compared with 1.2% for 2001. Similarly, reflecting the increased interest


November 2007 Qatar Real Estate Sector Report ��

in real estate and construction sector, credit extended to housing and construction accounted for 6.3% of total domestic credit in March 2007 up from 2.1% in 2001. Similarly, personal consumption loans and credit extended to services categories underwent an increasing trend over the period.

Figure 01: Domestic credit facilities distribution during March 2007


Other major category worth noting was credit extended to services. Its share in total extended domestic credit increased significantly from merely 3.1% during 2001 to 7.6% and 7.7% by the end of 2006 and March 2007 respectively.

Figure 02: Growth in credit to real estate sector vis-à-vis personal loans & total credit


The increased interest in the real estate sector resulted in the increased share of credit to land, housing and construction over the years. Moreover, the increase in credit extended to those sectors have outperformed the increase in credit to other sectors. According to QCB data, credit extended to land, housing and construction continued to grow at high rates over the period 2002-06. It reported the highest average growth rate of 75.2% over the period to

Others1.8%

Public Sector19.1%

Merchandise13.3%

Industry 2.3%

Lands13.4%Housing &

Construction6.3%

Personal Loans forconsumption

purposes36.1%

Services7.7%

%175%150%125%100%75%50%25%

0%-25%-50%

2002 2003 2004 2005 2006

Credit to Lands, Housing & ConstructionTotal domestic creditMerchandise

Personal Loans for consumptionPublic SectorServices



surpass the growth rates in total domestic credit and credit extended to the public sector, which stood at 23.6% and 5.9% respectively. This has helped credit to land, housing and construction to increase its share in total extended credit on the account of public sector and merchandise categories. Finally, credit extended to services followed land, housing and construction at an average growth rate of 60.7%.

Huge credit growth despite high lending ratesThe fact that this increase in credit to the real estate sector occurred despite high lending rates lends further weight to the robustness of the sector and the confidence in the market. Loans of duration 1-3 years, predominantly the case for real estate sector, are costlier in Qatar compared to the other GCC countries. However, on the positive side, there has been minimal increase in the lending rates for the last few years, even when bank rates went up.

On one side, the three month inter-bank rates followed a marginally growing trend since 2004 and up to the end of first quarter 2007. Inter-bank rates increased from 2% during 3Q04 reaching a peak of 5.3% by 2Q06. Following ahead inter-bank rates stagnated around 5% up to the end of 1Q07. On the other side, following the increasing trend in inter-bank rates, lending rates for loans of duration 1-3 years followed an increasing trend however at slower rates. Lending rates more or less remained stagnant just below 10%. However lending rates reached a peak of 9.3% by the end of 1Q07.

Figure 03: Interest rate movement in Qatar


Abundant liquidity High credit off-take and stable lending rates ensured abundant liquidity in the market, which was the most important factor entailing increased land and property transactions at high prices. As in the case of other GCC countries, there have been high increases in current as well as time deposits in Qatar. However, increased money supply is the most important indicator that reflects the increased liquidity in the economy. In 2006, money supply as measured by M1 grew by 24.7% to reach QR27.9bn which was backed by 38.2% increase in currency in circulation to QR3.9bn and 22.7% growth registered in demand deposits as it reached QR23.9bn. The strong growth in M1 also indicates that the level of consumption picked-up

%

10.5

9.0

7.5

6.5

4.5

3.0

1.5

0.0Q3’04 Q4’04 Q1’05 Q2’05 Q3’05 Q4’05 Q1’06 Q2’06 Q3’06 Q4’06 Q1’07

3Month Inter-bank Rate Leading rate (1-3 years)

2.02.5

3.1 3..44.0

4.5 5.0 5.3 5.1 5.0 5.0

9.38.58.78.88.78.38.58.28.48.0

8.8



in the last few years. Over 2002-2006, M1 has grown at a CAGR of 45.1% while M2 (broad money supply) has grown at a CAGR of 28.9%.

At the end of 2006, M2 was at QR88.7bn, recorded a yearly growth of 37.9%. In the broad money supply, time deposits registered a yearly growth of 41.0% to reach QR36.7bn and demand deposits grew by 22.7% to QR23.9bn in 2006. The growth in time deposits as compared to demand deposits can be attributed to rising interest rates on time deposits and poor performance of stock market.

Generally speaking, the reasons behind the increased liquidity in 2006 were high oil prices and the growing credit facilities to various large scale projects across all the economic sectors.

Table 06: Money Supply 2001 2002 2003 2004 2005 2006 Q1 07Currency in circulation 1,740.5 1,921.3 2,147.5 2,594.0 2,865.6 3,958.9 3,965.2Demand Deposits 3,478.5 4,367.7 9,130.2 12,004.4 19,496.6 23,924.2 29,246.1Money supply (M1) 5,219.0 6,289.0 11,277.7 14,598.4 22,362.2 27,883.1 33,211.3Times deposits 18,389.8 19,002.1 17,958.0 20,620.9 26,059.5 36,748.0 36,204.9Deposits in foreign currencies

5,145.6 6,855.9 7,987.3 9,645.7 15,849.2 24,027.4 22,146.4

Quasi money 23,535.4 25,858.0 25,945.3 30,266.6 41,908.7 60,775.4 58,351.3Money supply (M2) 28,754.4 32,147.0 37,223.0 44,865.0 64,270.9 88,658.5 91,562.6


However, the most eye-catching was the notable increase of deposits in foreign currencies. Considering that there are no concerns on the local currency which is pegged to dollar, the rapidly increasing deposits in foreign currencies can be looked upon as a signal of more foreign money coming into the market, benefiting the real estate market as well. Deposits in foreign currencies grew by 51.6% in 2006 to QR24.0bn. Finally, quasi money grew to QR60.8bn in 2006 from QR41.9bn in 2005, registering a growth of 45.0%.

Figure 04: Trend in liquidity in Qatar as reflected by money supply


70%

60%

50%

40%

30%

20%

10%

0%2002 2003 2004 2005 2006

37.9%43.3%

20.5%15.8%

11.8%

33.2%

16.5%20.8%

64.3%

51.6%

Growth in Money supply (M2) Growth of deposits in foreign currencies


�� Qatar Real Estate Sector Report November 2007

Another indicator of the cash surplus available in the market is the burgeoning current account surplus. In 2006, the economy had a current account surplus of QR22.2bn, which is 5.9% higher than the corresponding figure of 2001 on CAGR basis. This should be seen in the context of the investment made in the sector last year, elucidating the quantum of incremental capital that could flow into the sector. These macro trends go along with the already mentioned improvement in high end employment scenario and the resultant boost in disposable income. Moreover, the scenario is expected to remain buoyant for a few more years to come, in view of the abundant resources that the economy possesses, and the major projects that have been initiated.

Increasing InflationIncreased demand on real estate sector especially for housing demand had its impact on general price levels. Inflation as measured by the growth rate in Consumer Price Index (CPI) witnessed double digit growth of 11.8% in 2006 as compared to 8.8% growth registered in the previous year. The main determinant to this was the soaring property rents in the country, which is the major cause of concern. Apart from that, it also seems that consumer spending has gone up in Qatar mainly due to the increased liquidity. This has been further intensified by the weakness of the US dollar, putting upward pressure on prices of imported goods and commodities.

The steep rise has been witnessed in the case of the price index for rent, fuel & energy, which shot up by a whopping 25.9% from 176.2 points in 2005 to reach 221.9 points at the end of 2006. This segment is mainly driven by high property rents, as fuel & energy prices more or less remained stable in the country. Overall inflationary pressure in Qatar was mainly being driven by this sector due to sharp rise in housing prices, both rental and sales.

Table 07: Consumer Price Index (2001=100)End of Period 2004 Y-o-Y

Change (%)2005 Y-o-Y

Change (%)2006 Y-o-Y

Change (%)Food, Beverages & Tobacco 104.2 3.30% 107.5 3.10% 115.36 7.31%Clothing & Footwear 104.6 8.10% 101.8 -2.70% 114.46 12.44%Rent, Fuel & Energy 139.6 16.20% 176.2 26.30% 221.91 25.94%Furniture & Furnishing 101.9 3.30% 106.7 4.70% 110.87 3.91%Medical Services 98.9 -1.40% 103.3 4.40% 104.55 1.21%Transport & Communication 96.0 3.70% 99.7 3.90% 101.56 1.87%Education, Culture & Recreation

102.3 2.90% 102.2 -0.10% 104.53 2.28%

Miscellaneous Goods & Services

110.3 4.10% 114.9 4.10% 130.51 13.59%

General Index 109.5 6.80% 119.1 8.8% 133.23 11.8%Source: Qatar Central Bank

During 2006, the CPI continued to witness steep rise despite several attempts by the authorities to control the inflationary pressure in the economy. The major factors which contributed to the high inflation, especially in 2006 were:

- Continuously growing housing demand over the last two years which kept the rents rising for dwelling units.



