It's pretty much business as normal at Lusail, a half-built metropolis north of Doha's main corniche. At least 20 cranes dot the dusty skyline as a dozen workers toil on the roof of a hotel site overlooking a new artificial island. Trucks ply around a giant mound of sand.
If the coronavirus, global economic squeeze and the future of hydrocarbons are raising questions about the viability of projects across the Gulf, you'd never know it from the scene in Qatar.
With two years to go before the tiny peninsula hosts the soccer World Cup, one of the richest countries on the planet per capita is doing what it knows best: spending its vast wealth from exporting natural gas on the latest stage of Doha's transformation into a global business and transit hub that's meant to rival regional neighbors Dubai and Abu Dhabi.
Yet the question many foreign residents and Qataris are increasingly asking is whether it's a model from a now bygone era. The concern, like in much of the Gulf, is that the vaunted economic diversification mainly rests on heavily subsidized real estate development, and it's not clear what—or who—will be left when sports fans have departed and stadiums have been dismantled.
The pandemic may have done little to dent Qatar's ambition, yet it's highlighted the transience of expatriate life across the region. That's a significant threat to a place so reliant on foreign workers to occupy its ever-expanding supply of apartments and offices and to shop in its many malls.
The coronavirus has postponed what was supposed to trough after years of falling real estate prices, said Pawel Banach, who manages the Qatar branch of real estate consultancy ValuStrat.
"If we can exit the crisis quickly then maybe until 2022 at least it will be a healthy situation," he said. "Population is a problem. How to attract more people to come to Qatar, that's the major thing."
The number of citizens and residents in the country sank by 78,000 people between the end of March and October. While that's just a decline of 2.8%, strict rules still hinder most travel. Earlier this year, Oxford Economics estimated that Qatar, the UAE and other Gulf countries could see a drop of 10%.
Indeed, it's difficult to square concrete with demographics. Just 12% of Qatar's 2.7 million residents and 5% of its workforce are local, and gaining citizenship is virtually impossible. Some 60% of Qatar's population lived in communal facilities for low-income, mostly male migrant workers, as of the last census in 2015.
The country's riches allowed it "to sustain the old model of hydrocarbon revenues, public sector dominance, citizen welfare, transient expats and slow diversification much longer than other Gulf states," according to Hasnain Malik, chief equity strategist at emerging markets research company Tellimer. "It also reduces the incentive to push on with much deeper reform."
The economy grew by 9.3% between 2011 and 2019, even though falling commodity prices kept growth in the energy industry on hold. Almost half of that expansion came from building and real estate, underpinned by a wave of government spending on preparations for the quadrennial soccer showpiece.
Signs of oversupply are everywhere. Empty high-rises dot even sought-after neighborhoods, with more construction underway next door. ValuStrat put the excess of residential property at 80,000 units in the first half, with another 7,250 new properties expected to hit the market by the end of the year.
The new city of Lusail is only expected exacerbate this. When complete it's supposed to house more than 200,000 people, scattered among apartments, houses and luxury villas.
Foreigners have shown only limited interest. Roughly 20% of the plots on one of Lusail's artificial islands sold at an auction last year were bought by non-Qataris, according to the broker in charge of the sale, Just Real Estate Chairman Nasser Al Ansari. Foreigners could account for a larger share of the buyers at a similar auction next month, he said.
A new law that expanded the specific zones where foreigners can own property was announced in October, and also came with a route to residency for homes starting at the equivalent of about $200,000.
The flood of new real estate was a concern even before Covid-19 hit. Pre-pandemic forecasts from Cushman & Wakefield saw residential occupancy dropping to 80% in 2021, down from a high of 94% in 2015. Office rents were already falling.
With less cash from energy sales coming in, the government has sought to cut spending, and in ways that could force more expats to leave. Qatar's Finance Ministry pushed ministries and government-owned entities to slash foreigners' wage bills by 30%, though it let them choose whether to cut salaries or jobs.
Qatar is transitioning toward a more "knowledge-based" economy, said Ali Al Kuwari, the minister of commerce and industry. Economic diversification will draw talented foreigners "who are going to want to come here and stay here and invest and buy properties and buy cars, and continue to live here even if they're out of jobs for one or two months for whatever reason," he said.
Yet nurturing industries outside energy and real estate has been slow going. The Qatar Financial Centre in Doha has attracted some interest—UBS Group AG announced plans this month for a wealth management business—but overall the size of the financial services industry remains less than half that of the UAE.
The Qatari emir's mother and sister are leading an effort to build an education, research and technology hub tied to the university system, but have yet to attract much private investment.
Still, the coronavirus offers an ominous preview of dynamics that may only become clear after the World Cup, as the people needed to produce the event disappear. It may be only then that the "true burden" of debt related to real estate development becomes apparent, said Malik at Tellimer.
That said, Qatar has its eye on another event to bring in people. In July, the country announced its plan to bid for the 2032 Olympic Games.
Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement