Introduction
Changes already in place
Anticipated changes
Comment

Introduction

Following the announcement that Qatar will host the 2022 FIFA World Cup, significant growth is expected in the country, especially in the construction and infrastructure sectors. Several major projects are envisioned for the event, including the construction of 12 stadiums, multiple five-star hotels, world-class rail and metro network systems, Doha Festival City, Barwa Commercial Avenue, the new Doha International Airport and several other infrastructure projects, including bridges and tunnels.

Since the announcement of the winning bid, the Qatari government has made important changes in its legal system. It further anticipates introducing additional changes in the near future that will impact on the construction industry. The most relevant changes are outlined below.

Changes already in place

Introduction of New Green Building Code
Construction companies willing to participate in the proposed construction projects in Qatar will need to comply with the New Green Building Code.(1) Qatar is keen to encourage sustainable, environmentally friendly development and is committed to a greener future. However, the impact on construction project costs remains to be determined. The expected changes include providing a ‘green area’ in offices, setting up an environmentally friendly waste-management system and encouraging recycling.

Changes in Gulf Cooperation Council investments
Gulf Cooperation Council companies are now allowed to establish a legal presence in Qatar without a Qatari partner having at least a 51% stake of the company.(2) This will attract construction companies which will be entitled (subject to prior approval from the Ministry of Business and Trade) to conduct business in Qatar without the need to team up with a local partner.

Establishment of Anti-corruption Department
Emiri decision 75/2011 established severe penalties for breaching anti-corruption rules, ranging from large fines to lengthy prison sentences. All legal entities and persons doing business in Qatar, including construction-related entities, are bound by this decision.(3)

Anticipated changes

Construction Code
Legislators are currently working on a New Construction Code, which is expected to be enacted before the end of 2012.

Draft Arbitration Code
Legislators are working on a separate Arbitration Code. Contractors, engineers and other parties in the construction industry may wish to follow closely any changes to the arbitration regime in Qatar. Arbitration has been the preferred dispute resolution mechanism in many other projects, and it can be expected that World Cup projects will also be subject to arbitration.

Draft law relating to the hotel industry
A special law regulating the hotel industry is expected to be enacted in the near future.

Draft law regulating rolling stock (railway and metros)
As part of its bid, Qatar indicated that it would be providing a railway network connecting the Gulf Cooperation Council countries, as well as a metro system connecting the 12 World Cup 2022 stadiums. It is expected that the government will issue special regulations for the rolling stock sector.

Changes to labour laws
Given that approximately 90% of the Qatari labour force works on construction projects, legislators are discussing the need to introduce a mandatory minimum wage, as well as additional benefits (eg, health insurance) applicable to construction workers.

Anticipated changes to sponsorship law
As the law currently stands, an employee requires his or her sponsor’s permission before he or she can leave Qatar or change employer. In order to attract more foreign investors and labour staff, the sponsorship law is likely to be relaxed to allow for greater freedom of movement.

Changes to foreign investment laws
It is expected that the current 51% Qatari ownership rule will be relaxed. The media has also reported that by the end of 2012 foreign investors should be entitled to hold larger stakes in public shareholding companies.(4)

Changes to property ownership laws
It is expected that the areas where foreigners may own real property will be expanded.(5) However, the government has yet to make an official announcement.

Comment

The construction sector is likely to be one of the main drivers of local growth in Qatar in the years leading up to the 2022 FIFA World Cup. In light of the expected changes to the Qatari legal system, construction companies could soon find it easier to do business in Qatar.

For further information on this topic please contact Melina Llodra or Georges Racine at Lalive by telephone ( +41 22 319 87 00 ) or email (mllodra@lalive.ch or gracine@lalive.ch). Alternatively, please contact Marcus Boeglin or Ramy Saleh at Lalive in Qatar by telephone (+974 4496 7247) or email (mboeglin@laliveinqatar.com or rsaleh@laliveinqatar.com).

Endnotes

(1) Qatar Construction Standards 2010, Section 7.

(2) Law 13/2000 in relation to the Foreign Investment Law states that a foreign investor may not own more than 49% in the shares of the capital of a local company subject to the exceptions under Article 2.2 (Article 2.1).

(3) Emiri decision 75/2011 establishing the Administrative Control and Transparency Authority.

