Infrastructure Lays Foundations For Residential/Non-Residential Growth

BMI View: In the final release of our new Qatar construction industry data, we reveal that it is the residential and non-residential building sector which will be the major driver of growth over the long-term. Leveraging off improved infrastructure and the World Cup in 2022, developers are building major residential projects and the social infrastructure to go with them. Coupled with the hotels and stadia being prepared for the World Cup, we see strong annual average real growth of 12.7% over our forecast period from 2014 to 2023. We note that while growth will pick up in the run up to 2022, as with other emerging economies which hold major sporting events, growth will take a hit in the aftermath of the World Cup, although Qatar's Vision 2030 should keep growth positive.

Qatar's residential and commercial construction segments are going to be among the clear long-term outperformers in the country's construction sector, bolstered by the Vision 2030 and, over our forecast period, World Cup projects. It is also going to be buttressed by a business environment that has drawn all the major engineering, services, banking and real estate players from the Middle East and beyond to the market. As such, we believe that fundamentals for growth in the sub-sector remain strong, but as we have previously highlighted in our analysis, there are risks of bottlenecks in the supply of building materials and labour, especially as infrastructure projects are likely to take precedent for government financial assistance.

There are two clear phases developing in Qatar's residential and non-residential construction sector growth trajectory:

  • From 2014 to 2017, real growth is expected to average around 14.1% annually, with a steady stream of projects getting off the ground and major estate developments beginning to come online.

  • From 2017 to 2022, when the World Cup construction kicks off and provides a boost to growth. Hotels will be a major driver of this, so that completion can coincide with the arrival of World Cup supporters.

Residential/Non-residential To Outperform
Residential and Non-Residential Building Industry Value (QARbn) and Real Growth (% Change y-o-y)

Infrastructure Lays Foundations For Residential/Non-Residential Growth

BMI View: In the final release of our new Qatar construction industry data, we reveal that it is the residential and non-residential building sector which will be the major driver of growth over the long-term. Leveraging off improved infrastructure and the World Cup in 2022, developers are building major residential projects and the social infrastructure to go with them. Coupled with the hotels and stadia being prepared for the World Cup, we see strong annual average real growth of 12.7% over our forecast period from 2014 to 2023. We note that while growth will pick up in the run up to 2022, as with other emerging economies which hold major sporting events, growth will take a hit in the aftermath of the World Cup, although Qatar's Vision 2030 should keep growth positive.

Qatar's residential and commercial construction segments are going to be among the clear long-term outperformers in the country's construction sector, bolstered by the Vision 2030 and, over our forecast period, World Cup projects. It is also going to be buttressed by a business environment that has drawn all the major engineering, services, banking and real estate players from the Middle East and beyond to the market. As such, we believe that fundamentals for growth in the sub-sector remain strong, but as we have previously highlighted in our analysis, there are risks of bottlenecks in the supply of building materials and labour, especially as infrastructure projects are likely to take precedent for government financial assistance.

There are two clear phases developing in Qatar's residential and non-residential construction sector growth trajectory:

  • From 2014 to 2017, real growth is expected to average around 14.1% annually, with a steady stream of projects getting off the ground and major estate developments beginning to come online.

  • From 2017 to 2022, when the World Cup construction kicks off and provides a boost to growth. Hotels will be a major driver of this, so that completion can coincide with the arrival of World Cup supporters.

According to our Key Projects Database, the total value of planned and under-construction residential and non-residential projects is US$56bn; this does not take into account projects whose estimated cost is not available and the numerous plans yet to be made fully public - including the proposed 12 stadia projects to be implemented for the World Cup .

With less than 10 years until the country hosts the FIFA World Cup, we believe Qatar has both the financial firepower and the time necessary to meet deadlines and expect that beyond 2017 we will see a pronounced surge in construction activity. While on the one hand, a serious cause of delay has been the shortage of housing necessary for the estimated 700,000 people involved in the construction industry leading up to the World Cup, that demand is likely to cause a boon in house building. Indeed, some are calling for greater use of the public-private partnership (PPP) model; companies will build their required housing, and then sign them over to the government for use in the domestic market.

We do highlight that, as with other major sporting event destinations - in particular South Africa - we often witness a major slump in activity in the years following the event. We expect Qatar to suffer a similar fate.