- Increased liquidity driving the consumption of essential as well as luxurious items and thereby increasing in their prices.

- Strengthening of almost all major international currencies against US Dollar to which Qatari Riyal is pegged to thus making imports costlier.

To combat rising rents, at the beginning of 2006; a new law No. (4) of 2006 (The Rent Control Law) was introduced in an attempt to control spiraling rents. It provides that, for a period of two years landlords are not allowed to increase rents by more than 10%. However, the Rent Control Law amends the existing lease law No. (2) of 1975, which does not apply to leases of substantial conditions “as is the case of furnished apartments”.

Increased mega projects on the development plan Apart from the internally generated liquidity, real estate sector in Qatar too has succeeded in attracting foreign investments. While majority of this was from the wealthy investors in other GCC countries, there have also been investments by funds investing in GCC real estate, though at a relatively smaller scale. In the case of Pearl project, one of the prominent large scale developments in the country, Qataris account for approximately 10% of all the customers, while the remaining 90% include customers from Saudi Arabia, Kuwait, Egypt, Turkey, Morocco and Iran. The scenario for foreign investments could further improve in course of time with the increasingly relaxed regulatory restrictions.

Looking forward, the real estate boom in Qatar is not expected to end. This is mainly due to the increased development projects for the medium as well as the long term. Lots of mega projects are either under development or under planning are expected to guide the sector for the following years. According to data from Zawya, four mega projects are estimated to add up to US$10.1bn or even higher. Moreover, recent estimates from industry sources suggest that US$120bn worth of investments will be channeled into Qatar over the next five years for infrastructure improvement. We expect such projects to have their impact not only on the real estate sector but to have its effect on the Qatari economy as a whole through multiplier effects. Such projects are expected to impact construction material prices, increase labor demand especially for construction thus, creating new job opportunities.

Generally, infrastructure projects have been allocated a total of US$13bn with US$5.5bn for the new airport, US$1.8bn for the Qatar-Bahrain causeway, US$3.8bn for a five year program of public works that ends by 2009 and US$3bn for electricity and water projects. According to the Ministry of Finance; Qatar’s economy will be over and above US$60bn by 2011 as the state enjoys one of the fastest expansion plans in the world.



Table 08: Mega Real Estate ProjectsProject name Description Known developer Cost

(US$ mn)Lusail The Lusail development covers an area of

about 35 km sq to the north of the capital. The project calls for the construction of hotels, houses, apartments and more than 300,000 sqm of retail space along 8.5 km of shoreline.

Qatari Diar Real Estate Investment Company

5,000

The Pearl Qatar

The Pearl-Qatar covers 400 hectares of reclaimed land and is Qatar’s first international real estate venture. The US$2.5bn Pearl-Qatar project is a string of offshore islands with two circular feature harbors which mirror the famous Doha harbor’s natural shape. There will be 8,000 residential units in total, ranging from 20-storey towers to individual villas with substantial plot sizes.

United Development Company

2,500

Al Waab City

The 1.2mn sqm development will include residential and business units, a luxury hotel, retail outlets and other amenities. It is composed of over 2,100 residential units, commercial space and a 300 room hotel. It provides housing for 10,000 people.

Al Waab Development Company

980

Energy City Qatar

The first phase of the development includes a technology centre; an education and training centre; a shipping and trading centre; an oil and gas producer’s centre; a service industry centre; an infrastructure and downstream centre; and an information, press and associations centre. Located within the prestigious Lusail development in Doha, Energy City Qatar will become the Middle East’s first integrated business energy centre, consolidating a range of industry and marketing services under one roof, attracting investment from significant global players in the hydrocarbon value chain and leading the development of the hydrocarbon industry.

Energy City Qatar 1,600

Source: www.Zawya.com


November 2007 Qatar Real Estate Sector Report �7

The Legal EnvironmentIn a milestone move to attract greater international interest in Qatar, the government has issued a decree, in June 2004 that allowed non-Qataris to own real estate properties in selected housing projects. The law allowed Qataris and non-Qataris to buy and own real estate of any description in any of the three projects proposed - Pearl Island, West Bay Lagoon and Al Khor Resort. Non-Qatari buyers could own real estate at the above three locations on a lease basis for 99 years, that would be extendable for another 99 years. Meanwhile, Qatar has started issuing permanent residence visas to foreigners who buy freehold property in select housing projects. The visa remains valid as long as the foreigner keeps the property in his name. The move is aimed at projecting the country as an open and cosmopolitan society and to compete with similar legislation already in effect in Dubai.

Law No. 17 of 2004 Allowing Non-Qatari’s to own properties in QatarIssued by the Emir of Qatar on 6th June 2004Regulating the Ownership and Usufruct of Real Estate and Residential Units by Non-Qatari’s

We, Hamad Bin Khalifa Al Thani, the Emir of Qatar:Upon a review of the amended provisional constitution, particularly Articles 23, 34 and 51 thereof;Law No. 5 of 1963 concerning the Inability of Foreigners to Own Fixed Assets in Qatar;Law No. 14 of 1964 concerning the Real Estate Registration System and its amendments;Law of the Civil and Commercial Articles issued as Law No. 16 of 1971, as amended by Law No. 10 of 1982;Law No. 2 of 1975 concerning Leasing Plots and Buildings, as amended;Law No. 13 of 1988 concerning Temporary Expropriation and Confiscation of Real Estate for the Public Interest, as amended by the Law No. 23 of 1995;Law No. 13 of 2000 concerning Foreign Capital Investments in Economic Activity;Law No. 2 of 2002 concerning the Regulation of Property Ownership by GCC Nationals;The draft law presented by the Cabinet;And pursuant to consultation with the Advisory Council, We have issued the following law:

Article (1) In implementing the provisions of this Law, and unless the context otherwise requires, the following words and expressions shall have the meanings ascribed to them hereunder:

“Real Estate “ means lands, buildings and constructions thereof.

“Residential Unit” means an apartment in a multi storey residential building.

“Investment Areas” means the lands allocated for carrying out commercial, industrial, tourism, residential and educational activities and any other activities the investment in which is permitted in accordance with the applicable laws in the State.

Article (2) Nationals of the Gulf Cooperation Council may own Real Estate in the Investment Areas, in respect of which a Cabinet resolution will be issued to determine their location, and the conditions and procedures of ownership therein.



Article (3) A non-Qatari may own Real Estate in the Pearl of the Gulf Island, the West Bay Lagoon, and Al Khor Resort Project, in accordance with the terms and conditions issued by a Cabinet’s resolution.

Article (4) A non-Qatari may have the right of usufruct over Real Estate for a term of 99 years renewable for similar terms in the Investment Areas for which a Cabinet resolution is issued to determine their location, and the conditions and procedures of usufruct.

Article (5) Without prejudice to the provisions of the abovementioned Law concerning Leasing Plots and Buildings, a non-Qatari may have the right of usufruct in respect of one Residential Unit or more in residential areas for a term not exceeding 99 years renewable for further similar terms, in accordance with the conditions and procedures determined pursuant to a Cabinet’s resolution.

Article (6) The right of usufruct is a right in kind that shall not arise, nor is it acknowledged, unless registered in accordance with the above-mentioned Law No. 14 of 1964. The right of usufruct shall terminate upon the expiry of its defined term, upon the mutual agreement of the parties, the destruction of the property or the expropriation thereof for the public interest.

Article (7) In the event of expropriation of the building encumbered with the right to usufruct in favour of the public interest, or its destruction as a result of actions carried out by its owner, then the owner is obliged to indemnify the usufructuary for the remaining period specified in the contract, in a proportionate value to the right to usufruct.

Article (8) The usufructuary shall benefit from the Residential Unit with all its facilities and common areas of the building, and may dispose of this right and utilize it without prejudice to his title, and title over the subject matter of the usufruct shall enure to legal heirs of the usufruct upon his demise.

The owner of the building encumbered with the right to usufruct may dispose of the building without prejudice to the right to usufruct; upon the owner’s demise, title over the building shall enure to his legal heirs encumbered with the right to usufruct.

Article (9) The owner of the building encumbered with the right to usufruct is obliged to hand over the Residential Unit to the usufructuary free of any rights that contravene with the right to usufruct and warrants not to interfere with the usufructuary throughout the term of the right to usufruct and undertakes to keep and maintain the other parts of the building.