(4) Law 13/2000 states that a foreign shareholder cannot own more than 25% of shares in the capital of a public shareholding company.

(5) Law 17/2004 states that foreigners are able to own real property in Qatar in the areas of the Pearl, West Bay Lagoon and Al Khor Resort.[Read More]

The government is backing that with promised public investment worth $95bn during the period, over $65bn of which is expected to be on infrastructure. The construction frenzy has led to a jump in lending to the real estate sector. But much of the property market is weak, with rents and prices falling. Lending into such a weak market could hurt banks’ balance sheets while worsening the real estate slump by increasing supply of new homes and offices.

Raj Madha, regional banking analyst at Rasmala Investment Bank, said it was becoming increasingly important for investors to know exactly where real estate loans were going – but that detailed information was not available. “We are seeing some increase in non-performing loans for example and we are seeing property prices generally going in the wrong direction,” he said. Behind Qatar’s building boom is its desire to diversify away from energy resources, which account for over half its economic output, and become a finance, trading and tourism hub in much the same way as nearby Dubai has done. Qatar’s successful bid to host the 2022 soccer World Cup is part of this strategy, and should provide massive demand for accommodation and retail space. For now, however, the real estate market is oversupplied.

A review by consultants Jones Lang LaSalle in November showed that office space vacancies were around 20% in the capital Doha, and would continue to increase as new supply appeared. The picture in the residential sector appears similar. The rents component of Qatar’s consumer price index, which includes utilities and housing services as well as rents, fell 4.8% on average in 2011, though that was a slower drop than a 12.8% slide in 2010. The International Monetary Fund predicted rents would stay depressed for some time. As the impact of two decades of expansion in gas output fades, Qatar’s economic growth is expected to slow from an estimated 17.5% in 2011 to a still-high 6.2% this year, according to a Reuters poll of analysts.

The question is whether growth will be high enough to absorb property supply created by last year’s surge in real estate lending. Annual growth in such lending was 95% last October, the fastest pace since at least 2008; in December it was 49%, central bank data show. Overall private sector credit growth in Qatar hit a 30-month high of 22.3% in November, before slowing to 19.2% in December. In the eyes of some analysts at least, the concern is that Qatar could come to resemble Dubai not just in its diversification strategy, but in overextending itself in real estate. Dubai operated on a “build-and-they-will-come” model for most of last decade, only to suffer a property crash in 2008 and 2009. This forced a $25bn debt restructuring at state-owned Dubai World.

Doha is starting to boast spectacular architectural designs rivalling that of flamboyant Dubai, such as the al-Bidda Tower, a 215m-high commercial building with a shape that twists as it rises. “The similarity (with Dubai) is that there are potentially too many properties with not enough people to occupy them, leading to a build-up of capital in the residential property sector, and consequently potentially a liquidity squeeze for developers or investors down the road,” Madha said. Qatar has some major strengths which Dubai lacks. Its banks have a very low ratio of non-performing loans at just over 2%, well below roughly 6% for the UAE, banking sources said. Qatari banks’ average capital adequacy ratio, a measure of their ability to cover any losses on their loans, rose to 22.3% in mid-2011 – a very high number by global standards — following injections of government funds into the banks in 2009-2011, according to the IMF. And in contrast to Dubai, which had to seek a bailout from Abu Dhabi during its crisis, the Qatari government appears to have plenty of spare cash with which it could intervene during any property crisis. Analysts estimate the size of Qatar’s sovereign wealth fund at some $100bn, while the central bank’s net foreign reserves were over $16bn in December.

“Unlike Dubai …the government itself has the resources to provide liquidity to the system, should it decide to do so, and that offsets risk for the banking sector, provided they have good reason to believe that backstop is in place,” Madha said. Qatari Central Bank Governor HE Sheikh Abdullah bin Saud al-Thani told Reuters this week that he was satisfied with the rate of property credit expansion, though he declined to comment on the outlook for the future. Nevertheless, Qatar’s room to maneouvre is not unlimited. It would find it difficult to use the traditional tool of interest rates to cool the building boom because its riyal currency is pegged to the US dollar; this means an interest rate hike could attract speculative fund inflows into the country, destabilising markets.

