At a time when real estate projects are being cancelled right and left in the Gulf, Qatar is pushing ahead with the construction of a new city.

By Adam Gonn

Doha, Qatar, August 8, 2009 – Covering an area larger than Beirut and with almost half a million people – two ways that the Qatari developer is describing Lusail - a brand new city is being constructed in the northern part of the Gulf nation.

On completion, the Lusail development project will cover almost 6,800 acres (compared to 5,000 for the Lebanese capital Beirut). It will cater to 455,000 people – including 200,000 permanent residents, 165,000 people working in different parts of the city and an additional 90,000 visitors for various recreational purposes.

When the oil-funded economic boom took off in the 1990s, many of the oil-rich countries in the region launched grandiose real estate development projects in order to house the huge influx of expatriates coming to work in the region. They also boosted national prestige.

Some of the more well-known projects include The Palm and The World artificial islands off the coast of Dubai. However, with the combination of falling oil prices and a global economic downturn, many projects have either been put on hold or canceled altogether.

According to estimates from Macdonald & Company, a United Arab Emirates-based consulting group, between 25-35 percent of the jobs in the country’s construction and real estate sector have been lost since the global economic crisis hit the region in October 2008.

In common with most of the other large-scale real estate developers in the region, Qatari Diar, the master developer for Lusail, is government-owned. Qatari Diar is fully owned by the Qatar Investment Authority, the sovereign wealth fund put established by the Qatari government to manage the country’s natural resources income.

The main reason why Qatar is able to continue to develop while many of its oil-rich neighbors are forced to put projects on hold is due to the fact that Qatar’s economy is based on gas and not on oil like Abu Dhabi and Kuwait. The only oil-based economy that has been able to buck the trend is Saudi Arabia, which is the world’s largest oil producer.

“Qatar has been favored as a safe haven so far for its expanding gas story and the government’s market-friendly support of the economy,” Turker Hamzaoglu, Economist with Bank of America-Merrill Lynch, told The Media Line.

One of the main differences between the trading of oil and gas is that gas is traded in long term contracts, making the price more stable and less prone to speculation than with oil. It is widely assumed the when the price of oil almost reached $150 per barrel, it was due to speculation and not market fundamentals.

Source: The Media Line, August 6, 2009

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