Argentina lifts WC and Qatar's building frenzy reaches its day of reckoning

It’s a date in the calendar that’s been looming even for one of the wealthiest countries on the planet.
 

As Qatar returns to its sleepier pace after Argentina triumphed in Sunday’s final of a controversial, yet often breathtaking football World Cup, the next challenge is already upon the nation of 3 million people: how to prevent a dozen years of furious development from turning its sole metropolis into the Gulf’s most conspicuous white elephant.

“I kept always telling them that I worry about December 19th when the tournament is over,” Berthold Trenkel, chief operating officer of Qatar Tourism, said at an event last week, recalling the years of discussions with Qatar’s organizing committee. “Because then we are back to normal.”

Enriched by vast natural gas reserves, Qatar has tested the notion that money can’t buy you everything, whether that’s real estate in London and New York, owning a French soccer team or hosting the World Cup. But at home, that staggering wealth has also driven a building plan far in excess of the country’s current business and tourism needs.

Investments of more than $300 billion in infrastructure to prepare for the quadrennial tournament were seen as part of an effort to cut the economy’s dependence on oil and gas by creating other sources of growth. Businesspeople and investors on the ground, though, say the non-energy economy may need an injection of government aid to shield it from severe pain.

Particularly vulnerable are the real estate, hospitality and food and beverage industries, said Chirag Doshi, chief investment officer at Qatar Insurance Company in Doha.

“The capacity that got created for this mega scale event will take time to get absorbed, resulting in an economic slowdown or downturn,” he said. That could put pressure on their lenders, but the impact will be softened by Qatar’s strong finances and increased spending to boost gas production, Doshi said.

Doha was already emptying days before Sunday’s final. Fewer games to play meant fewer fans lounging in the city’s newly built beach clubs or traversing just-finished sidewalks.

Fitch Ratings projects that the country’s population will fall 8% in 2023 to stabilize around 2.7 million after people employed on World Cup projects return home. As of a 2020 census, close to half the country’s population were low-paid workers living in communal labor camps.

“It may be easier for Qatar to celebrate the World Cup as a ‘hearts and minds’ win for itself and the broader Arab world, and leave it at that,” said Ali Al-Salim, the Kuwait-based co-founder of investment consulting company Arkan Partners. “They can afford it.”

Qatar has seen an economic boost from the tournament, which has also accelerated its diversification initiatives, a government official said in response to a request for comment.

The country is targeting 6 million international visitors annually by 2030, almost three times the number in 2019, the official said. Qatar has also already introduced real estate and residency reforms to strengthen the economy. “The World Cup has been a unique marketing springboard to drive awareness for the destination,” the official said.

For a few weeks, the normally empty buildings that dot Qatar’s business and residential districts filled up with foreign visitors as the country strained to accommodate hundreds of thousands of fans at once.

Preparations to host them sent home prices soaring. Agreements between FIFA and Qatar’s organizing committee had forced many of the country’s hotels to vacate their long-time residents.

Meanwhile, Qatar had been leasing 60,000 residential apartments for fans, pushing rents higher by 20% to 30%, Cushman & Wakefield estimated in October. That “unprecedented spike” in demand, though, will be inevitably followed by a drop in the first quarter of 2023, it said.

Now that the tourists are leaving, landlords are scrambling to staunch their losses. Expatriate Facebook groups are littered with accounts of tenants who say landlords are demanding two-year contracts at elevated prices. So many renters say they will take their chances once tourists clear out.

In the mad dash to finish hotel and residential construction ahead of the World Cup, many projects were finished — but plenty were not.

The luxury Andaz Doha was scheduled to be completed in late 2022, but supply-chain delays mean it won’t open its doors until next year. Construction workers continue to scurry around the artificial Gewan Island, replete with a nine-hole golf course, commercial areas, and space for 3,500 residents. Its attractions remain closed off.

The dearth of World Cup revenue could pose a problem for some of these new properties. New hotels could have expected to recoup 15% or more of their construction costs if they’d been full during the tournament, one hotelier estimated. Landlords in sought-after residential neighborhoods could have expected to rent apartments for around $1,000 per night.

Yet even properties that were open during the football tournament now have to contend with an overcrowded market. About 14,000 or 15,000 new hotel rooms have opened in the past few months alone, according to Qatar Tourism. Occupancy rates before the World Cup hovered below 60%.

Construction on new offices and apartment buildings in the half-built, planned city of Lusail — meant to house some 200,000 people when completed — means more supply is on its way.

It’s not like Qatar doesn’t have the money, though. Most credit ratings companies and investors trust the government to ultimately step in to mitigate some of the pain.

Construction of new offices and apartment buildings in the half-built, planned city of Lusail means more supply is on its way. (Photo: Bloomberg)

The country’s financial position has only gotten stronger as Europe looks beyond Russia to meet its energy needs. Qatar is expanding its capacity to supply liquefied natural gas by more than 60% and is already locking in deals to send shipments to China and Germany for 15 years or more.

“Efforts by policy makers to continue to diversify and grow the non-hydrocarbon economy were dramatically boosted by hosting the world’s largest spectacle,” said Akber Khan, senior director of asset management at Qatar-based Al Rayan Investment. “The speed and success of future measures will determine how strongly this continues.”

Some, like Qatar Tourism’s Trenkel, say the World Cup will breathe new life into a tourism sector that’s often taken a back-seat to the flashier Dubai. Visitors from Saudi Arabia, who vanished after a diplomatic spat in 2017 and stayed away during the pandemic, once again comprise 24% of the country’s tourists — the largest share from any country.

Real estate agents are hopeful the government will continue to loosen visa and residency policies to encourage more investment by foreigners. Hosting the tournament has accelerated the understanding that some laws have to be changed to develop the economy, according to Abbas Ouni, head of sales at Land Royal Properties.  

“The World Cup is an opportunity and a gift, a golden gift,” said Ouni. “They have to prepare to make things easy for people who they want to come live in Qatar, to invest.”