In a report on the property sector, Moody’s said on Qatar: "The world’s richest economy by per capita GDP remains heavily undersupplied. It is also facing a huge influx of foreigners from the hydrocarbon sector and the financial sector."
A major problem faced by the sector in the GCC, not least Qatar, are rising costs and skills shortages. "Over the second half of 2007, cement prices reportedly rose by at least 40 percent and steel prices by about 25 percent. This has resulted in margin pressures, but also smaller less reputable companies resorting to cheaper materials at the expense of quality."
Skills shortages have come about as a result of double-digit inflation in some GCC states with Qatar’s inflation rate estimated to be at 14 percent. Moody’s said: "Double-digit inflation rates in most Gulf economies have eroded the financial incentives for many labourers from India, Pakistan and Bangladesh, who have either demanded higher pay or are returning to their home countries, where booming economies are starting to provide similar remuneration."
Philipp Lotter, Senior Credit Officer at Moody’s (Middle East) and the author of the report on the regional property market, said: "Supported by rapid economic growth, the Gulf region today incorporates some of the most unique and ambitious projects in the world, limited not to individual sites, but indeed creating entirely new cities and land stretches."
"However, accurate analysis of the market is made extremely difficult by the still sketchy nature of official information, only gradually evolving regulation and the significant differences in market estimates, depending on the source," he said.
The report said many property firms in the region are heavily exposed, both regionally to a certain country or even city and operationally to a handful of large products. "This exposure to a single market acts as the largest constraint on companies’ creditworthiness," said Moody’s.
Of the $ 1tn figure, 40 percent is concentrated in Dubai and Abu Dhabi. "Whilst the market fundamentals are good, such projects carry a degree of "white elephant risk", i.e. the risk that the demand for which they are designed does not materialise," said Moody’s.
One characteristic of the property markets in the region noted by Moody’s is the pre-selling of properties even "before a single spade hits the ground". "Given the high demand and attractiveness of the markets, companies have been able to sell substantial portions of their projects off-plan. Frequently, such payments are spread over the lifespan of the construction project with up to 80 percent payments received before completion," said Moody’s.
This is viewed as positive by the ratings agency as advance payments provide a valuable funding source for the project.
