QCB financing controls on realty to lessen stress, augur well for REITs

The Qatar Central Bank's (QCB) move to tighten the credit to the real estate sector is expected to not only lessen the stress in the banking industry but also augur well for the proposed real estate investment trusts (REITs).
"The (commercial banks') exposure towards the (real estate) sector has been a key stress factor. The latest salvo will certainly address the imbalance," an analyst with a leading investment house said, viewing the move as “positive” by market experts.
Finding that realty is one of the problematic areas in the country's non-performing loans; he said credit concentration has remained a "cause of concern", a phenomenon common across the banks in the Gulf Co-operation Council.
Although the banking sector’s asset quality is currently good and capital buffers remain strong, banks are exposed to "significant" lending concentrations (in the real estate), global credit rating agency Capital Intelligence had said.
The central bank had last week put in place new real estate financing controls to include determining the maximum -loan-to-value (LTV) and tenure- for mortgages within Qatar, as part of measures to bulwark the banking sector.
Branches and overseas subsidiaries of Qatari banks should comply with the instructions and conditions of the host regulatory authorities as long as the collaterals and financed properties are outside the country.
As Qatari banks’ total exposure to real estate reportedly represent roughly one-fifth of the total loans, the lenders have historically been focusing on lending to the sector, resulting in high loan concentration and asset-quality vulnerabilities.
The latest financial stability report of the QCB said real estate continued to remain as one of the most important sector in Qatar’s economy.
"Despite some decline in recent years, the share of real estate in bank credit continues to be large," it said, adding "as a result, movements in real estate prices have the potential to impact the balance sheets of both individual borrowers and financial institutions, with implications on financial stability."
Stressing that the banking sector already has strong capital adequacy ratio and Tier 1 capital ratios; the amendments will bring in a rationalised regime to the borrowers. Sources said the amendments also come in view of soon to be introduced REITs.
The strong non-energy private sectors, especially the real estate and construction, and the permits issued in the realty sector, make REITs good investment option, the sources said.
The cabinet resolution No 28 of 2020 allowed real estate investment funds that will specialise in property investment in the various regions, thus providing an opportunity that was previously unavailable to middle and limited-income citizens to invest in the real estate sector.