The usufructuary, and his personal or public successors-in-title, shall undertake to benefit from the Residential Unit for the purpose for which it was built and to keep and maintain it and to hand it over upon the expiry of the term of the right to usufruct.



Article (10) The usufructuary shall be a member of the owners’ committee of the premises where his unit is located and he shall be subject to the same provisions that other owners are subject to in accordance with the law.

Article (11) The provisions of this Law shall apply without prejudice to the right of the State to prohibit ownership and usufruct in certain areas for the public interest.

Article (12) The Cabinet shall issue the resolutions necessary to enforce the provisions of this Law.

Article (13) Any provisions contrary to the provisions of this Law are hereby cancelled.

Article (14) All concerned parties, each within its competency, shall enforce this Law and implement it as of the date of its publication in the official Gazette.

Hamad Bin Khalifa Al Thani

Emir of Qatar

Issued at the Emiri Court

On 18/4/1425 Hijri

Corresponding to 6/6/2004

Source: Property World Middle East

The government enacted a law in February 2006 related to sale and lease of properties by foreigners. As per the law, GCC nationals can now own land and residential units in three designated areas namely Lusail, Al Kharayej, and Jebel Thiyab. Non-GCC nationals can lease properties for a period of 99 years on a renewable basis in 18 specified areas. The areas are: Musheireb, Frij Abdul Aziz, Doha Jadeed, Ghanem Al Qadeem, Al Rifa Al Hitmi, Al Salata, Bin Mahmoud, Rawdat Al Khail, Al Mansoura and Bin Dirham, Najma, Umm Ghuwailina, Al Khulaifat North and South, Al Sadd, New Mirqab and Al Nasser, areas around the Doha International Airport, Al Dafna and Onaiza, Lusail, Al Kharayej and Jebel Thiyab.

There are no limits on the quantity of property a GCC national can own, and owners have the freedom to trade their property or use it for their benefit in accordance with the laws of Qatar. Foreigners who lease have also the right to use the properties commercially or for their benefit, transfer the lease to another party, sublet or rent them.

The government has assigned the Qatari Diar Real Estate Co, which is fully owned by the government, to manage and develop these areas and handle all applications by GCC and non- GCC nationals who wish to own or lease in any of the specified areas.



Increasing construction costs Currently, the key problem facing the real estate and construction sector in Qatar is the gap between demand and capacity, especially in the current scenario of such enormous array of construction projects underway or about to start. According to industry sources, the increased demand for construction technology, power, building materials (cement, aggregates, steel, reinforcing rods, glass, cinder blocks) and equipment are in short supply. As a result, prices are at an all time high. Consequently, the short supply led firms to turn away from overwhelmed domestic suppliers to imports to find that the capacity of the country to take such boosted quantities of imported materials is insufficient.

Table 09: Building materials costsDecember 2003 June 2005 June 2006 Y-O-Y

Aggregates (US$/ton) 10.0 15.0 25.0 66.7%Cement (US$/bag) 2.8 4.0 5.0 25.0%Ready-mix (US$/cubic meter) 59.0 90.0 120.0 33.3%Rebar (US$/ton) 590.0 760.0 810.0 6.6%

Source: Oxford Business Group & Qatar Chamber of Commerce

Generally, with around 160 towers planned for Doha, construction costs in Qatar are estimated to have more than doubled during the period 2003-06. However, it is important to note that prices have been rising across the whole GCC area. According to data from Oxford Business Group and Qatar Chamber of Commerce; almost all construction materials prices reported double digits growth except rebar prices that reported Y-O-Y growth of 6.6% by the end of June 2006. Aggregates reported the highest Y-O-Y growth rate of 66.7% standing at US$25/ton by the end of June 2006. Similarly, cement and ready mix prices grew rapidly by 25% and 33.3% standing at US$5/bag and US$120/cubic meter respectively.


November 2007 Qatar Real Estate Sector Report 2�

Qatar Real Estate Market

According to data from Qatar Planning Council, building and construction sector reported a stellar performance over the period 2000-05. The sector’s net value added almost tripled over the period, increasing from QR1.4bn during 2000 to stand at QR5.5bn by the end of 2005. On CAGR basis, the sector’s value added grew rapidly by 31.7%. Such high rates indicate the increased interest in the sector due to increased demand. On annual basis, the sector’s value added continued to grow rapidly at increasing rates up to the end of 2004 when it reported the highest growth rate ever (91.8%).

Table 10: Building and construction value addedQR mn 2000 2001 2002 2003 2004 2005 CAGR%Gross output 3,561.3 3,718.2 4,433.6 5,071.1 9,800.3 13,229.8 30.0%Intermediate consumption

2,005.6 2,116.6 2,551.4 2,734.4 5,395.7 7,251.2 29.3%

Gross value added 1,555.6 1,601.6 1,882.2 2,336.8 4,404.6 5,978.6 30.9%Depreciation 176.5 163.9 196.7 229.2 361.2 507.2 23.5%Net value added 1,379.1 1,437.7 1,685.5 2,107.6 4,043.4 5,471.4 31.7%Compensation of employees

969.8 968.2 1,092.0 1,237.2 2,058.7 2,898.1 24.5%

Operating surplus 409.3 469.6 593.5 870.4 1,984.7 2,573.3 44.4%Source: The Planning Council, Qatar

During 2005, the sector’s performance continued its growth, however at lower rates reporting 35.3% annual growth over 2004. Similarly, intermediate consumption followed the same trend as net value added to report a CAGR of 29.3% over the period. Finally, it is important to note that, within value added compensation of employees accounted for 60.8% of total value added on average for the period, while operating surplus accounted for the remaining 39.2%.

Figure 05: Building and construction productivity and wage indicators

Source: The Planning Council, Qatar

QR’0009080706050403020100

2000 2001 2002 2003 2004 2005

Productivity per employee Value added per employee Average annual wage

69.3

30.319.0

68.5

29.5

17.9

72.2

30.6

17.8

77.2

35.6

18.9

82.7

37.2

17.4

80.8

36.5

17.8



On the productivity front, the sector’s productivity per employee has been increasing over the years reporting a CAGR of 3.1% during the period 2000-05. By the end of 2005, productivity per employee stood at QR80,800 that was 2.2% lower than 2004 peak of QR82,700. Similarly, value added per employee grew at a CAGR of 3.8% over the same period to stand at QR36,500 by the end of 2005. As for average annual wage, it iterated reporting marginal growth and declining rates over the period, however continued to be within the same range of QR18,000. Looking forward we expect value added and productivity per employee to be at the same levels without expected decline. However, we might expect average annual wages to increase more due to increased demand in the sector, and increased employment opportunities at higher wages.

Table 11: Issued building permits by type of permit over the yearsPermit Type 2001 2002 2003 2004 2005 CAGR%New Buildings 2,440 2,729 2,806 3,529 4,365 15.7% Residential 2,091 2,325 2,315 3,070 3,889 16.8% Villa 927 1,271 1,377 1,814 2,246 24.8% Multi-Storey Building 156 235 252 407 528 35.6% Non-Residential 349 404 491 459 476 8.1% Govt. Building 13 16 23 22 40 32.4% Commercial Building 127 151 112 126 151 4.4%Additions 1,116 1,139 1,105 1,292 1,759 12.1%Fencing 361 363 311 302 257 -8.1%Total 3,917 4,231 4,222 5,123 6,381 13.0%


Another major indicator of the booming real estate sector is the total number of building permits issued every year. According to the latest available data form Qatar Planning Council; total permits have grown at a CAGR of 13% over the period 2001-05. On annual basis, the year 2005 has seen total building permits standing at a new high of 6,381 permits. Such level depicted a significant annual increase of 24.6% on top of 21.3% of growth registered during 2004. Looking forward, we estimate issued permits to continue its growth at the same pace for the next five years supported by the boom in the sector.

Analyzing issued permits by type revealed that permits issued for new buildings and additions grew at CAGR rates of 15.7%, and 12.1% respectively during the period 2001-05. On the other hand, permits for fencing reported a declining CAGR of 8.1%. More importantly, within new buildings permits, residential permits continued to account for the major share of 89.1% while new permits for non residential segment accounted for 10.9% by the end of 2005. Permits issued for both categories continued to grow during the five years period at CAGR of 16.8% and 8.1% respectively. Within residential permits villas accounted for the highest share of 57.8%, moreover it reported a high CAGR of 24.8%, indicating the increased demand for housing and residency by locals and expatriates. This was a direct result of the oil boom and increased influx of expatriates in the booming economy especially from oil companies. Similarly, permits for multi storey buildings reported a CAGR of 35.6% indicating the same trend of increased housing demand mainly for expatriates.



