(MENAFN - The Peninsula) Driven by high rentals, Qatar's overall inflation is projected to accelerate from 3.1 percent in 2013 to 3.8 percent in 2014. A recovery in land prices over the past two months is expected to reverse the slowdown in rent inflation by mid -2014
Rental inflation accounts for around 32 percent of Qatar's CPI basket. QNB Group noted yesterday that rent inflation has slowed in recent months in line with its earlier projections. However, a recovery in land prices in December 2013 and January 2014 could reverse the slowdown in rent inflation in the coming months
Rent inflation slowed from 6.7 percent in the year to August 2013 to 4.8 percent in the year to December 2013, based on Consumer Price Index (CPI) data released by the Ministry of Development Planning and Statistics (MSDP). QNB Group has analysed data purely on land transactions in Qatar, based on weekly statistics published by the Ministry of Justice (MoJ). This data suggests that the slowdown in rent inflation tracked land prices with a six-month delay
Land prices fell from March to November 2013 on the basis of an average of prices for the last 12 months. As rents tend to follow land prices with a six-month delay, we expect rent inflation to continue to slow to below 4 percent between now and May 2014
QNB research note said land prices are a fundamental driver of rents. Land is the main component of the cost of building, developing and buying real estate. To recoup costs, landowners and real estate developers need to raise rents in line with rising land prices, or vice versa. Therefore, after land is purchased and construction is completed, rents are likely to move in the same direction as land prices. Our analysis confirms that there is a strong relationship between land prices and rent inflation. Rents tend to follow land prices with a six month delay, with a correlation of 88 percent
QNB Group noted that the updated transaction data suggest that land prices may have changed direction in December and January, which, in around six months, could create upward pressure on rents.
Looking ahead, QNB Group expects land prices to continue to rise moderately, based on strong population growth, which should underpin demand for land in order to develop housing and commercial real estate projects. Population growth averaged 10.1 percent over the last 12 months, based on data on the number of people in the country. Therefore, in the second half of 2014, we expect rent inflation to pick up again to between 4.0 percent-5.0 percent. This level of rent inflation is moderate and should alleviate any concerns that the real estate sector is entering an asset-price bubble or that the economy is overheating
Overall, rental inflation accounts for around 32 percent of Qatar's CPI basket. The remainder of the CPI basket mainly relates to global inflation and international food prices. Global prices are expected to remain moderate through 2014.
This will result in overall CPI inflation in Qatar in 2014 of around 3.8 percent