The central bank might instead have to use other tools to manage liquidity in the banking sector, including raising banks’ reserve requirements and absorbing excess liquidity through issuance of Treasury bills or local government bonds. In a statement released last month after routine consultations with Qatar, the IMF warned commercial banks and the central bank that they “need to ensure that the overall credit quality does not weaken, particularly in the real estate sector in view of the prevailing excess supply, and the precarious global economic outlook”. [Read More]

a) Tender documents for the above services/works can be obtained from the Dates of Issue at the different locations indicated above. Tender documents may be collected between 08:30 and 13:30 only.

b) Tender documents will be released only to authorized company representatives with the Letter of Authorization on Company Letterhead.

c) Non-refundable Tender fees are payable as below to Doha Bank Ltd. at QP Branch, Ras Abu Aboud, Doha, or to Qatar National Bank, QP Branch, 2nd Floor, Al-Sadd Plaza, Doha:
STC & LTC Tenders – Fee per tender QR 200.00
GTC Tenders – Fee per tender QR 500.00

d) Where tender documents are collected on behalf of others, the entity who collects the tender documents must submit a letter from the ‘principal(s)’ stating that the tender documents are collected on their behalf.

e) Where tender documents are collected on behalf of more than one ‘principal’, the tender fee has to be paid in respect of each tender document.

f) No queries will be entertained, or bids received, from entities who have not purchased tender documents in compliance with the above provisions.

g) All prospective bidders wishing to participate in Qatar Petroleum tenders issued by the Contracts Department shall be a QP registered vendor with a SAP Vendor ID. To obtain a SAP ID, the potential bidder must submit a duly completed Vendor Master File Update (VMFU) Form together with supporting documents as detailed in Vendor Master Update Guidelines posted in QP Website.

h) All bidders shall ensure that the business/company name, contact persons and other details in all relevant documents to reflect the details as stated in the commercial registration documents.

i) Bidders/Contractors, who are registered with QP and possess a QP SAP Vendor ID, shall with immediate effect ensure that any change to the vendor details is updated with QP by submitting a duly completed Vendor Master File Update (VMFU) Form to ensure smooth processing of Tender, Contract and Payment related matters without any delay.

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Al Khor is a coastal city 57 kilometers north of Doha with a port for small ships and fishing boats.
The Al Khor Municipality includes the emergent Ras Laffan Industrial City and the 2004 census puts the total population at 31,611. Al Khor has been developing rapidly over the past few years and the trend is likely to continue with the onslaught of various industrial projects, mainly gas based

Ras Laffan Industrial City (RLIC)

Strategically located on the north shore of the Qatari Peninsula and at the centre of the Arabian Gulf, Ras Laffan Industrial City represents one of the world’s most significant and accessible emergent industrial export locations.
The ambitious vision of the State to exploit its vast natural gas resource led to the initiation of LNG projects: Qatargas and RasGas. Expansion of LNG facilities at Ras Laffan has been proceeding rapidly and is expected to reach 20.2 million tons per annum (mtpa) by year-end 2004. Further natural gas utilization plans led to the Dolphin project and to various Gas to Liquids (GTL) projects, which are currently under-way.

Mesaieed

Mesaieed is a major industrial city in Qatar, located 45 kilometers south of Doha. The city’s industrial area houses basic industries and it has a large sea port as well as the principal terminal for the export of oil. Major industrial projects such QAFCO, QAPCO, QAFAC, QVC, QPR, Q-Chem etc. are located in Mesaieed, along with upcoming projects such as Q-Chem II, Qatofin, and LAB among others. The beaches and sand dunes at Mesaieed with their fine sand are major tourist attractions in the State of Qatar and is also the location of the Movenpick Sealine Beach Resort.

Madinat Al-Shamal

Is a modern town functioning as an administrative center for a number of coastal villages north of the country.

Dukhan

Dukhan is Qatar’s main onshore oil production centre and is situated halfway along the western coastline of the Qatari Peninsula. It has developed as the oil nerve center since the exploitation of the country’s oil reserves commenced in 1949.

