I INTRODUCTION TO THE LEGAL FRAMEWORK
i Ownership of real estate
Qatari Law, in general, distinguishes between three types of investors in terms of real estate ownership, namely:
- Qatari nationals;
- GCC nationals; and
According to Law No. 14 of 1964 (the Real Estate Registration Law) and its amendments, the right to own real estate is limited to Qatari nationals.
Law No. 17 of 2004 (the Foreign Ownership of Real Estate Law) grants GCC nationals the ability to own real estate in approved 'investment' areas as declared by the Cabinet. Properties in these areas may be used on a commercial basis provided that they carry out businesses involving commercial, residential, industrial, tourism and educational activities. At present, the three named areas are Lusail, Al Khuraj and Thaayleb Mountain.
The Foreign Ownership of Real Estate Law sets forth the designated investment areas for ownership of real estate for non-Qataris, who can own real estate in areas designated by ministerial resolution. A non-Qatari also has the right of usufruct of real estate for a term of 99 years renewable for another similar period, in 18 investment areas determined by Ministerial Resolution No. 6 of 2006 and with the conditions and procedures issued by a decision of the Council of Ministers.
ii System of registration
The Real Estate Registration Law is generally considered as the applicable law regarding the registration of properties in Qatar.
All acts related to the property including creating, transfer, change or otherwise alter or otherwise dispose of or another property right (including off-plan) must be recorded and registered at the competent department,2 which is generally the Real Estate Registration and Authentication Department at the Ministry of Justice. Notably, if the rights are not registered with the competent department, the relationship between the parties would remain contractual only. Practically speaking, if a right is not registered, any legal recourse would be limited to the counterparty in the contract.
In terms of registration, the title deed, mortgage documentation and proof of payment would first be registered with the Ministry of Municipality and Urban planning, followed by registration at the Ministry of Justices Real Estate and Authentication Department.
The registration of freehold property requires both parties to be present at the Ministry of Justices Real Estate Registration and Authentication Department (although a representative may attend with a valid power of attorney) and requires the submission of a form, the original title deed, payment of a nominal fee and the Sale and Purchase Agreement. Should a party to the transaction be a company, care should be taken to ensure that the person authorising the sale and signing is duly authorised to sell the assets via shareholders resolution or if named in incorporation documents.
In certain areas administered by developers (such as the Pearl and Lusail), the process of registration is managed by the administrators for that area while rights of usufruct in investment areas must be registered with the Ministry of Municipality and Urban Planning. For rights of usufruct, the Ministry of Municipality and Urban Planning would then send a copy of the signed usufruct agreement to the Real Estate and Authentication Department of the Ministry of Justice.
Law No. 6 of 2014 (the Real Estate Development Law) was the first law in Qatar that focused on the regulation of multistorey commercial and residential buildings and for selling these units on an off-plan basis. For off-plan units, as per Article 13, developers are to record all data of an off-plan unit on the 'Interim Register' at the Ministry of Justice. Once completed, the developer must register the property at the Real Estate Registry of the Ministry of Justice within 60 days of the construction completion certificate, along with a description of the unit sold, the details of the transaction, and the names of the purchasers who have fulfilled their contractual obligations. A transaction will be considered invalid if it is not recorded in the Interim Register.
iii Choice of law
The Qatari Civil Code (Law No. 22 of 2004) links governance to the location of the property,3 as to the (possession of the property, ownership and other real rights, as well as the disposal and termination of the same. Ownership or disposal of Real Estate property or rights thereon located in Qatar, whether within or outside the investment areas, will be subject to Qatari law. Therefore, parties should plan their transactions related to real estate, including their rights and obligations thereon, to be governed by Qatari law.
II OVERVIEW OF REAL ESTATE ACTIVITY
The real estate sector in Qatar is considered to be one of the most important parts of its economy, and, therefore, the the Real Estate Price Index (REPI), which reflects the price movement in this sector, is regularly updated by the Qatar Central Bank. According to the Qatar Central Bank,4 the REPI has been in decline since 2016, which appears to have largely stabilised in the fourth quarter of 2018 at a decline of 1.1 per cent, compared to December 2017, which experienced a decline of 9.9 per cent. According to DTZ,5 the real estate market remains relatively stable.
