Qatar's real estate prices continue to reach record highs. According to the Real Estate Price Index (REPI) published by the Qatar Central Bank (QCB), average prices for land, commercial and residential properties in June 2014 stood 20% above their peak in September 2008. This could suggest a potential overheating of the real estate sector. Closer analysis, however, indicates that the increase is still within the fundamentals of Qatar's fast growing economy and rapid population growth, a QNB press release said.
The QCB publishes the REPI on a monthly basis on its website. The index was developed to measure the average increase in real estate prices in Qatar.
It is based on Ministry of Justice data on land and property transactions published on a weekly basis. According to the latest data, the REPI increased 21.5% in the first six months of 2014, showing a significant acceleration compared with the 6.2% increase in the second half of 2013.
Are these large increases in real estate prices in line with economic fundamentals or a sign of another real estate bubble To answer this question, we compared the real estate price index to two measures of fundamentals in the economy.
One measure is based on push factors affecting real estate prices. The other measure is based on price movements in the economy. Both measures suggest that real estate prices continue to be in line with economic fundamentals.
First, real estate prices in Qatar have recently been pushed up by both a base effect (population) and an income effect (income per capita). The base effect is the large increase in population experienced since mid-2012.
As population grows, the demand for housing increases, pushing up real estate prices. The income effect arises from the higher GDP per capita as a result of the rapid economic growth over the last few years. As per capita GDP rises, more income will be spent on housing, pushing up the value of real estate properties. (MORE)
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