Real estate market regulations – a blessing or curse for Qatar? by Alexander Hartmann Senior Property Consultant  Coreo Real Estate 

by: Alexander Hartmann
Senior Property Consultant
Coreo Real Estate 

Many of us will remember the great recession of 2007, which has taught us a costly lesson about what it means for a real estate sector to be out of control. Just to recap, more than 20 million jobs were lost worldwide and the estimated financial loss for the US alone was more than 14 trillion USD. Although the financial crisis of that time may not have hit Doha’s real estate market with the same power as it hit the international markets of the US, Europe and Asia. however, economic data of that time shows a slowdown of business here in Qatar as well.

As a result of this recession, the public’s confidence in the financial and real estate sector was at an all-time low. To restore this confidence, government’s hand in hand with corporates had to find new ways to regulate the markets since the old methods proved to be insufficient.   

Today, over a decade after the great recession, many jurisdictions worldwide have implemented a regulatory system in their financial and real estate markets. All these regulatory systems have certain characteristics in common and are based on certain fundamentals. 

Can you name the main characteristics of real estate transactions? Whether they occur in Doha, London, New York or somewhere else in the world, real estate transactions have certain common characteristics that can be summarised as follows: Firstly, the acquisition of a new home is for many of us, including myself, one of the most important financial decisions we will make in our life. Secondly, regardless of the asset class, any kind of real estate transaction involves a huge amount of capital. Whether you are a corporate investor or a home buyer, we all want to minimise the risk for our equity. Thirdly, both commercial and residential real estate transactions usually involve third-party brokers who facilitate the transaction for either one or both sides, seller and buyer. Usually, the brokers involved are remunerated with a commission for their services. Finally, real estate transactions other than leases encompass complex matters such as financing, transfer of funds in exchange of ownership and the application of real property laws or country/community specific transactional customs that are beyond the common experience of the general public.

For the aforementioned and many other reasons, jurisdictions around the world have established governmental or quasi-governmental entities that promote consistency and fairness in real estate transactions, ensure competency of real estate professionals and protect individuals, as well as real estate and related financial markets, from unlawful, dishonest and abusive practices. These regulatory controls also provide a means by which participants can compete in an industry in which the “rules of the game” apply to all. To give you some examples, in Bahrain, the UAE and India, this organisation is called RERA (Real Estate Regulatory Authority), in the UK, it is the National Trading Standards Estate Agency Team (NTSEAT) and in the US, the Association of Real Estate License Law Officials (ARELLO). Meanwhile, ARELLO is also expanding internationally, supporting non-US regulators in developing and implementing a national regulatory agency.   

Although all these organisations around the world vary in the manner in which they are organised and empowered to act, they all share one consistent goal: The protection of the public.  

The question now is how can this goal be achieved? Well, all of these professional and occupational real estate licensing programmes focus on the following three topics to achieve the common goal: 

  1. Establishing initial qualifications

Under this topic, we can summarise the variety of educational programmes that will ensure that every registered agent shall possess the necessary skills and competencies needed to guide their clients through successful real estate transactions. Apart from educational programmes, individuals who are lacking in “good character” can be banned from entering the real estate profession. These are individuals who were convicted of certain types of crimes. In Germany, for instance, if you owe or once owed a tax payment to the German tax department, you won’t receive a licence to work as a real estate broker.

  1. Ensuring ongoing competency

In regulated real estate markets, the regulators consider it crucial to the efficiency of their system that market participants are always well-informed and well-trained. Their knowledge must be always up-to-date. Consequently, another important task for the regulatory authorities is to ensure the ongoing competency and knowledge of all licensed brokers. In most of the jurisdictions, the continuous education of licensed brokers goes hand in hand with the license renewal requirements. The necessary knowledge and required skills are usually taught in courses provided by approved continuing education providers. 

  1. Defining responsibilities and expectations

Imagine an open market without best practice rules for realtors… The threat that regulatory agencies may fail in such an environment is imminent. Therefore, the legislative enactments or other governmental orders that created real estate regulatory agencies usually include best practice standards that apply to all licensed brokers. Only these common rules and regulations for market participants can create a solid foundation upon which to build effective internal business practices and only they provide an opportunity to compete in a balanced, consistent industry.

Furthermore, those rules and regulations will establish transactional norms and define responsibilities as well as duties for the parties involved in a real estate transaction. For example, brokerage relationship laws may require licensed agents to exercise reasonable skill and care, promptly present all offers and counter offers, disclose material information to the parties and act in the best interest of the client or customer, rather than in the licensee’s own interests.  

I think we can all agree that the success of a regulatory system and with that the protection of the public heavily depends on the ongoing enforcement of the corresponding rules and regulations. For this reason, in almost all of the regulated markets, government-authorised real estate commissions, councils and boards were established to oversee the overall market development and enforce that the licensed brokers adhere to the licensing laws.