Law No. 16 of 2018 became effective in March 2019, increasing the number of investment areas in Qatar from a total of three to 10. Foreign nationals can now own freehold property in areas such as Al Khraij Rawdat, Al Jahaniyah, Al Dafna, Onaiza, Jabal Theyleeb, Al Qassar and Al Wasail. While the future demand for property is predicted to increase, driven by significant population increase due to an increase of expatriates in the service industry,6 according to Valustrat, the residential median asking rents declined by 20.5 per cent in the past two years.7
Currently, for retail Real Estate, investments tend to be concentrated in the Pearl in Doha.8 However, with the completion of various high-end and medium-end developments in Lusail, as well as further developments in the North of Doha, it is expected that investment will be significant in these areas.
In terms of the office market, previously entire office buildings were owned by a single owner or corporation. However, with the expansion of the investment areas covering some of the most sought-after locations in West Bay and in Lusail, the potential ownership of small office units and floors to investors may increase demand. DTZ estimates that the total supply in West Bay will approach 2 million m² with the completion of several major developments.9
III FOREIGN INVESTMENT
As explained above, ownership of real estate in Qatar is mainly restricted to Qatari nationals. However, with the introduction of Law No. 16 of 2018, it is expected that foreign investment in both commercial and residential property will increase, particularly in light of predicted population growth by expatriates working in the service sector.
IV STRUCTURING THE INVESTMENT
Law No. 1 of 2019 Regulating the Investment of Non-Qatari Capital in economic activity in the Qatar and its executive regulations (which have yet to be issued) will replace Law No. 13 of 2000 (the Foreign Investment Law), which generally regulated foreign investment in Qatar.
The main benefits to foreign investments in Law No. 1 of 2019 relating to the opportunity of non-Qatari investors to own 100 per cent of the projects the investor establishes in Qatar. Previously, this was limited to 49 per cent with the exception of some limited areas or with the approval of the Council of Ministers. The new law will allow an investor to apply to the Ministry of Trade and Industry to increase its contribution from 49 per cent to 100 per cent. The competent department in the Ministry of Trade and Industry will decide on the application within 15 days of the date of completing the required documents. The Ministry has the right to reject the request, even if the investor can file a grievance against the Minister of Trade and Industry's decision.
The new law does contain certain prohibitions in regulated sectors, such as in banking and the insurance sector, with the exception of a decision by the Council of Ministers. It is also prohibited to invest in commercial agencies. Also, a non-Qatari investor may not hold more than 49 per cent of the shares of any of the companies listed on the Stock Exchange, without the approval of the Council of Ministers.
The provisions of this new law does not apply to companies and individuals for whom the state is entrusted with the extraction, exploitation, or management of natural resources, nor to companies that are established or contributed by the government and public institutions by a ratio of not less than 51 per cent.
The new law grants foreign investment projects investment incentives, including the possibility of allocating the necessary lands to the non-Qatari investor by way of lease or usufruct, and projects may be exempted from income tax according to specific controls stipulated in the income tax law. There is an exemption for non-Qatari investor projects from customs duties on imports of machinery and equipment, and raw materials that are not available in the local market. In addition to the foregoing, the law provides for the protection of investments against their expropriation, and the investor's freedom to make all transfers related to his or her investments to and from abroad.
The Minister of Commerce and Industry shall determine the service fees obtained by the Qatari investor in accordance with the provisions of this new law. According to the new law , whoever engages in or participates in economic activity in violation of it, may receive a fine of no more than half a million Qatari riyals.
On the other hand, the Foreign Investment Law is, at present, still effective, and continues to regulate foreign investment inside Qatar. It sets forth a rule that foreign investors are allowed to invest in all sectors provided they have one or more Qatari partners owning a minimum of 51 per cent of the entity's capital. Accordingly, non-Qatari ownership is generally restricted to owning a maximum of 49 per cent of any such entity.
V REAL ESTATE OWNERSHIP
Law No. 6 of 2014 regarding the Regulation of Real Estate Development stipulates that developers obtain a licence to carry out the real estate development from the competent body of the Ministry of Economy and Commerce.10 This Law sets forth a number of conditions that must be met from both Qatari nationals and companies incorporated in Qatar in order to conduct real estate development activities.11 Notably, non-Qatari companies can apply for a developer's licence provided they have met specific conditions as stated in Article 3 and that the scope of activities is restricted to investment areas where non-Qatari nationals can own property. These licences are recorded on a real estate developers register.
