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A Qatar above the rest

The small but rich county of Qatar is set to become another Dubai as the government pumps oil and gas money into infrastructure and real estate. By Robin Marriott

Two years ago, inside the headquarters of Qatar National Bank in Doha, Jeremy Gates prepared for a meeting with Yousef Hussain Kamal, the bank's chairman as well as the fi-nance minister of Qatar.

Gates is managing director at Strategic Real Estate Advisors, a London-based property advisor, and his goal that morning was to persuade Kamal to enlist StratReal's services on a new global property fund that would invest in the US, UK and Europe.

After waiting in an ante room thick with cigar smoke and the smell of cardamom-flavored coffee, Gates was ushered into a room to meet Kamal, who was bedecked in traditional Arab clothing: a white, full-length dishdash and keffiyeh.

Through an interpreter, the chairman indicated his interest in Gates' proposal. QNB wanted to deepen its ties with foreign investors and expand its business into global property investment, but it would take time, patience (and many more meetings) before the bank agreed to work with StratReal.

In a country that holds on to their customs and traditions, Gates experience is the norm: it takes time and effort for foreign investors to gain the trust of local officials. Many of the old guard do not read emails and appointments need to be made via fax or telephone to a private office or financial advisor.

But Qatar's property sector is clearly moving into the modern world. As is apparent from the dozens of cranes that can be seen on the journey from the airport into Doha, the country is a frenzy of activity. Several local real estate companies are busy turning the capital into a construction site, from luxury developments on reclaimed land to sports, education and other infrastructure projects in support of the country's Olympic bid.

“It is very much go-get,” says Gates, whose company now advises QNB on a $200 million overseas fund. “The mood in business is not today, not tomorrow, it has to be done yesterday.”

If the story of a Middle Eastern oil-rich country in the middle of a construction boom sounds familiar, that's because it is. It is a tale that is being told across the Gulf, from Dubai to Bahrain, except in this case, Qatar has lagged behind some of its neighbors. Nevertheless, the country is now making huge strides as it looks to narrow the gap.

“Doha is like Dubai eight years ago,” says Jawad Ali, a London-based partner at King and Spalding. “The growth that Qatar has undergone in the last five years is incredible in all sectors. Doha has completely changed in terms of office buildings, residential buildings, retail and roads. It was a very small quiet town. Now it is a growing metropolis.”

FOLLOWING IN DUBAI'S FOOTSTEPS
The comparison with Dubai is an apt one. As in the bustling emirate, it is the government of Qatar that is the driving force of change behind the economy's diversification beyond oil and gas. The transformation began in 1995 when Sheikh Hamad bin Khalifa Al-Thani overthrew his father in a bloodless coup. More than a decade later, the country with the highest wealth per capita in the Gulf Cooperation Council has scored some notable successes on the international stage. In December, it successfully staged the Asian Games and now it is making a bid to host the 2016 Olympics.

A significant amount of infrastructure was built specifically for the Asian Games and plenty more is to come. The Qatar Public Works Authority is two years into a four-year program to construct 32 roads, 19 buildings, and 6 drainage works for a total of QR25 billion ($6.8 billion; €8.8 billion). Then there is the Doha international airport, built at a cost of $5.5 billion; the $5 billion Lusail project, a new waterfront city complete with a lagoon and two marinas; three industrial parks; and tens of billions of dollars more for massive gas and oil projects. Foreign international energy groups are also striking up joint ventures with Qatari companies to develop oil and gas manufacturing capacity and infrastructure.

Despite the comparisons with Dubai, not all observers agree that Qatar is following in the footsteps of its neighbor to the south. Edd Brookes, a Doha-based associate director with property consultant DTZ, says: “The growth is a result of careful strategic planning that will hopefully avoid the urban sprawl associated with Dubai.”

However, there are plenty of similarities. Qatar has a special tax-friendly financial center for foreign firms looking to establish a presence in the country, aping the Dubai International Finance Center. Dubai International Properties, the international real estate arm of Dubai Holdings, even has plans to construct the Dubai Towers-Doha, a mixed-use skyscraper complete with a 5-star boutique hotel. At a height of 437 meters, it will become the tallest tower in Doha when it is completed.

As in Dubai, Qatar is also home to a growing number of expatriates who have entered the country to work in the oil, gas, finance, media, defense, education and tourism industries, all of which is helping to boost local real estate development. According to a report by DTZ Qatar, the total population has grown from 369,000 in 1986 to approximately 800,000 in 2005. The Qatar Census predicts that the population will rise to more than one million by 2011, a growth rate of approximately 40 percent since 2005.

“The fact that numerous international companies have imported employees and professionals means that there has been steady growth on the residential side,” says Ali. He points out that the television network Al Jazeera, a US military presence and the burgeoning education sector populated by US universities all necessitates more housing.

BRICKS AND QATAR
One of the sensitive issues facing a country like Qatar, however, is to what extent it allows foreigners to buy real estate. Dubai decided to partially open up its property sector in recent years and Qatar, with one eye on its neighbor, is doing the same.