These institutional bodies in general are vested with the authority to sanction licensed brokers for violations of the licensing laws. In case of misconduct, such punishment can range from involuntary termination of the licence to less invasive rehabilitation requirements, such as additional education or practice monitoring requirements. The regulatory agency often holds the licensed broker liable for financial losses arising from unintentional errors the licensee makes in a real estate transaction. Special third-party liability insurances and financial recovery fund programmes protect members of the public from such losses.  

To provide transparency and fairness to licensees and the public is another widely and commonly shared aspect of work for real estate regulatory agencies. Therefore, these regulatory bodies are subject to mandates that guarantee open and fair administration of the license laws allowing licensed brokers to be “sure” that they are always treated impartially and just. In fact, such kinds of mandates for the regulatory agencies issued by the jurisdiction often imply rules for transparency: the public must be able to know how the agency is performing its duties.

In most of the regulated markets, the regulatory agencies appoint licensed brokers whose experience and reputation can be considered as extraordinarily positive to join along with representatives of the public, advisory and/or decision-making boards of the regulator. 

Another way to guarantee fair conduct by the regulatory agency is to set limitations on the scope of new rules and regulations. Before the regulator can implement new laws and best practice rules, they are usually required to follow defined procedural steps to ensure that this new regulation or amendment to an existing law or best practice rule is needed and within his authority to act.

Additionally, just like for any other government entity, the real estate regulatory agency’s work is subject to regular reviews conducted by the legislative body that empowered the agency to act. Based on the results of these reviews, the higher authority can understand whether the regulatory agency is conducting its affairs within the scope of the specific powers that were previously delegated to it or going beyond those limits. In the event that the agency’s work goes beyond its set limits, corrective measures are taken from the legislative body.   

It is widely understood that a well-structured and properly functioning regulatory agency can unlock hidden potential and support the striving performance as well as the health of a marketplace. In many markets, the regulatory agency does not only provide the licence to brokers and oversees them but also reaches out and includes related industries such as real estate valuations, contracting and development. Very often, the real estate regulatory agency cooperates with other regulatory agencies in other business segments of an economy to try and support smooth cooperation among its participants wherever and whenever needed.

In early 2018, the government of Qatar released a new law with respect to regulation of real estate brokerage. This law did not come into effect yet, however, it is expected that entities and/or individuals whose business is governed by the law will be required to comply with the rules of this Real Estate Brokerage Law very soon.

The main changes arising from this new law will be, firstly, that the Ministry of Justice (MoJ) will become the regulatory authority for monitoring real estate activities in Qatar, including the activities of real estate brokers, and consequently a Committee of Real Estate Brokers’ Affairs will be established. Secondly, under this new law, individual real estate brokers will be required to pass tests and training courses specified by the Committee to qualify as licensed real estate brokers.

Other rules and regulations of this new law focus on the definition of brokerage and real estate services that fall under this new law, the limitation of brokerage fees to 50% of the monthly rent for brokered leases and 1% of the contract value for a transfer of ownership. They also include disciplinary actions and sanctions for breaches of this new law. The range of possible penalties varies from simple warnings and fines to a forced closure of the business or imprisonment or deportation from Qatar if the person involved is non-Qatari.

In late 2018, Qatar’s MoJ signed a MoU (Memorandum of Understanding) with the Royal Institution of Chartered Surveyors (RICS) from England with regards to the competency-based training, which in future will be provided to the public to support the professional development of the sector.

Together, they will design and implement a mechanism for real estate submissions which shall ensure that all market participants in Qatar will obey local laws and regulations. Further, the cooperation between the MoJ and RICS shall lead to an adoption of other standards, such as the International Property Measurement Standards and the International Valuation Standards. They are aiming to successfully implement these new standards and regulations through the means of frequent public workshops and seminars.

In my opinion, it is obvious that Qatar’s government is currently preparing to attract more outside investors for the local real estate market. Having that in mind, one can understand why this new real estate brokerage laws and recent amendments to existing rules, i.e. the amended law which allows foreigners to buy property in certain areas of Qatar, have been enforced recently or are about to be enforced soon. They shall help to strengthen real estate market transparency, governance and resilience and link the market to the country’s vision and future. This transparency, governance and the affordability of real estate premises will allow investors to evaluate the competitiveness and attractiveness of the national real estate market and hopefully help to attract foreign investors, resulting in an increase in FDI (Foreign Direct Investment). 

Through continuous monitoring of the real estate market and its cycle, Qatar’s government will be able to influence the local market when needed in order to avoid crises of the past and support positive market trends in a way that benefits the economy to remain robust and emerge stronger.

It remains to be seen which direction Qatar’s real estate market will go in the near future. Hopefully, we will see a positive change in the overall market performance in the coming years.