Practising without a licence can incur a penalty of up to one year's imprisonment, a fine of up to 50,000 Qatari riyals or a combination of both.12
For zoning purposes, Qatar is divided up into multiple zones, and these zones may be listed in one or more of the three distinct groups of zoning requirements, namely:
- Group 1 – 21 separate planning zones that include various types of residential, industrial and public facilities and specified activities such as agriculture and tourism;
- Group 2 – seven special planning zones that deal with development applications located within a boundary of areas of special status and sensitivity (such as heritage, coastal and airport areas); and
- Group 3 – 15 zones with sets of planning and design guidelines, covering matters such as the construction of two villas on one plot of land, commercial streets guidance and interim coastal development.
Furthermore, developers may also be required to adhere to a master plan if conducting development in administered areas, such as Lusail and the Pearl.
While a planning law has yet to be formalised in Qatar, as regards off-plan units, Article 10 of the Real Estate Development Law requires developers to obtain consent to sell an off-plan unit.
Initially, a strata title will need to be created and registered prior to a unit being sold off-plan. A developer would be required to perform the following activities at the Real Estate Registration and Authentication Department of the Ministry of Justice, prior to the creation of the strata title:
- each project would need a separate escrow account;
- the submission of milestones and cash flow forecasts; and
- the submission of drawings, the relevant permits and plans.
After consent is obtained from the Real Estate Registration and Authentication Department and the strata title has been created, the strata title will be converted to final title deeds upon completion of the project for each off-plan unit.
Notably, the Real Estate Development Law requires the approval of the Real Estate Registration and Authentication Department of the Ministry of Justice for the approval of promotional or sales material.
Qatar, at present, is not a signatory to the Stockholm Declaration of 1972. However, it has ratified the declaration with the current state being recorded as accession.
Qatar has also implemented various laws concerning environmental protection, including Law No. 30 of 2002 regarding the Law of Environmental Protection, Law No. 4 of 1983 concerning the Exploitation and Protection of Aquatic Life in Qatar and the Executive Regulations under Ministerial Decision No. 4 of 2004.
These laws place a requirement that projects for public and private development be submitted to the relevant authorities and approval, with the Supreme Council for Environment and Natural Reserves and the Ministry of Municipality and Environment being responsible for enforcement.
While there is no one law that deals with contaminated lands, the laws in force in Qatar relate to developers contaminating the land and waterways in the first place. Furthermore, as per Article 455 of the Civil Code,13 a seller would remain liable for defects that would render the sale unfit for purpose.
In December 2018, Qatar introduced Law No. 24 of 2018, promulgating a new income tax law to replace the previous Law No. 21 of 2009. As with the old law, no income tax is applicable to foreign nationals, Qatari nationals and GCC nationals. Qatar does, however, apply a general corporate income tax rate of 10 per cent with profits of companies that are owned wholly by GCC nationals and Qatari nationals remaining exempt. A 'business activity' is defined as any occupation, profession, service, trade or the execution of a contract or any other business for the purpose of making a profit. Income tax is levied at a flat rate of 10 per cent. Taxable income is calculated as gross income less income-generating expenses.
A flat rate of 35 per cent will now apply to agreements in the petrochemical industries while previously, a rate of 35 per cent was only applied to petroleum operations.
Qatar operates a withholding tax with a single rate of 5 per cent applying to payments made to non-residents without a permanent establishment in the country for royalties and services that are performed in Qatar.
Leasing property is considered a business activity, and rental income is taxed at the standard income tax rates. Income-generating expenses are deductible when computing taxable income.
iv Finance and security
In Qatar, a mortgage is the most common security by way of a signed agreement. For a mortgage to be legally effective for the creditor, it must be registered with the Ministry of Justice.
In accordance with Article 242 of Law No. 27 of 2006, courts can issue an order to sell property in the event of default in amounts sufficient to meet the creditors' entitlements and selling expenses. Article 243 also provides that where a mortgage is a document that can be traded on the stock market, the court shall order the sale by recognised brokers.
Assignment of rights in Qatar is only effective if the debtor has acknowledged the debt, and, due to the contractual nature of the assignment of rights, recovery by the sale of the property is not a remedy. Therefore, this is often seen as a riskier form of security.