As a result of a recent law, non-Qataris are now allowed to own freehold property in three major residential developments, the largest of which is The Pearl, Qatar's answer to Dubai's Palm Islands. The $2.5 billion man-made project will be built on 4 million square meters of reclaimed land shaped like a string of pearls and capable of accommodating 200,000 people. Another law was passed in 2004 that allows non-Qataris to buy 99-year leases in 18 different specified areas of Qatar.

On the institutional side, major banks in Qatar are in the process of launching domestic real estate funds targeting GCC investors. QNB, for example, has been sounding out potential advisors on a property vehicle that will likely be listed on the Doha stock exchange. Investors outside the country are also gearing up. Just last month King and Spalding was appointed to advise a regional investor on a $150 million sharia-compliant real estate fund with a specific focus on the Gulf, including Qatar.

”We are now seeing GCC investment banks setting up sharia-compliant real estate funds and Qatar is part of their investment strategy because it is perceived as a high-growth place,” says Ali.

Although some of the developments in Qatar are sure to excite foreigners, investors will have to wake up to some harsh realities. The huge infrastructure boom taking place provides opportunities for international firms, but there are plenty of restrictions.

Unless based in the Qatar Financial Center, foreign investors can only open a business if a Qatari company retains a controlling 51 percent stake. This means that a foreign property investor must find a local partner.

In addition to that barrier, investors will find that the property market is very opaque. Qataris prefer secrecy— leases do not have to be registered, for example. And the Ministry of Planning is under no obligation to make planning consents readily available.

There is another reason why investors should be wary. Nearly all of the land in Qatar was gifted by the Emir to third parties, the only proviso being that the recipient had to develop it within five years. Consequently, most of the landlords did not pay for their land, taking away one of the key financial motivators for Qataris to sell real estate.

“Everyone says they are making huge returns but that is because the land didn't cost anything,” says Gates.

But Ali believes that the challenges in Qatar are not insurmountable. He argues that the legal systems in the Middle East, in general, are robust enough when it comes to protecting ownership “I think the local rules and regulations give enough comfort to investors that the title they own is clean,” he says.

THE FUTURE'S SO BRIGHT
One of the sensitive issues facing a country like Qatar, however, is to what extent it allows foreigners to buy real estate. Dubai decided to partially open up its property sector in recent years and Qatar, with one eye on its neighbor, is doing the same.

As a result of a recent law, non-Qataris are now allowed to own freehold property in three major residential developments, the largest of which is The Pearl, Qatar's answer to Dubai's Palm Islands. The $2.5 billion man-made project will be built on 4 million square meters of reclaimed land shaped like a string of pearls and capable of accommodating 200,000 people. Another law was passed in 2004 that allows non-Qataris to buy 99-year leases in 18 different specified areas of Qatar.

On the institutional side, major banks in Qatar are in the process of launching domestic real estate funds targeting GCC investors. QNB, for example, has been sounding out potential advisors on a property vehicle that will likely be listed on the Doha stock exchange. Investors outside the country are also gearing up. Just last month King and Spalding was appointed to advise a regional investor on a $150 million sharia-compliant real estate fund with a specific focus on the Gulf, including Qatar.

”We are now seeing GCC investment banks setting up sharia-compliant real estate funds and Qatar is part of their investment strategy because it is perceived as a high-growth place,” says Ali.

Although some of the developments in Qatar are sure to excite foreigners, investors will have to wake up to some harsh realities. The huge infrastructure boom taking place provides opportunities for international firms, but there are plenty of restrictions.

Unless based in the Qatar Financial Center, foreign investors can only open a business if a Qatari company retains a controlling 51 percent stake. This means that a foreign property investor must find a local partner.

In addition to that barrier, investors will find that the property market is very opaque. Qataris prefer secrecy— leases do not have to be registered, for example. And the Ministry of Planning is under no obligation to make planning consents readily available.

There is another reason why investors should be wary. Nearly all of the land in Qatar was gifted by the Emir to third parties, the only proviso being that the recipient had to develop it within five years. Consequently, most of the landlords did not pay for their land, taking away one of the key financial motivators for Qataris to sell real estate.

“Everyone says they are making huge returns but that is because the land didn't cost anything,” says Gates.

But Ali believes that the challenges in Qatar are not insurmountable. He argues that the legal systems in the Middle East, in general, are robust enough when it comes to protecting ownership “I think the local rules and regulations give enough comfort to investors that the title they own is clean,” he says.

THE FUTURE'S SO BRIGHT
If observers are correct and Qatar is approximately a decade behind Dubai, then one thing is for sure: rapid development will continue. All the countries of the GCC are continuing to pour oil dollars into construction and real estate. Approximately $150 billion is expected to be spent over the next three years by the UAE, Kuwait, Qatar and Bahrain, according to a recent research report from Merrill Lynch.

The figure for Qatar could rise even further if its ambitions to stage the 2016 Olympics are realized, bringing the games to the Middle East for the first time. Defending Doha's chances, Qatar's Olympic Committee Secretary-General, Sheikh Saud Bin Abdu Rahman al Thani, told reporters last year: “Qatar has all the elements needed to win the right to stage the 2016 Olympics, and if it fails it will keep trying until it wins.”

The country may have some way to go to catch up with the likes of Dubai, but Qatar has plenty of ambition, money and pride. As Brookes says: “Qatar tends to get what Qatar wants.”