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Wednesday, July 28, 2021

Emir takes aim at inflation with commercial rent freeze

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office buildings

As part of an Emiri promise to contain inflation, the Qatar government has ordered commercial landlords across the country to offer retailers and tenants a one-year lease extension, effectively freezing rents for many businesses.

The new policy is likely to be welcomed by retailers, who have been sheltered from market rent increases for several years.

It also raises questions as to whether similar measures will be extended to the residential sector, where rents are expected to rise between 4 and 5 percent in the second half of this year, and remain a sore point for much of the population.

Earlier this week, the Emir reportedly ratified a Cabinet decision to extend non-residential leases that are set to expire this year if the tenant wishes.

A handful of businesses are exempted from the new rules, including veterinary clinics as well as law, accounting and engineering offices. State property, agricultural and industrial land as well as tourist apartments hotels are also exempt from the legislation, according to media reports.

Doha News visited several small businesses in the souqs off Al Ahmed Street, across from the Fanar Cultural Center. Employees staffing these shops consistently said that all matters involving rent were handled by the store’s owners, who were not on the premises.

Capping inflation

Keeping a lid on rising prices was one of the major themes of Emir Sheikh Tamim bin Hamad Al Thani’s first publicized speeches last year.

Speaking to the government’s advisory council and quoted by Qatar News Agency, the Emir said:

“No doubt that inflation has (a) negative effect on growth and society, and therefore price rise is a problem that worries everyone and the government will seek to contain it by all available means and tools.

I mention in particular the monetary and fiscal policies, combating monopoly, encouraging competitiveness, setting an appropriate timetable to invest in major projects, and coordinating between these projects to avert being concentrated in a short period of time, leading to pressure on the available potential capacity.”

Intervening in the commercial real estate market, however, isn’t a new measure in Qatar.

According to an article published by law firm Clyde & Co., which has an office in Doha, the government first froze non-residential rents in 2008. Two years later, it set caps of between 5 and 20 percent – depending on the size of the tenant’s rent payments – on the annual increases that landlords could levy.

And in 2012, the government automatically extended non-residential leases to prevent landlords from forcing tenants to agree to a rental rate increase beyond what was permitted when their lease expired.

According to locally based Al Asmakh Real Estate Development, monthly office rents averaged QR220 (US$60) a square meter in West Bay and ranged between QR120 and QR150 ($33-$41) a square meter on C-Ring and D-Ring roads. Office space on Barwa Road, meanwhile, fetched between QR120 and QR140 ($33-$38) a square meter.

On the retail front, Al Asmakh said rents inside Villaggio, City Center and Landmark shopping centers command premium rents of approximately QR280 ($77) a square metre. That drops to roughly QR200 to QR250 ($55-$69) in other malls.

Retail proprietors in the Al Sadd area pay an average of QR250 ($69) a square meter per month, while space on C-Ring Road and Salwa Road fetches an average of QR200 ($55) per square meter per month, the real estate firm said.

In theory, rent controls provide short-term relief to tenants but could actually exacerbate the problem in the long-term by discouraging landlords from constructing new buildings and increasing the supply of real estate.

However, such issues don’t appear to be materializing in Qatar, which according to some industry observers is due to see a glut of retail space hit the market in the coming years.

On the residential side of the property market, government authorities have previously introduced controls to limit price increases.

For example, in 2008, landlords were limited to a 10-percent increase on tenants renewing their leases. Those provisions expired in 2010.

According to the Qatar National Bank Group, rents started to fall in early 2009 until the second half of 2012, when the trend reversed and the cost of leased accommodations began to rise.

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