VI LEASES OF BUSINESS PREMISES
For lease contracts with a term of one month or more, the main legislative provision applicable to the relationship between commercial tenants and landlords is Law No. 4 of 2008 (the Lease Law).
The Lease Law, at Article 20(4) places an obligation on the Lessor to register a lease with the Real Estate Lease Registration Office within thirty days from the effective date of the lease. In practice, this means that the lease should be drafted in English and Arabic and should contain the following information, at a minimum:
- names, nationalities and addresses of the lessor and lessee;
- the addresses of any persons legal representing the lessor and lessee;
- the term of the lease;
- the rent and method of payment;
- a description of the leased premises; and
- the purpose of the lease in addition to all terms and conditions agreed upon.14
Failure to register the lease within the thirty-day time-limit carries with it substantial increases in fees for late registration. It should be noted, that in accordance with Article 2 of the Lease Law the following leases are exempted from the law:
- state, private and public properties;
- agricultural land;
- undeveloped land;
- industrial services land;
- hotels and tourist apartments and units; and
- residential units reserved by the state or other companies for their employees.
In terms of commercial tenant's protection of rental increase, pursuant to Article 10 of the Lease Law and Council of Ministers Decision No. 9 of 2010, Landlords may increase rent for commercial premises entered into on or before 1 January 2005, provided that the following limits are observed:
- if the monthly rent is lower than 3,000 Qatari riyals – 20 per cent annual increase;
- if the monthly rent is between 3,000 and 6,000 Qatari riyals – 15 per cent annual increase;
- if the monthly rent is between 6,000 and 10,000 Qatari riyals – 10 per cent annual increase; and
- where the monthly rent is more than 10,000 Qatari riyals – 5 per cent annual increase.
It should be noted that the Decision also contained a provision whereby rental increases for commercial leases were prohibited if they were entered into from 1 January 2005 onwards, unless the lease contains specific provisions for the rental increase. This was applicable for one year from 1 January 2005 and was also extended by a further year until 15 February 2015. In effect, up until 15 February 2012, landlords were prohibited from increasing rent for commercial leases unless the lease specifically provided for it.
In terms of eviction of tenants before the expiry of the Lease, Article 19 of the Lease Law15 provides that a landlord should seek permission from the competent leasing committee to evict a tenant in the following circumstances:
- in the event that the tenant does not perform its obligations in respect of rental payments;
- in the event that the tenant relinquished his or her interest in the lease (e.g., by assigning it to another person) without the written approval of the landlord;
- if the tenant uses the premises, or permits the premises to be used, for purposes contrary to those set out in the lease or that is otherwise inconsistent with public order or morals;
- if the competent authorities decree that the property must be demolished, or the premises are determined to be in danger of collapsing, causing a hazard to public safety;
- if the landlord decides to demolish the building (in limited circumstances);
- if the landlord decides to modify or extend the building (again, subject to certain restrictions outlined below); or
- if the leased premises are located within the landlord's private dwelling, and he or she or a member of his or her immediate family decides to utilise it for personal purposes (subject to the provision of due notice to the tenant).
VII DEVELOPMENTS IN PRACTICE
i The expansion of the investment areas and the impact on the office market
Currently, the major office hub in Qatar for service providers and the energy sector is located in West Bay, Doha. West Bay has seen a significant expansion over the years with the construction of multiple towers currently ongoing for the purpose of serving the office market. Examples include the QP District and the Twin Towers, which are expected to increase supply significantly.
Notably, with the expansion of the investment areas to cover certain districts in the West Bay, it is widely anticipated that investors will be seeking to purchase small office spaces and floors through strata titles.
ii The Real Estate Development Law
The Real Estate Development Law sets out the provisions regulating developers:
- the registration of the sale of off-plan units;
- the establishment of the 'Interim Register' at the Ministry of Justice;
- the issuance of the strata titles;
- the penalties for breaching the Law's provisions;
- the Committee of Disputes Resolution for Real Estate Development; and
- the rules and conditions related to the work of developers;
In addition, the said Law lays out specific requirements and conditions that would have to be met by the developers (be it a person or a company), in order to be able to practice the development, such as:
- obtaining a licence;
- starting and ending works during the specific period as stated in the contract, in order to hand over the units on the agreed date to the purchasers in accordance with the agreed specifications. Otherwise, developers may receive fines in the event of late delivery;
- developers can assign a sub-developer of the work in any project not exceeding more than 50 per cent of the work, without the approval of the Ministry of Economy and Commerce;
- the developer should have a bank account and escrow account for each project. In the event of withdrawing any amounts from the account, it should take into account the terms and conditions of the agreement of the real estate developer guarantee account, provided that he has completed at least 20 per cent of the construction works in the project; and
- obtaining the consent of the competent department prior to gaining the financing for a real estate project.