Residential/Non-residential To Outperform
Residential and Non-Residential Building Industry Value (QARbn) and Real Growth (% Change y-o-y)

Major Developments Precede World Cup Growth

Progress at Qatar's new city, Lusail - a US$45bn mega-build, which was originally slated to open its initial phases by the end of 2011, is consistent with this positive outlook. Lusail City Real Estate Development Company (LREDC), a subsidiary of Qatar's sovereign wealth fund, has announced that the first phase of the project is complete and ready to bring to market. LREDC also reiterated that the area will be the first of 19 planned districts within the city, suggesting work will now be staggered over the long run to prevent overcapacity.

Lusail City will cater for Qatar's increasingly affluent financial worker demographic and its part of Qatar's economic diversification plan aimed at attracting a major influx of skilled labour. Once completed, the city will cover an area of 35 square kilometres and will house 200,000 residents, 80,000 visitors and 170,000 workers. It will also offer 36 schools, a state-of-the-art hospital, and an underground metro link to new Doha rail network. Developers hope that, when completed, the multi-purpose build will be the largest of its kind in the region. Representing the increasing wealth and mobility of the Gulf's citizens, Qatar hopes that Lusail will not only attract tourists from neighbouring countries Saudi Arabia and Bahrain, but from the global market.

In a particularly positive sign for the industry and in support of our forecasts, work on the Barwa Al Khor real estate development, which is worth approximately US$9.9bn, began in H113. Initially slated to begin construction in 2008 and be completed by 2013, the project signals that there is good confidence in the market, considering the other major real estate developments taking place at the same time. The Al Khor project will be a complete city development, including more than 17,000 housing units, a number of commercial businesses including shopping malls, leisure facilities, open gardens, luxury hotels and a golf course.

Cometh The World Cup, Cometh The Growth

In terms of World Cup projects, Qatar has selected KEO International as project managers and Aecom Technology Corp as the design consultants for the al-Wakrah Stadium. In line with their planned timeline, the Qatar 2022 Supreme Committee revealed the equivalent roles for the Al Rayyan stadium in Q114, with Aecom again appointed as project manager and Ramboll as design consultant for the stadium. Once the enabling works contract is tendered, the committee is expected to issue the main contract for the al-Wakrah stadium in Q414. The Al Wakrah stadium, designed by London-based Zaha Hadid Architects, is expected to be completed by 2018. The Iconic Lusail Stadium will be the next to begin the development process.

Diversification For Long-Term Economic Growth

Elsewhere, it is our view that Qatar has a strong incentive to push on with its economic diversification plans. We believe that it is highly likely that an increase in tourism and domestic consumer purchasing power will support the sector, with an increase in spending on leisure, healthcare and education likely to uphold the numerous builds coming through the pipeline.

Supporting this view, the Qatar Tourism Authority (QTA) in May 2013 revealed that there were 48 new 5-star hotels, 41 4-star hotels and nine 3-star hotels planned or under construction. The authority expects that by the time of the 2022 FIFA World Cup, there will be 70,000-room capacity in Qatar; the FIFA requirement for a World Cup host is 65,000. Overall, the QTA has indicated that it plans to invest $20bn on tourism infrastructure in preparation for the 2022 FIFA World Cup. In May, a US$5.5bn island project to be developed by Barwa Real Estate Group was announced. Oryx Island will play host to five temporary hotels for 25,000 tourists during the World Cup.

Meanwhile, UAE construction company Arabtec has announced that it has been awarded a QAR2.3bn (US$632mn) contract to develop the commercial centre of Doha. Arabtec will be responsible for the development of a 370,000-square-metre area encompassing 10 buildings of between two and 19 storeys. The Msheireb Downtown Doha Phase 2 development will constitute a total of 99 residential units, 3,102 parking spaces, as well as commercial and hotel facilities. The US$820mn Mall of Qatar, which will be the largest retail centre in the Gulf region, has begun construction of its 400 shops and has also been given an official opening date in Q315. Furthermore, Qatari retail group Al Meera has signed an agreement with Al-Aliaa Trading and Contracting Company and Al-Muftah Trading and Contracting Company for the construction of seven malls in Qatar. Al

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