Shahaniya

Is situated 60km west of Doha and has a purpose-built camel racetrack. It is famous for camel races.
Sealine Beach Resort
Situated 55 km from the capital, the resort offers a large variety of rooms, villas and chalets, all with a sea view. The resort also has many sports and recreational activities and a number of restaurants, alongside with meeting and conference facilities.
The Palm Tree Island

The Palm Tree Island is 10- minute boat ride off Doha Corniche. The Island has children and family amenities, a restaurant offering seafood and barbecue meals and a cafe serving snacks and refreshments. There is also a jetty for traditional Dhow boats close to Doha Sheraton Hotel on the Corniche waterfront.
Entertainment City (the Kingdom of Aladdin)

The new law will require only Qatari nationals to practice the real estate brokering business.

In case of violation of any of the provisions of the law, license will be suspended form 3 to six months and a fine of QR 50,000 will be imposed to firms engaging in the business without a license.

The law shall go into effect and shall be published in the Official Gazette.
[Read More]

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a) Tender documents for the above services/works can be obtained from the Dates of Issue at the different locations indicated above. Tender documents may be collected between 08:30 and 13:30 only.

b) Tender documents will be released only to authorized company representatives with the Letter of Authorization on Company Letterhead.

c) Non-refundable Tender fees are payable as below to Doha Bank Ltd. at QP Branch, Ras Abu Aboud, Doha, or to Qatar National Bank, QP Branch, 2nd Floor, Al-Sadd Plaza, Doha:
STC & LTC Tenders – Fee per tender QR 200.00
GTC Tenders – Fee per tender QR 500.00

d) Where tender documents are collected on behalf of others, the entity who collects the tender documents must submit a letter from the ‘principal(s)’ stating that the tender documents are collected on their behalf.

e) Where tender documents are collected on behalf of more than one ‘principal’, the tender fee has to be paid in respect of each tender document.

f) No queries will be entertained, or bids received, from entities who have not purchased tender documents in compliance with the above provisions.

g) All prospective bidders wishing to participate in Qatar Petroleum tenders issued by the Contracts Department shall be a QP registered vendor with a SAP Vendor ID. To obtain a SAP ID, the potential bidder must submit a duly completed Vendor Master File Update (VMFU) Form together with supporting documents as detailed in Vendor Master Update Guidelines posted in QP Website.

h) All bidders shall ensure that the business/company name, contact persons and other details in all relevant documents to reflect the details as stated in the commercial registration documents.

i) Bidders/Contractors, who are registered with QP and possess a QP SAP Vendor ID, shall with immediate effect ensure that any change to the vendor details is updated with QP by submitting a duly completed Vendor Master File Update (VMFU) Form to ensure smooth processing of Tender, Contract and Payment related matters without any delay.
[Read More]

a) Tender documents for the above services/works can be obtained from the Dates of Issue at the different locations indicated above. Tender documents may be collected between 08:30 and 13:30 only.

b) Tender documents will be released only to authorized company representatives with the Letter of Authorization on Company Letterhead.

c) Non-refundable Tender fees are payable as below to Doha Bank Ltd. at QP Branch, Ras Abu Aboud, Doha, or to Qatar National Bank, QP Branch, 2nd Floor, Al-Sadd Plaza, Doha:
STC & LTC Tenders – Fee per tender QR 200.00
GTC Tenders – Fee per tender QR 500.00

d) Where tender documents are collected on behalf of others, the entity who collects the tender documents must submit a letter from the ‘principal(s)’ stating that the tender documents are collected on their behalf.

e) Where tender documents are collected on behalf of more than one ‘principal’, the tender fee has to be paid in respect of each tender document.

f) No queries will be entertained, or bids received, from entities who have not purchased tender documents in compliance with the above provisions.

g) All prospective bidders wishing to participate in Qatar Petroleum tenders issued by the Contracts Department shall be a QP registered vendor with a SAP Vendor ID. To obtain a SAP ID, the potential bidder must submit a duly completed Vendor Master File Update (VMFU) Form together with supporting documents as detailed in Vendor Master Update Guidelines posted in QP Website.

h) All bidders shall ensure that the business/company name, contact persons and other details in all relevant documents to reflect the details as stated in the commercial registration documents.

i) Bidders/Contractors, who are registered with QP and possess a QP SAP Vendor ID, shall with immediate effect ensure that any change to the vendor details is updated with QP by submitting a duly completed Vendor Master File Update (VMFU) Form to ensure smooth processing of Tender, Contract and Payment related matters without any delay.
[Read More]