According to the law, the developer may borrow by guaranteeing the project, in accordance with the following conditions:
- all units offered have not been sold yet, according to a certificate issued thereby by the competent department of the Ministry of Justice;
- the actual total value of what has been accomplished from the project is equal to or greater than the total amounts deposited in the account;
- the loan amount should not exceed the total amount of the units; and
- submission of a certificate from the bank on the status of the account.
Notably, the executive regulations, as stated in the said Law have yet to be issued.
ii The Real Estate Brokerage Law
In 2018, Law No. 22 of 2017 regarding Regulating Real Estate Brokerage came into force replacing the Foreign Investment Law. Notable changes include, amongst others:
- the establishment of the Committee of Real Estate Brokers' Affairs to consider complaints filed against real estate brokers and estimate the fees and commission of the real estate brokers should a dispute arise;
- real estate brokerage has been defined to include, auctions, real estate promotions, administrative activities on behalf of third-parties and pricing;
- testing and qualification for real estate brokers; and
- licensing of foreign real estate firms.
VIII OUTLOOK AND CONCLUSIONS
In March 2019, Law No. 16 of 2018 regarding the Real Estate Development Law became effective. However, at the time of writing this chapter, the executive regulations have not been published, and, therefore, its application has been limited to date. Aside from the positive impacts from increasing the remit of foreign ownership, the new Real Estate Development Law also seeks to regulate the ownership of strata title where individuals would own a part of a property while the ownership of the common parts of the property (i.e., the foyer, lobby, etc.) would be shared and managed by a co-owner's association. A common form of strata title in Qatar would be apartments in towers and townhouses.
In terms of the retail market, the editor has seen a marked increase over the past year in landlords seeking to recover rent due from tenants, as well as tenants seeking to terminate their leases or negotiate withdrawal due to poor financial performance of the retailer. Given the oversupply in the market, the editor has also experienced landlords offering attractive incentives to prospective retailers, including rent holidays on both outdoor and indoor areas and contributions to the fit-out of the retail unit.
In Qatar, the editor observes that it is common for residential villas in residential neighbourhoods to be converted retail units. This is particularly common in older residential and ungated developments, with common examples including medical centres, schools, day-care facilities, salons, accountants and so forth. On 16 October 2019, the Ministry of Municipality and Environment issued a circular stating that new licences for commercial and retail use will not be granted and that villas in residential areas will be for residential use only. The circular does contain some exemptions, such as nurseries, kindergartens, women's salons, public kitchens, Qur'an memorisation centres and special needs educational facilities.
1 Josias de Salles is a senior associate and Moawiah Milhem is an associate at Sharq Law Firm.
2 Article 1 of Law No. 14 of 1964 and its amendments.
3 Article 26 of the Civil Code (Law No. (22) of 2004)
4 Qatar Central Bank, Financial Stability Review, 2018, Qatar.
5 Property Times, DTZ, Investment Opportunities Increase with Addition of New Freehold Zones. Q2, 2019, Qatar.
7 ValuStrat, Real Estate Market, 2nd Quarter, 2019 Review, 2019, Qatar.
8 Property Times, DTZ, Investment Opportunities Increase with Addition of New Freehold Zones, Q2, 2019, Qatar.
9 While demand remains relatively low in comparison to new supply, DTZ has seen an increase in leasing enquiries for offices in Q2, particularly from companies that operating in IT, technology and the oil and gas sectors.
10 As per Article 2 of Law No. 6 of 2014.
11 As per Article 3 of Law No. 6 of 2014.
12 As per Article 29 of Law No. 6 of 2014.
13 Law No. 22 of 2004 Regarding Promulgating the Civil Code.
14 In accordance with Article 20 (2) of Law No. 4 of 2008.
15 As amended pursuant to the provisions of Article 3 of Law No. 20 of 2009.