Figure 06: New building permits issued by municipality*

* Not including fencing and repairs permits

** Not including Mesaieed town data


Analyzing new building permits issued according to municipality revealed a major change by the end of 2005. Historically, the capital city Doha captured the biggest share of issued permits in Qatar comprising for 41.5% of total permits on average over the period 2000-04. However, Al Rayyan municipality rather than the capital city Doha accounted for the highest share during 2005 accounting for 38.9% of total permits. It is important to note that, Al Rayyan share in total permits has been increasing over the period 2000-05 from 35.2% to 38.9%. This was mainly on the account of declining share of permits by Doha from 42.9% to 36.6% during the same period. Finally, although dominated by Doha and Al Rayyan, the activity is spread out fairly evenly across the other 3 smaller municipalities in Qatar. Following Doha and Al Rayyan, permits issued by Umm Slal continued to rank the third accounting for 11.4% of total permits by the end of 2005.

Table 12: Completed buildings by municipalities and type of building in 2005 Doha Al

RayyanAl

WakraUmm

SlalAl Khor Total Shares

Villa 938 1,997 112 180 127 3,354 72.9%Senior staff house 180 78 5 29 4 296 6.4%Popular house 51 432 19 117 11 630 13.7%Multi-storey buildings 259 22 5 2 2 290 6.3%Other 13 13 1 0 4 31 0.7%Total Residential 1,441 2,542 142 328 148 4,601 94.7%Govt. buildings 7 5 1 1 2 16 6.2%Commercial 65 6 0 2 9 82 31.5%Workshop/factory 116 1 0 0 16 133 51.2%Other 5 14 2 6 2 29 11.2%Total Non-Residential 193 26 3 9 29 260 5.3%Total completed buildings 1,634 2,568 145 337 177 4,861 100.0%


2000

Doha 42.9%

Al Rayyan35.2%

Al Wakra**5.9%

Umm Slal 10.8%

Al Khor 5.3%

2005

Doha 36.6%

Al Rayyan38.9%

Al Wakra**6.7%

Umm Slal 11.4%

Al Khor 6.4%


2� Qatar Real Estate Sector Report November 2007

During 2005, total completed buildings in Qatar stood at 4,861 buildings reporting 14.7% growth over 2004. Regarding completed building mix, residential category continued to witness almost all the action capturing 94.7% of total completed buildings in 2005. Non-residential category on the other hand captured the remaining 5.3% standing at 260 buildings. However, it is important to note that the residential segment’s share of total completed building increased from 86.8% in 2004 to 94.7% in 2005. This implies the increased demand on housing and residency. According to industry sources and our estimates, there is a shortage of around 50,000 units during the year 2006, which is expected to continue for the medium term until new supply is delivered.

Villas accounted for the lion’s share within the residential category, accounting for 72.9% of residential buildings. Multi-storey buildings on another front accounted for 6.3% of residential buildings. By municipality, Al Rayyan continued to account for the highest share of residential buildings having 2,542 buildings or 55.2%. This is mainly as Al Rayyan is the most popular residential area that generally accounts for more than 40% of total population. The capital city Doha accounted for more than 35% of total population, and followed Al Rayyan municipality in terms of the number of residential buildings, accounting for 31.3% of total buildings in 2005.

In the non-residential category, Doha captured 74.2% of completed buildings in this category followed by Al Rayyan and Al Khor at 10.0% and 11.2% respectively. Doha will continue to dominate the non-residential side, as new businesses open up in Qatar, attracting commercial activity to the capital. This should continue in the near future as well, unless other areas also start to develop and attract commercial and business activity, which is happening on a smaller scale in Al Rayyan. Al Khor is likely to witness some of the largest mixed-use developments coming up. The area is most likely to benefit from the regulation allowing foreigners to purchase real estate in Al Khor area.

Table 13: Cost per building unit according to building type in 2005 QR’ 000 Doha Al Rayyan Al Wakra Umm Slal Al KhorVilla 554 431 440 701 280Senior staff house 1,090 1,040 744 1,218 73Popular house 469 369 405 489 474Multi-storeyed buildings 3,902 2,564 2,420 2,500 2,325Other 343 176 180 202Total Residential 1,218 456 514 682 332Govt. buildings 39,128 21,968 6,900 3,392 3,877Commercial 12,675 2,148 2,450 508Workshop/factory 1,220 350 429Other 1,981 4,360 1,434 985 450Total Non-Residential 6,472 7,082 3,256 1,578 692Total completed buildings 1,838 523 570 706 391


Data from the planning council on average cost per building unit revealed an increasing cost per building unit over the years as well as over different segments. Generally, the increasing trend of cost per building across segment could be reported back directly to higher land prices as well as building materials costs. In a scenario of increased demand and a booming real estate and construction sector, it is normal to encounter increased prices for building materials.



During 2005, average cost per residential building unit reported higher growth rates for all municipalities. However, residential buildings within the capital city Doha reported the highest growth rate of 37.2% to stand at QR1.2mn per building. Similarly, cost per residential building grew by 16.9% and 10.4% for Al Wakra and Um Slal municipalities, standing at QR514,000 and QR682,000 respectively.

Within non-residential buildings, cost per building more than quadrupled for Doha and Um Slal municipalities reporting 511.1% and 446.2% of growth respectively. For the capital city Doha, cost per non-residential building shot up from QR1.1mn during 2004 to QR6.5mn by the end of 2005. The increase was mainly reported back to the hike in cost per commercial building that more than tripled during the year 2005. Cost per commercial building grew by 356.4% from QR2.8mn reaching QR12.7mn by the end of 2005. Similarly, cost per non-residential building within Um Slal municipality stood at QR1.6mn up from merely QR289,000 during 2004. The hike in cost per building was backed mainly by increased commercial buildings cost. By the end of 2005, cost per commercial building increased more than seven folds to QR2.5mn up from QR300,000 reported during 2004.



Residential Sector

Generally, almost all real estate sectors in Qatar are in high demand, and are in short supply. However, supply has been extremely deficient in the residential sector in particular, leading to a sharp increase in prices and rents. In addition, the limited land available in Qatar as compared to other GCC countries have led to further increase in prices. During 2007, prices continued to increase significantly. According to Mazaya real estate index; “land prices for both residential and commercial usage continued picking up. According to Mazaya index, the average price per sqm has varied between a high of QR2,240 per sqm during February, and a low of QR1,756 per sqm in June”.

According to our estimates based on the latest data available from Qatar planning council, average costs per residential building continued to grow over the period 2001-06 due to increased land prices as well as building material. Within residential segment, multi-storey buildings reported higher growth rates especially during 2005 and 2006. Across municipalities, Doha and Um Slal were estimate to have reported the highest average cost per building during 2006 standing at QR5.26mn and QR5.33mn respectively. Al Wakra was estimated to have reported a high growth rate of 32.5% on top of 89.8% growth reported during 2005. Thus by the end of 2006, average cost per building was estimated at QR3.2mn. Average cost within Al Khor continued its growth since 2005 to report 16.4% recording a new high of QR2.7mn.

Figure 07: Average cost per multi storey residential building across municipality

*Estimates

Source: The Planning Council, Qatar & “Global” Research

Similarly, average cost per villa followed the same trend as multi-storey buildings however at lower rates. Average cost within Doha municipality estimated to have grown by 8.7%to a new high of QR602,460 by the end of 2006. Al Rayyan municipality -as a major residential destination- estimated to have reported 2.7% of growth reaching QR442,160. Such growth came on top of 9.7% of growth reported during 2005. Finally, Umm Slal municipality had the highest average cost per villa, estimated at QR785,000 by the end of 2006.

QR’0006,000

5,000

4,000

3,000

2,000

1,000

-2001 2002 2003 2004 2005 2006*

Al Khor Al Rayyan Al Wakra Doha Umm Slal


November 2007 Qatar Real Estate Sector Report 27

Figure 08: Average cost per Villa across municipality

*Estimates

Source: The Planning Council, Qatar & “Global” Research

On the rental front, rents continued at increase at higher pace through 2007. According to a study conducted by Colliers International, the average monthly rent of a 2-bedroom high-end apartment rose from QR3,274 (US$900) in 2002 to QR4,000 (US$1,100) in 2005 to QR10,185 (US$2,800) in 2007. Moreover, according to Oxford Business Group the shortage of residential units, which were no more than three or four storey in the past, meant demolition of older buildings and replacement with larger ones, accordingly many areas are running through shortages of space with less capacity than they had before, rather than more adding to the increase in rentals and a race to get projects finished. According to Oxford Business Group, brokers quoted prices at the cheap end of QR6,000 a month for a furnished one-bedroom apartment in Doha. The same price would be charged for an unfurnished two bedroom apartment in the northern reaches of the city, while a serviced two-bedroom flat can not be found for less than QR14,000 a month.

