Autumn sales will be the acid test for Abu Dhabi property

Unless the present rally in the UAE stock market rolls over into real estate that looks unlikely this year. Besides in the case of Abu Dhabi the focus is still on the release of off-plan sales, and it is unlikely that developers will put much on the market now before the end of the Holy month of Ramadan which will take up most of September.

The UAE stock market is a useful local confidence indicator, however, and does have an impact on the local real estate market. When the UAE bourse tanked in 2006 after being the world's best performing stock market in 2005, there was an unexpected rally in the local real estate market.

In short, investment funds that would have gone into the UAE stock market looked for a home in real estate instead. Over the past month or so that trend has finally reversed with a sharp rally in UAE stocks and that is worrying developers.

Realty check

Does that mean that speculative investors will now switch back from real estate to the local stock market? It is too early to tell, and some analysts think the present equity rally will soon end, particularly if the US economy slows further in the second half and oil prices decline.

That might send money flowing back into property again in the autumn, especially if the US authorities were forced into a series of rapid interest rate cuts to support the economy. For the rental yields available from Abu Dhabi property would then look very attractive in comparison with keeping money in the bank.

Also if this new period of lower interest rates looked like being a longer term phenomenon then an influx of new buyers and lower borrowing costs would tend to drive up capital values. And Abu Dhabi property still looks relatively cheap if benchmarked against global cities with comparable per capita wealth.

Best buy globally

Indeed, on that basis Abu Dhabi would easily rate as the 'best buy' in global property markets today. That might appear an odd statement to local residents who are surprised by the prices now being achieved in this new market.

But that is the point. A new market has to start from somewhere, and the true level of equilibrium between supply, demand and the cost of capital is almost certainly significantly higher than it is today. So perhaps a hot autumn for Abu Dhabi property is not out of the question at all!