Wednesday, September 02, 2015

Oil Price Impact on Qatar

(My nose is much better now, antibiotics are amazing.)

So after many months the oil price has not rebounded and during 2015 has been fluctuating roughly around $50-60 a barrel. That’s a big drop from the $100+ a barrel in the last few years. I was expecting a huge jolt here in Qatar but so far the impact has been moderate.

First off, the Government budget. Estimates I’ve read vary but at 2014-levels of spending the Qatar Government needed oil at around $70 to balance the budget. Some cuts have been made but the 2015 budget had a slight surplus provided oil was around $65. It’s not of course so the Government will be looking at a deficit for 2015. Unless there’s a decent rebound in the oil price the Government will likely make further cuts for 2016, maybe 10-15%, and I believe they are already planning it. I recall a news article a while back noting that 2016 budget submissions the Government had to include more detail about hiring Qataris or improving opportunities for Qataris, which indicates that they'll be some cuts to the non-Qatari government workforce in the future.

That's not to say it's all doom and gloom, tons of construction projects are still ongoing, especially those related to the 2022 World Cup. They like the stadiums, the Metro system etc. can't be delayed or cut back so the Government is continuing to spend money on those projects. It's keeping the construction sector pretty busy.

What about jobs? There have been a number of layoffs in the oil and gas sector of course, running into the thousands, but so far I haven’t seen a major trickle-down into the other sectors, possibly buoyed by the continuing growth in construction. I'm sure there's been a little bit of downsizing here and there but I haven't heard of mass layoffs at places like banks and schools. I did hear from a friend of mine that in many classes at one of the Western schools anywhere from 3-6 kids from each class have left the country, and there is a rumour that some schools now have small or no waiting lists. What I haven't noticed is a significant drop in traffic levels (for the summer it's still pretty busy and similar to what it was last year), and while I'm occasionally seeing “for rent” signs on some compounds it was nothing like back in 2009.

Job cuts haven’t ended yet though. A least one major company will be doing its downsizing sometime in the next couple of months, and the continued mediocre oil price will likely mean more layoffs at some of the oil and gas companies.

So are the astronomical rents decreasing? Not yet as far as I can tell. That said my experience of the Qatar real estate market is that it takes about six months for an impact to be felt, landlords tend to stop holding out for the higher rents by then. Even then it's a slow trickle effect, the areas to see it first are usually the ones that foreigners can buy property in (such as The Pearl or Zigzag towers). These owners have mortgages to pay so will be the first to drop the price in an attempt to attract a tenant. As those properties tend to be more in the luxury range as those prices drop it will push down prices in the lower and middle income sectors, but it will take time. The last few years prices in the Qatar real estate market were booming due to a supply-demand problem, the current layoffs may be simply allowing the supplied to catch up with the demand, who knows?

So the impact of the oil price in Qatar hasn’t been as earth-shattering as I anticipated – for now.

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