Figure 09: Residential Apartment Unit Rentals in Doha

Source: Colliers International.

QR’000800

700

600

500

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300

2002001 2002 2003 2004 2005 2006*

Al Khor Al Rayyan Al Wakra Doha Umm Slal

20,000

15,000

10,000

5,00

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2004 2005 2006 2007

Mid Income 2 Bed Mid Income 3 Bed High Income 2 Bed High Income 3 Bed

2003



In response to the supply shortage, the government has been initiating housing schemes aimed at middle and lower income groups. On another hand, there are several residential and mixed use projects currently under development targeting the high end segment of the market. According to Colliers international, over 16,000 new apartments will be available in Doha by 2010, provided all mixed-use master-planned projects such as The Pearl and Lusail City and residential towers are completed on schedule. The West Bay area alone has 14 buildings under construction at present, with a total of 180 towers planned. Approximately 20% of the towers for the West Bay area are residential towers, comprising over 2,500 apartments by 2010.

Looking forward, we do not expect the demand/supply gap in the residential sector to narrow in the short term especially in the high end segment. This is mainly because highly paid expatriates are mainly the target market for the residential segment, and most of them can afford renting high-end homes as some companies pay as high as QR20,000 (US$5,500) per month for accommodation. Accordingly, rents for high end properties are expected to remain high.

Major upcoming projects

The US$5bn Lusail covers a 35 square kilometers area and consist of 10 self contained districts, each with its own infrastructure and amenities. The project will include a lagoon, two marinas, residential and commercial areas, hotels, residential units and retail and leisure facilities. Lusail is expected to house around 150,000 to 200,000 residents. The project is being developed by Qatari Diar Real Estate Investment Company and is due for completion by 2010. The first package of the infrastructure construction project involves the construction of roads, street lighting and landscaping work, bus stations, telecoms cables and utility tunnels. Finally construction is expected to start in March 2008 to be completed by July 2009.

The US$2.5bn Pearl Qatar, is the largest real estate project in Qatar, covering 985 acres and is the state’s first development to offer freehold to non Qatari’s. It is a man made island, shaped like a string of Pearls and diamonds and will encompass 7,600 freehold residential units that will accommodate 40,000 residents. The residential units will be contained in twenty-one 20 storey towers with 3,116 apartments and 410 town houses. The project is a four-phase mixed-use development comprising 10 distinct, themed districts to be developed over five years housing beachfront villas, elegant town homes, luxury apartments, 5 star hotels, marinas, schools as well as upscale retail and restaurant offering adding up to a space of 60,000 sqm. The project is being developed by United Development Company and is due for completion by 2009.

The US$1bn Waab City will cover 1.2mn sqm development which will include residential and business units, a luxury hotel, retail outlets and other amenities. It is composed of over 2,100 residential units, commercial space and a 300 room hotel. It provides housing for 10,000 people.



Commercial Sector

Shortage of office space driving rents upThe economic boom and the increasing number of foreign companies opening up in the country have rendered Qatar short of office space. According to a study published by Colliers International, vacancy rates in the office segment in Qatar are currently less than 1%. Accordingly, the shortage has induced large hikes in prices and rents in the commercial segment. According to the latest available market data from Mazaya real estate index, average price per square meter ranged from QR11,800 to QR18,500 from mid 2006 to mid 2007.

On the rentals front, Colliers International reported rentals reaching as high as US$70 per sqm during 2007 in hot spots such as West Bay which continued to position itself as the main hub for multinational corporations. This is mainly due to the limited supply of net leasable area (NLA) of 254,000m2. Rentals in other hot spots such as Grand Hamad Avenue stood at US$47/m2. Looking forward, we do not expect a correction in prices and rents for the commercial sector in the near future until the new supply is delivered. Given the level of industrial activity and foreign investments happening in the country, we continue to hold the belief that supply for the high end office market will continue to lag behind demand thus implying higher rentals. Finally we expect rentals to start a stagnation period after 2010 as almost 850,000m2 of NLA should be delivered by the end of 2010 according to Colliers International. West Bay is estimated to deliver 823,156m2 of NLA while Grand Hamad Avenue is expected to deliver NLA of 19,110m2.

Table 14: Average office space asking rents by location during 2007Location Rent (US$/m2)A and B ring roads 45C and D ring roads 55Grand Hamad Avenue 47West Bay 70

Source: Colliers International

Doha brimming with opportunities for retailersIncreasing wealth, and a growing population dominated by highly paid expatriates, are what retailers wish for. We believe that shopping malls have tremendous opportunities in Qatar given the current scenario of the economic boom and increased demand. According to Mazaya real estate index, increased demand lifted prices to higher levels during 2007 where average price per square meter stood at QR5,100 by the end of June 2007. Rentals followed an upward trend as well for the last three years supported by the limited available shopping space estimated at 250,000 sqm in Doha. According to Colliers International, average shopping mall rents ranged between a low of US$480/sqm to a high of US$960/sqm per annum during 2007.



Table 15: Average shopping mall rentals during 2007Location Rent (US$/m2/pa)The mall 660-840Landmark mall 480-840City center 720-840Hyatt plaza 720-840Royal plaza 600-960Al Asmakh mall 530-560Le Villaggio mall 480-660


City Center Doha and the Royal Plaza shopping center are among the main shopping centers in Doha. City Center opened in 2001 with an overall space of over 300,000sqm and a leasing space of 116,000sqm. During 2007, average rent levels in City Center ranged between US$720-US$840/sqm per annum. The Royal Plaza shopping centre is a high end shopping destination which opened its doors in October 2004, with an area of around 29,000sqm anchored by Paris Gallery. Rentals in Royal Plaza were the highest among other shopping destinations ranging between US$600-960/sqm per annum. Similarly, the Italianate Le Villaggio Mall, with a total built-up area of 145,000sqm reported average rents of US$480-660/sqm per annum.

Table 16: Estimated upcoming retail supply by net leasable area up to 2010Project NLA (m2)Laguna (2008) 51,000Al Khor mall (2008) 37,000Porto Arabia (2010) 186,000Regency mall (2010) 183,000AL Waab city (2010) 88,000The Gate (2010) 14,000


Looking forward, Qatar’s retail scene is expected to witness drastic changes through the entrance of a wave of new shopping malls. According to Colliers International, the existing quota of shopping centre space is expected to increase by more than 550,000sqm by 2010. Generally, future supply would be concentrated towards the upper niche of the market targeting the high-income consumer bracket. Future developments include Porto Arabia at The Pearl where many major retail brands are also setting up shop in the Pearl Island project, just to leverage on the brand value of the project. Kuwait’s Al Shaya Group, Middle East franchisee for many key brands that include Debenhams, Mothercare, Top Shop and Starbucks signed up for 6,000sqm at the island’s Porto Arabia fashion district. When completed by 2010, Porto Arabia is estimated to increase NLA by 186,000sqm. Similarly, another landmark would be the Regency Mall to be completed by 2010 and will offer another 183,000sqm of NLA.

Major upcoming projects

Situated in the new business district of Doha with panoramic views of the West Bay, the QR2.3bn mixed use corporate towers “Dubai Towers-Doha” will have 84 floors including 29 floors of premium office space. It will be 437 meters high when completed in the first half of 2010. The project is set to be one of Qatar’s iconic landmarks and a prominent feature of Doha’s new skyline. The “Dubai Towers-Doha” will also be home to an exceptional



retail offering, catering for a range of premium brands, banking amenities, exclusive dining and entertainment facilities, a luxury 5-star boutique hotel and furnished and unfurnished residential apartments.

The Gate is a unique ultra modern mixed-use development project with a combination of commercial, retail, and entertainment facilities. It is located in the heart of Doha’s new business district. Upon completion which is scheduled for the end of 2008, the complex will provide a further 55,000 sqm of office space, located in two connected buildings, plus an adjoining 24,700 sqm of new retail and entertainment space. The Gate’s office building A will have 16 floors with a total built up area of 37,000 sqm. Office Building B will comprise of 15 floors above the shopping mall with a total floor area of 18,000 sqm.

