Rental inflation to empty your pockets

Rental inflation is expected to drain people’s savings, if numbers from state agencies and market players are any indication. 

After Qatar Central Bank’s (QCB) real estate price index for the first quarter of this year hit a record high point, the Ministry of Development Planning and Statistics data yesterday showed the rentals group of its consumer price index (CPI) jumped by 7.6 percent in July from 6.2 percent in April this year.

Any rise in rentals puts a significant pressure on the inflation index as ‘Rental, Fuel and Energy’ group has maximum weightage of about 32 percent in the CPI basket. 

The group had risen by 7 percent in May 2014 before further jumping to 7.4 percent in June.

Going forward, the heating up in the real estate sector is likely to continue. 

Real estate experts have predicted that rentals in the country are expected to grow at an average 10 percent per year until 2022 which means the rentals are likely to double in eight years. 

Skyrocketing land prices and growing construction costs are the twin reasons for the projected increase in rentals by leaders in the real estate sector.

Rents of brand new residential and commercial units have already gone up by 25 percent to 50 percent in some most sought-after locations, due to the hike in land value and construction costs.

A deeper look at central bank’s real estate index shows that rents have continuously moved up in upward direction. After seeing volatility in 2013, the year 2014 saw a steady increase in the overall market price. 

The real estate price index jumped to 194.5 points in January from December 2013 to touch 195.3 points and 209.4 in February and March, respectively. 

The index surged to 216.0 points in April and 213.8 points in May before hitting a record 230.6 points in June, when the country’s total real estate transaction value hit QR3.9bn.

The CPI released yesterday for July jumped 3.1 percent compared to same month last year, mainly driven by high rentals. On month on month basis, the index for July increased 0.3 percent compared to the CPI for  June. 

On year on year basis, prices of furniture, textiles and home appliance also added the monthly inflation as ‘Furniture, Textiles and Home Appliances’ group in the inflation index rose by 5.4 percent in July.

‘Transport and Communication’ was up by 1.8 percent, ‘Miscellaneous Goods and Services’ up by 1.3 percent, ‘Entertainment, Recreation and Culture’ increased 0.8 percent and ‘Medical care’ increased 0.7 percent.

The Peninsula | Photo: Dmslakeland