Data Revision Hits Construction Forecast, Fundamentals Still Strong
BMI View: Following the release of revised construction industry statistics by Qatar's Central Bank, we have revised down our forecast for growth in the country's residential and non-residential construction industry. The revision comes as two costly non-residential projects - Lusail City and Doha Festival City - reach significant milestones in their development, and we thus note that we see our downgrading as reflecting more a lag in construction timeframes, than a dampening of conditions. As such, we believe that fundamentals for growth in the sub-sector remain strong, but as we have previously highlighted, development will likely be slower than previously expected.
Qatar's government has allocated 40% of its budget between 2011 and 2016 to infrastructure projects, with a sum of US$150bn earmarked solely for World Cup preparations. However, due to construction data revisions performed by the Qatar Central Bank to data between 2006 and 2010, and lower than expected data for 2011 (which came in at 2.3% for real construction industry value growth), the overall growth trajectory is now less steep than previously anticipated.
|Mega Projects: Delayed Impact|
|Qatar - BMI's Construction Industry Forecast|
Consequently, we have tempered the gradient of our forecast. We now expect 4.2% real construction growth in 2012, followed by annual average real growth of 4.4% between 2012 and 2016. The more muted medium-term outlook is driven by the long lead times often seen in projects of the scale Qatar is implementing (see our online service, September 13, 'Data Revision Dampens Growth, But Long Term Bullish Outlook Remains').
The downward revision suggests that activity originally slated for 2012, or earlier, will be deferred across the coming years. Progress at Lusail City, a US$14bn mega-build, which was originally slated to open by the end of 2011, is consistent with this new outlook. Lusail City Real Estate Development Company (LREDC), a subsidiary of Qatar's sovereign wealth fund, has recently 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.
At a projected cost of US$14bn, Lusail city will cater for Qatar's increasingly affluent financial worker demographic. 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. Developers hope that, when complete, the multi-purpose build will be the largest of its kind in the region, attracting not only tourists from neighbours Saudi Arabia and Bahrain, but also the global market which it is gearing up to welcome from 2016 onwards. With good access to Doha, the city is well placed to benefit from the planned Qatar-Bahrain Causeway.
LREDC has announced that it has now begun development at the Fox Hills district, a 1.7mn m 2 primarily residential section of Lusail. The contract for construction supervision has been awarded to German consultancy, Dorsch Gruppe.
The announcement of the completion of phase one of Lusail City ties in with the start of construction at Doha's Festival City leisure and entertainment complex. Estimations of the start date, completion date and costs of the project follow a similarly changeable pattern, highlighting the difficulty in forecasting industry growth when projects of such huge value are involved.