Located within the prestigious Lusail development in Doha, Energy City Qatar will become the Middle East’s first integrated business energy centre, consolidating a range of industry and marketing services under one roof, attracting investment from significant global players in the hydrocarbon value chain and leading the development of the hydrocarbon industry. Energy city Qatar will be the Middle East’s first full-service energy business center catering to the commercial, technical and human resource needs of the oil and gas industry operating in the region, with cutting-edge facilities and services. It will also be home to the energy trading platform, the International Mercantile Exchange (IMEX), which will be regulated by the Qatar Financial Center Regulatory Authority. The first phase of the development includes a technology centre; an education and training centre; a shipping and trading centre; an oil and gas producers’ centre; a service industry centre; an infrastructure and downstream centre; and an information, press and associations centre.



Industrial Sector

While housing and retail demand would be fostered by the wealth effect in the country, the emergence of Qatar as an industrial hub augurs well for the industrial property segment as well. According to industry sources, the Qatari government invested around US$31bn in various industrial projects during the period 2001-04. During 2005, the Qatari Ministry of Energy and Industry granted a total of 68 industrial licenses during 1Q2005. Out of those licenses, 34 licenses were distributed for the creation of new concerns, 11 licenses for expansion of current operations and 23 licenses for changes in existing concerns.

The sector underwent rapid growth in the last few years, as delineated by the movement of the indices. According to data from the planning council; general manufacturing index continued to grow steadily during the four years period 2001-05. The general manufacturing index reported a high CAGR of 9.2% over the period. This is extremely high, considering the investment sensitivity for the growth of this sector. Industrial production expanded, thanks to the liquidity in the market and the favorable environment primed up by the government. On annual basis, the index reported the highest growth of 12.6% to stand at 142 points by the end of 2005. Within the general index, petroleum and refineries sub-index grew the most during the period to report a CAGR of 15.6%. Petroleum and refineries sub-index stood at 178 points by the end of 2005 that represented 20.7% of annual growth over 2004 level. Other sub-indexes continued to grow during the period. Petrochemical manufacturing sub-index reported the second highest growth rate during the year 2005, improving by 10.7% to stand at 104.7 points.

Figure 10: Movement of industrial indices in Qatar

Source: The Planning Council

Looking at the broader picture, the large scale industries in Qatar, along with boosting the demand for industrial and more importantly warehousing space, also is a significant employment provider thus stimulating job creation.

We believe that the industrial segment will have a great potential to further boost the burgeoning real estate sector in Qatar given the current level of industrial activity, and the level of support offered by the government. The government is encouraging business and industry through offering, among other things, low-interest loans; free road, water, and electrical hook-ups; subsidized electricity and water; land leases at minimal cost; and protective tariffs and tax incentives.

200

175

150

125

100

752001 2002 2003 2004 2005

Petrochemical manufacturing

Iron & Steel industries

Industrial Liquids

General Manufacturing

Petroleum refineries

100

178.8

142

136.1

110.9

104.7



Major Industrial Cities in Qatar

Doha Industrial Estate

Doha Industrial Estate was set up upon the instruction of the Emir of Qatar to establish an industrial estate for light and medium scale industries. The new industrial estate has a special management for control and monitoring under the unified bureau policy granting industrial license and land at the same time in accordance with specific conditions. It will accommodate hundreds of enterprises divided into nine major sectors providing integrations and coordination and constituting an asset to national economy.

Ras Laffan Industrial City

Ras Laffan Industrial City (RLIC) is located approximately 80km to the north of the capital city Doha. RLIC –the most recent industrial city in Qatar- is 106 square Km where about 6,500 officials and workers are employed. RLIC is strategically located at the center of the Arabian Gulf on Qatar’s North Gas Field, and is one of the world’s fastest growing industrial export locations. RLIC hosts the two major LNG projects Qatargas and Rasgas. Memorandums of understanding (MOU) have been signed with international energy corporations and states for the construction of future industries in RLIC. These industries include additional Liquefied Natural Gas plants, direct Pipeline export of gas to neighboring countries, refining of condensate, and other gas based industries.

Dukhan Industrial City

Dukhan City was one of the first sites in Qatar where petroleum was discovered and produced. In 2003 a strategic construction plan was set up to develop Qatar petroleum’s concession area and is to continue to 2022. The plan has 193 projects that have been selected and will be established within the next 20 years in four stages at a total cost of QR708mn. Several major projects have been completed including the development of Dukhan petroleum fields to increase oil production capacity. Dukhan oil field is located over 80km to the West of Doha. Dukhan Field encompasses four reservoirs from North to South - Khatiyah, Fahahil and Jaleha/Diyab, three of which are oil reservoirs, and the fourth contains non associated gas. Oil and gas are separated in four main degassing stations namely Khatiyah North, Khatiyah Main, Fahahil Main and Jaleha. Dukhan oil field has production facilities to produce up to 335,000 Barrels per Day (BPD). Major civil infrastructure development project are being implemented in Dukhan. Some of the major projects are relocation of industrial facilities outside of Dukhan, Dukhan-Umm Bab-Salwa road, New Sewage treatment plant, Dukhan Housing Projects, Dual carriageway from Zikreet junction to Dukhan, Dukhan operations Headquarters Building and other civil projects.

Mesaieed Industrial City

Mesaieed Industrial City is about 40 km south of Doha. MIC was established in 1996 as a single point authority to directly provide all services and facilities to present and future industries in Mesaieed. MIC Management undertakes responsibility for developing light, medium and support industries to serve the needs of large businesses. MIC contains a varied



base of industries covering crude oil, hydrocarbon products, petrochemicals, iron and steel as well as light and support industries and Mesaieed Port, which serves export and import needs of numerous products 24 hours a day. Qatar Petroleum and Gas Complex in Mesaieed is composed of three major treatment plants as well as a special area to store and export products. Natural Gas Liquids Plants 1 and 2 are designed to separate and fractionate LNG extracted from various production areas into a number of fractionated final products. Natural Gas Liquids Plant 3 is composed of separate units to treat gas and condensates. The recently established Natural Gas Liquids Plant 4 is expansion and development of QP’s gas treatment capacity besides the present fractionation and treatment facilities in Mesaieed. There is an oil refinery in Mesaieed with a daily production capacity of 731,000 b/d, meeting the needs of local consumption to 2020.



Tourism Sector

Qatar sees the tourism sector as key to its economic diversification. That is why Qatar is focusing on building international awareness of its potential as a tourist destination. Qatar Tourism Authority (QTA) has been realistic about the country’s potential and knows its limitations and clear about its goals. In 2004, Qatar unveiled a comprehensive tourism master plan. The government has allocated US$15bn for tourism and hospitality projects including the new airport, 37 new hotels, resorts and cultural projects. Moreover, the plan identified Qatar’s major target markets and identified education, sport, meetings, incentives, conferences and events (MICE) activity and medical tourism as good prospects considering that around 95% of current visitors to Qatar are believed to be business linked. Tourists’ numbers are estimated to more than double to reach 1.5mn by 2010 as compared with 600,000 in 2005.

Concerning the sector’s performance, tourism growth in the country picked up in the last few years, coinciding with the economic boom, which points towards the predominance of business tourism in the country. According to a market study by Colliers International, “Deloitte’s Hotel Benchmark survey for 2006 places Doha in the 6th place in an index of the best performing hotel markets (with Venice 1st and Dubai 2nd), in terms of revenue per average room (RevPAR). RevPAR jumped from US$149 in 2005 and US$183 in 2006, an impressive 22.8% increase. Doha also experienced phenomenal growth in average room rates (ARR) – up 24.6% to US$248.”

Figure 11: Hotels Performance

Source: Colliers International.

The government of Qatar has been also promoting the country as a tourist destination through the construction of projects such as the National Museum, the Cultural Village, in addition to hosting events such as the Asian Games in December 2006. The country has also launched its bid to host the 2016 Olympic Games. If awarded the Games, Qatar would become the first Arab country to host the Olympics.

300

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4 Star Hotels 5 Star Hotels Occupancy

US

$

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ancy

(%

)



Figure 12: Number of hotel occupants in Qatar


The number of hotel occupants in the country have increased at a CAGR of 19.3% in the five year period from 2000-2005. Total hotel occupants stood at 732,454 and 912,997 for 2004 and 2005, thus reporting 31.5% and 24.6% of growth respectively. As for hotel occupants by nationality, foreigners accounted for 52.1% of total occupants on average over the five year period, while Arab occupants accounted for the remaining 47.9%.

Figure 13: Number of tourist nights in Qatar


The number of tourist nights reported a high CAGR of 18.7% over the same period. By the end of 2005, tourist nights reported 4.2% of annual growth on top of 15.8% of growth reported the year before, to reach 1mn nights. The growth was mainly backed by increased foreigners’ tourist nights by 7.2% as compared with 0.1% growth in Arab’s nights. Generally, foreigners’ tourist nights accounted for 53.6% of total nights while Arab’s accounted for 46.4%.

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30%

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20%

15%

10%

5%

0%

%

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Touristic nights Growth rate

435507

698

848

983 1,02437.7%

16.5%

21.6%

15.8%

4.2%

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%60%

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Total hotel occupants Growth rate

357 378 376

587 557

732

913

25%32%

-5%

56%

-1%

6%


November 2007 Qatar Real Estate Sector Report �7

Table 17: Hotels occupants and Tourist nights by nationalityYear Hotel occupants Tourist nights

Arabs Foreigners Total Arabs Foreigners Total2000 157,411 220,568 377,979 179,438 255,463 434,9012001 231,456 144,498 375,954 298,476 208,029 506,5052002 312,063 274,582 586,645 327,458 370,158 697,6162003 282,538 274,427 556,965 405,781 442,614 848,3952004 295,335 437,119 732,454 419,185 563,434 982,6192005 364,977 548,020 912,997 419,532 604,166 1,023,698CAGR% 18.3% 20.0% 19.3% 18.5% 18.8% 18.7%


However, one of the greatest challenges facing the industry is a shortage of beds and hotel rooms. Thus, there is a dire need to increase the current 3,500 rooms inventory. According to data from the Qatari planning council, the total number of hotels stood at 35 hotels by the end of 2005 with 677 suites and 3,503 rooms. Analyzing hotels classification according to star type revealed high concentration in the middle to upper class categories where almost 70% hotels were in the three and four stars classes. Three stars hotels, accounted for 48.6%, or 17 hotels, followed by four stars hotels that formed 20%. Not surprisingly, suites and rooms classification according to star type followed the same pattern as hotels.

Table 18: Hotel classes, bedrooms and suites in 2005Hotel class No. of Hotels No. of Suites No. of Rooms No. of BedsFive stars 4 207 1,241 1,622Four stars 7 222 1,212 1,831Three stars 17 234 782 1,829Two stars 4 14 193 382One star 3 - 75 146Total 35 677 3,503 5,810


Looking forward, Qatar capacity is expected to expand as Qatar Tourism Authority plans to have 50,000 hotel rooms in the country by 2016. However, it is important to note that most of the upcoming projects are focusing on the four and five stars category. As a result, major international hotel chains have spotted Qatar’s potential. According to a report by Oxford Business Group, hotels such as the Four seasons chain, Hilton, Shangri-La, Marriott, Rotana and Renaissance properties have eyed Qatar. In addition, future developments such as the Pearl Island development off Doha’s West Bay Lagoon will include three luxury hotels with a total of 800 rooms, a marina and substantial entertainment facilitates. The 21-sq-km Lusail development planned for the north coast of Doha will have two 18 hole golf courses, an equestrian center, boutique hotels, and an island resort with a number of five-star hotels. All of these new developments are expected to add substantially to Qatar’s tourism potential.



Qatar Real Estate Outlook

A lot of focus has been shifting recently to Qatar which has made leaps in a very short span of time. Qatar’s economy has grown with fast yet calculated steps sustained by its oil and gas wealth. The country has made tremendous efforts to diversify away from reliance on oil and gas by opening up its economy to foreign investments. A strategy that proved to be fruitful in attracting major multinationals firms such as Ernst & Young, HSBC and IBM which has set up bases in Qatar, leading to the massive inflows of highly paid expatriates, and the increase in wealth in the country.

The country’s foreigner friendly environment along with the government’s increased expenditures on infrastructure has fuelled the construction boom in the commercial, residential sectors as well as retail sectors. Coinciding with the boom, the country has witnessed huge inflows of highly paid expatriates which have driven rents and prices to high levels given the shortage of supply of residential properties. The commercial segment also had its share of soaring rents given the inflows of business to the country. Looking forward, we believe the upward trend of rents and prices will be sustained by the economic boom in the country, and the huge inflows of foreign companies and expatriates into the country. Moreover, recent regulations allowing foreign ownership in specific areas have also left a positive impact on the Qatar real estate market. Thus the demand side is expected to continue its upward trend for the coming years up to 2010.

On the supply front, the high pace of construction activity raised the inevitable question as to whether there is enough demand to meet this supply. We believe that there is high levels of demand and there is a likelihood that this level of demand will be sustained or even increase going forward. Looking forward, we do not expect a market correction in Qatar. However, increasing supply expected to be delivered during the period 2008-2010 might have a slight impact on average price levels. We expect prices to continue their upward trend however at lower rates. Moreover, we expect a leveling off of prices in both the leasehold and freehold markets for the medium term when the new supply comes on stream.

Players Profiles



Company Overview

• Qatar Real Estate Investment Company (QREIC) was formed in 1995. The company’s principal activity is the establishment of residential complexes for rental purposes, purchase of land and developing it for resale. The company also deals in management of residential compounds. QREIC has 70 employees.

• Its development work centers on building housing complexes for major Qatari Oil & Gas companies in Ras Laffan, the terminal for North Field gas in the north of the country. It is also involved in real estate construction & development work in the largest oil & gas operations centre on the west coast, Dukhan and in Mesaieed, the industrial city south of Doha in the south east.

• QREIC’s main projects are Al Sadd Development Project, Dukhan Housing Projects (I-V), Masajeed housing project and Post Office Complex. Previously the company has handled the housing complex for Qatar Liquefied Gas Company (Qatar gas), the RasGas housing project for Ras Laffan LNG Company between Al-Khor & Dakhira, a series of housing projects for Qatar Petroleum (QP). The total value of developed projects so far is US$824.5mn.

• The government holds 27% of the company’s shares while the remaining 73% are publicly held.

Reuters Code:QREC.QA

Listing:Doha SM

CMP:QR 48.1 (November 13th, 2007)

Qatar Real Estate Investment Company

Key DataCMP (QR)

Market Cap ( QR mn)

EPS (QR)**

BV (QR)

P/E*

P/BV*

12M Average Volume(mn)

52 weeks Low-High

48.1

3463.2

5.17

28.0

9.3

1.7

0.20

QR 27.75 – 51.30

*CMP: Market Price on November 13th, 2007** Annualized based on 9M 2007 results

3

2.5

2

1.5

1

0.5

0

Tim

es

Change i

n V

alu

e

DSM Index QREIC

Jan-0

5

Mar-

05

May-0

5

Jul-

05

Sep-0

5

Nov-0

5

Jan-0

6

Mar-

06

May-0

6

Jul-

06

Sep-0

6

Nov-0

6

Jan-0

7

Mar-

07

May-0

7

Jul-

07

Sep-0

7



Financial Highlights for 2006

• The company’s paid up capital increased to QR600mn with nominal value of QR10 per share through the distribution of 20% bonus shares resulting in capital increase by QR100mn.

• QREIC’s total assets increased by 100.2% in FY06 reaching QR3,796.9mn compared to QR1,895.9mn in FY05.

• Investment properties constituted 21.5% of total assets in FY06, comprising of investment in land and buildings in Qatar acquired or constructed to earn rental income from such properties.

• Total income recorded in FY06 amounted to QR328.1mn increasing by 92.7% compared to QR170.3mn recorded in FY05. The company’s total income in FY06 was broken down to rental income (37.6%), financial lease income (7.0%), real estate investment income (44.0%) and investment income (3.7%).

• The main contributors to QREIC’s total income were rental income constituting 37.6% of total income in 2006 as compared to 65.1% in FY05 and real estate investment income, which contributed 44% to the total income.

• Gross profit margin increased from 82% in 2005 to 83.2% in 2006.

• Investment income decreased from QR33.4mn in FY05 to QR12.2mn in 2006.

• The company achieved a net profit of QR137.6mn in FY06 compared to a net profit of QR112.5mn in FY05. Net profit margin decreased to 41.9% in FY06 as compared to 66.1% in FY05.

• ROAE for FY06 stood at 8.9%, while ROAA stood at 4.8% as compared to an ROAE and ROAA of 12.7%, and 7.6% respectively in FY05. EPS stood at QR2.3 compared to QR2.0 in FY05.

Interim Results (9M 2007)

• In 1Q 2007, the company’s paid up capital increased to QR720mn through the distribution of bonus shares of one to every five shares.

• Gross revenue recorded for 9M 2007 stood at QR222.0mn, increasing by 107.6% as compared to QR106.9mn in the corresponding period in FY06.

• Interest expense were significantly higher at QR45.4mn during 9M 2007 as compared to QR9.2mn in the corresponding period of 2006.

