Abu Dhabi property prices to boom until 2009

The bank's Regional Head of Research, Steve Brice held a press conference this week to launch the latest monthly report which highlighted the announcement from Abu Dhabi at the end of October that it intends to invest more than $175 billion by 2012 in tourism, energy and infrastructure.

Mr. Brice holds that this level of expenditure will underpin the expansion of the UAE economy whatever happens to the oil price. Indeed, he noted that in the late 1990s oil price downturn that the UAE was the only economy to maintain positive growth despite a very sharp fall in oil revenues.

His expectation is that the strength of the diversified UAE economy would again contrast with the performance of neighboring economies if the oil price weakens.

Playing catch-up

But apart from the inherent strength of the UAE economy, his optimism about the outlook for Abu Dhabi property is based on the supply and demand imbalance, and the fact that market reforms are running two years behind Dubai.

'There is an element of catch up,' he says. 'Dubai started building two years before Abu Dhabi and the supply and demand imbalance is if anything greater than in Dubai. Thus we see prices rising strongly until perhaps early 2009 while Doha is set to peak in 2008 and Dubai probably early next year.'

Mr.Brice moved from Singapore to the UAE last year and draws some interesting parallels and contrasts with the lion city of the East whose open market and free trade economy is often held up as the model for the development of the emirates.

The bank has conducted extensive research among its own staff and finds that rental costs in the UAE are now significantly more expensive than in Singapore. And yet the actual purchase cost of homes in Singapore is higher.

Economic reform

This is probably the function of a more established property market with long-term institutional investors who are happy to accept lower rental yields, says Mr. Brice. If that is the case then the implication for UAE property is clear: rents could fall and yet property values stay static or even rise further.

In that case then investors in Abu Dhabi property would seem to be on to a double winner as first they will gain from surging rents and then from capital growth despite a lowering of rental yields.

Mr. Brice is also probably right when he notes that while Singapore is an exciting part of the dynamic Asian economy the immediate outlook is nothing like as hot as an energy capital of the Middle East.