A short history of Abu Dhabi real estate: Part one

This law allowed UAE nationals to own and trade land in Abu Dhabi for the first time. Before then land tenure was on a 'gifted' basis and for the life-long use of the recipient only.

At the same time the new law permits GCC nationals to own freehold land within designated areas while other expatriates can invest on renewable 99-year leases within these zones.

The radical change of land tenure legislation was accompanied by the creation of half-a-dozen new property companies which were granted land in these designated areas. Two of these companies held highly successful initial public offerings - Sorouh and Aldar Properties. Many saw a parallel with the Dubai launch of the Emaar Properties IPO in 1997 and Sheikh Mohammed's ruling on foreign land ownership in 2002.

In 2005 the new Abu Dhabi regime also embarked on an expansive economic investment programme promoting Abu Dhabi as a tourism destination with the formation of a new national airline Etihad and a tourism development body.

There was also a push for industrial development with industrial clusters in a 300 square kilometer zone. Again the model appeared to be Dubai with its successful airline, tourism sector and free zones.

Richest city

However, as AME Info noted at the time: 'It is not as though Abu Dhabi was a laggard in wealth, having achieved a per capita income of $46,185 last year - the highest in the world. But there was definitely a feeling among the UAE nationals living in the city that real estate development was falling behind economic success, and that after a virtual moratorium on building for a decade, Abu Dhabi looked a little neglected in comparison to booming Dubai.'

The irony of course is that Abu Dhabi is a much wealthier city than Dubai. Abu Dhabi sits on 10 per cent of the world's oil reserves and has an accumulated investment fund estimated at $600-850bn from past oil sales. In addition, a friendly attitude to foreign direct investment has meant continuous investment in the most modern oil and gas technology, and rising production levels.

The rush to catch up in terms of real estate development has therefore been considerable, and the iconic property developments now in hand are the response.

The main projects are the $14bn Al Raha Beach suburb from Aldar, the $27bn Saadiyat Island tourism project by the Abu Dhabi Tourism Authority, and the multi-billion Reem Island which features Sorouh's Shams Abu Dhabi flagship project with its 83-storey Sky Tower. But there are numerous much smaller projects like Sorouh's Golf Gardens and Aldar's Al Gurm Resort.

Local support

So far the investment response from the local population has been the driving force behind expansion. The explosion of rents in Abu Dhabi, more than doubling since the launch of the new Property Law, has underpinned enthusiasm for owning new property.

But the real estate boom in neighboring Dubai is at a more advanced stage, and has necessarily drawn away some investor interest from Abu Dhabi. Indeed, many Abu Dhabi nationals are already big investors in Dubai and are therefore happy with their exposure to UAE property.

All the same, international real estate investment funds have shown more interest in Abu Dhabi than Dubai. These funds like to take a very long-term view and they are attracted by the rich natural resources of Abu Dhabi and its reputation for political and economic stability.

They can also see that from a global perspective property in the world's richest per capita city is underpriced, and that an element of catch-up in pricing with other comparable global real estate markets is inevitable over time. At present property in Abu Dhabi sells at a considerable discount to capital cities like Singapore or Mumbai.

Those institutions with deep pockets and the patience to buy early and wait for the Abu Dhabi market to catch up with other major global cities will surely be well rewarded in time. And some foreign investors who missed out on the Dubai boom will be looking down the road for another opportunity.

See also:
A short history of Abu Dhabi real estate: Part two
Abu Dhabi: the next Gulf property boom
A Short History of Dubai Property
Abu Dhabi projects pass the $100 billion mark