• Total investment income rose by almost four times to QR169.9mn during 9M 2007 as compared to QR42.8mn in the corresponding period of 2006.



• Gross profit stood at QR186.4mn in 9M 2007 compared to QR91.1mn in the corresponding period of 2006.

• Net profit for the period increased by 175.4% to reach QR279.5mn during 9M 2007 as compared to QR101.5mn in the corresponding period of 2006. EPS rose by 130% to QR3.9 during 9M 2007 as compared to QR1.7 during the corresponding period of 2006.

In QR ‘000 2004 2005 2006Operating SummaryRental Income 102,371 110,852 123,343 Operating Costs 10,755 19,961 20,744 Finance Lease Income 11,736 17,932 22,805 Real Estate Investment Income - 273 144,347 Investment Income 2,202 33,449 12,186 Other Income 2,274 7,748 5,928 Total Income 220,954 170,254 328,094 Net Profit 56,241 112,520 137,573 Balance Sheet SummaryCash & Cash Equivalents 89,275 203,996 410,808 Investment Properties 575,641 820,752 816,407 Finance Lease Receivable 129,447 265,945 231,348 Property & Equipment 172,633 981 1,890 Total assets 1,079,160 1,895,922 3,796,874 Total Liabilities 695,955 501,016 2,114,423 Paid Up Capital 250,000 500,000 600,000 Shareholder’s Equity 383,205 1,394,906 1,682,451 Key RatiosEPS 2.2 2.0 2.3 Book Value 15.3 30.2 28.0 Net profit Margin 25.5% 66.1% 41.9%Asset Turnover 0.24 0.11 0.12 Debt/Equity ratio 1.6 0.2 0.8 ROAE% 15.0% 12.7% 8.9%ROAA% 6.1% 7.6% 4.8%P/E* 26.7 27.9 15.6 P/BV* 3.8 1.8 1.3

* Based on year end price

Interim Results In QR ‘000 9 M 2006 9 M 2007 % Change Gross Revenue 106,855 221,982 107.7%Gross profit 91,107 186,426 104.6%Net Profit 101,479 279,493 175.4%EPS 1.7 3.9 129.6%



Company Overview

• United Development Company (UDC) was established in July 1999 as one of the leading private sector shareholding companies in Qatar, and has been listed on the Doha Securities Market since June 2003.

• UDC is the sole owner and developer of The Pearl Qatar real estate project, and has created two substantial new linked business partnerships with – Qatar Cool and Qatar Dredging Company. Qatar Dredging Company - a joint venture with the State of Qatar and Belgium’s Dredging, Environmental & Marine Engineering NV- is carrying out the land reclamation contract for the Pearl-Qatar. Qatar Cool Qatar Cool -a district cooling company, in partnership with Tabreed of the United Arab Emirates - will supply district cooling for the entire Pearl-Qatar. UDC hold 50.5% in Qatar Cooling Company, and 45.9% in Qatar Dredging Company.

• UDC is also a partner in Seef Limited - a joint venture with Qatar Petroleum with UDC holding 20% of the shares. Seef Limited was formed to produce linear alkyl benzene (LAB), which is the main feedstock for detergent manufacture. The plant started operations in 2006 with an annual production capacity of 100,000 tons. Seef will produce and sell Linear Alkyl Benzene (LAB), a downstream petrochemical feedstock for the detergent manufacturing industry. Total project cost is estimated at around US$289mn (QR1.05bn).

Reuters Code:UDCD.QA

Listing:Doha SM

CMP:QR37.2 (November 13th, 2007)

United Development Company

Key DataCMP (QR)

Market Cap ( QR mn)

EPS (QR)**

BV (QR)

P/E*

P/BV*

12M Average Volume(mn)

52 Weeks Low-High

37.2

3989.7

2.7

22.6

13.8

1.6

0.15

QR 29.4 – 40.9

*CMP: Market Price on November 13th, 2007** Annualized based on 9M 2007 results

3.5

3

2.5

2

1.5

1

0.5

0

DSM Index UDC

Jan-

05

Mar

-05

May

-05

Jul-

05

Sep-

05

Nov

-05

Jan-

06

Mar

-06

May

-06

Jul-

06

Sep-

06

Nov

-06

Jan-

07

Mar

-07

May

-07

Jul-

07

Sep-

07

Tim

es C

hang

e in

Val

ue



• UDC owns 10% of Gulf Formaldehyde Company (GFC), a joint venture partner with Qatar Fertilizer Company (QAFCO) and other Qatari investors. GFC is engaged in the production and sale of urea formaldehyde concentrate (UFC), which is purchased by Qatar Fertilizer Company as well as being marketed worldwide to other urea fertilizer producers.

• In November 2005, UDC entered into a new joint venture with BESIX NV of Belgium to establish a ready-mix concrete facility - United Ready – Mix W.L.L. Company- with UDC holding (32%), BESIX NV holding (49%), and the remaining shares acquired by local Qatari investors.

• The company has also entered into the biological wastewater treatment and reuse business in partnership with Millenya Inc. of Ankara, Turkey. UDC acquired 60% of Millenya’s equity.

Financial Highlights for 2006

• During the year, the company’s paid up capital increased by QR247.5mn to QR1,072.5mn by way of 24.75mn bonus shares issue. The increase in share capital made by capitalizing the legal reserve of QR57.3mn and retained earnings of QR190.2mn.

• Total assets increased significantly in FY06 reaching QR4,116.8mn compared to QR2,951.4mn in FY05 with cash forming 27.5% of total assets.

• Investment in associates increased from QR334.7mn in FY05 to QR368.4mn in FY06 on the back of recording new investment in Sinai Cement Co. (3.8%).

• UDC’s revenues shot up in FY06, reaching QR1,130.3mn compared to QR647.7mn registering a growth of 74.5% on y-o-y basis.

• Gross profit margin increased to 21.1% as compared to 18.0% in FY05.

• The company achieved a net profit of QR258.2mn in FY06 compared to a net profit of QR185.0mn achieved in FY05. Net profit margin decreased from 28.6% in FY05 to 22.8% in FY 06. EPS stood at QR2.4 compared to QR1.9 in FY05.

• ROAE for FY06 stood at 11.4%, while ROAA stood at 7.3%, compared to an ROAE and ROAA of 13.6%, and 10.2% respectively in FY05.

Interim Results (9M 2007)

• Total revenues for 9M 2007 went up by 91.4% to QR1347.5mn compared to QR703.9mn in the corresponding period in FY06. Gross profit margin for 9M 2007 declined from 21.4% in the corresponding period last year to 16.8%.

• The company incurred heavier losses on its investments for the period this year- to the extent of QR52.4mn as compared to QR36.5mn in the corresponding period last year.



• Net profit for 9M 2007 increased by 34.6% to reach QR216.1mn compared to QR160.6mn in the corresponding period of last year. Net profit margin decreased from 22.8% in the corresponding period last year to 16.0% in 9M 2007.

• EPS for the period improved by 34.7% to QR2.0 for 9M 2007 as compared to QR1.5 in the corresponding period last year.

In QR ‘000 2004 2005 2006Operating SummaryRevenue 13,463 647,774 1,130,251 Gross profit 6,325 116,599 238,201 Interest Income 3,786 32,081 60,656 Gain on Sale of Available for Sale Investments 27,537 29,710 - Net Profit 31,711 184,999 258,155 Balance Sheet SummaryCash & Cash Equivalents 208,853 1,585,068 1,131,570 Project Development Costs 5,132 134,302 - Investments in Associates 83,306 334,726 368,381 Available for Sale Investments 178,093 651,892 642,666 Total assets 686,691 2,951,459 4,116,847 Total Liabilities 54,811 857,653 1,691,183 Paid Up Capital 500,000 825,000 1,072,500 Shareholder’s Equity 631,880 2,093,806 2,425,664 Key RatiosEPS 0.6 1.9 2.4 Book Value 12.6 25.4 22.6 Gross Profit Margin 47.0% 18.0% 21.1%Net profit Margin 235.5% 28.6% 22.8%Asset Turnover 0.04 0.4 0.3 ROAE% 5.4% 13.6% 11.4%ROAA% 5.1% 10.2% 7.3%P/E* 36.2 29.6 14.7 P/BV* 1.6 2.3 1.6 Market Capitalization* 996,500 4,740,450 3,775,200

* Based on year end price

Interim Results In QR ‘000 9 M 2006 9 M 2007 % Change Gross Revenue 703,916 1,347,510 91.4%Gross profit 150,382 226,298 50.5%Net Profit 160,583 216,146 34.6%EPS 1.5 2.0 34.7%

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