Qatar economy could overheat
Qatar housing shortage is driving inflation up
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According to Standard Chartered Bank, Qatar’s housing market is creating concern and the nation is steadily heading towards earning the title as the country with the highest inflation in the Gulf region.
At a media roundtable, Gulf Times reported, a Stanchart economist stated that Doha's inflation may see a progressive hardening in the short to medium term, as construction peaks and the population expands.
“Inflation in the GCC has been picking up. The UAE and Qatar are seeing some of the highest inflation, driven by tightness coming out of housing market,” Stanchart senior economist (market research, Middle East and North Africa), Shady Shaher said.
Coming down the line, Qatar’s inflation may reach about 5% this year, while it may be about 4.5% in the UAE and a slightly moderate 2.4% in Saudi Arabia, Stanchart explained.
Expectation could see inflation reach 6% to 6.5% in 2015 for Qatar, while the UAE could climb past 5%, with Saudi Arabia around 4%. The latter figure is attributable to less housing pressure in the Kingdom.
Between September 2014 and 2013, the Qatari population is estimated to have grown by about 7.8%, putting extreme pressure on the domestic housing and services sectors.
Steadily escalating rents and costlier furniture and transport led Qatar’s inflation rise 3.6% year-on-year in September, according to the Ministry of Development Planning and Statistics.
The rent, fuel and energy group, which is the most influential and carries the maximum weight of 32.2% in the consumer price index basket, recorded an increase of 8.1% year-on-year in September 2014. The index was up 0.6% from the previous month's level.
If rent was excluded from the mix, the overall index was up 0.2% from the previous month's level and showed an increase of 1.9% when compared to September 2013, said the ministry figures.
QNB projected that the country's inflation is expected to rise to 3.8% in 2014, as higher infrastructure spending will result in a large inflow of workers, putting even more pressure on housing and prices.
Stanchart's inflation expectations are higher than the Ministry of Development Planning and Statistics' 3% and 3.4% projection in 2014 and 2015 respectively.
With the rising demand for materials as the construction projects roll out, Shaher believes that in the long-term, the construction sector will pose risks to inflation in Qatar: “Given the scale of projects in the pipeline, there are logistical challenges and rising demands for construction materials across the GCC.”
The Ministry of Development Planning and Statistics stated: "Substantial demands placed on materials to support Qatar's major infrastructure programmes are expected to generate inflation in construction costs that could affect overall costs of project delivery.”
In a report from EC Harris, estimates are that Qatar's construction inflation could peak to 18% during the World Cup building boom between 2016 and 2019, which may well overheat the economy as unscheduled cost of development increases.
According to market sources, the potential overheating of the construction sector has already been exacerbated by the advancement of deadline of the new seaport by 10 years, as well as Dubai's 2020 World Expo,