TNI report expects residential real estate shortage in Abu Dhabi to continue till 2010

"Beyond this date, we expect a situation of oversupply to threaten the value of the local property sector. This conclusion is also supported by our belief that the property market is cyclical in nature, and that the sky is not the limit," said Mr. Amer Halawi, TNI Director of Investment Research.

TNI's supply-demand analysis suggests that the future of Abu Dhabi property should be made up of three distinct periods: capacity shortage in the short term, oversupply as of 2010, and reasonable upside over the longer term, essentially due to the structurally beneficial economic growth situation.

"We conclude that Abu Dhabi property exposure is a must for investors, but warn against cyclical fluctuations and extreme volatilities - which may significantly dent performance on the way, as we have seen in the recent past," pointed out Mr. Halawi.

In light of the research report's conclusions, TNI believes that investors wishing to get exposure to Abu Dhabi property should stay away from single, direct equity investments which bring significant volatility and risk.

"Instead, we recommend a diversified portfolio combining equity, fixed income and direct investments, which offer balanced risk across multiple sectors," explained Mr. Hassan Awan, Associate, TNI Investment Research.

One of the catalysts of the real estate boom in Abu Dhabi was Law number 19, which allowed locals to buy land and also permitted foreigners to do the same on a 99-year lease, in selected investment zones. This is something Dubai has done much earlier when it allowed locals to own property in 1997 and foreigners in 2002.

The effect of this law can be seen by the evolution of real estate projects since 2005, when the law was enacted. Major developers in Abu Dhabi were previously offering residential units to UAE nationals only (e.g. projects like Raha Gardens). The neighboring project of Raha Gardens, which was offered for sale in 2007, is open for sale to both expatriates and nationals.

For both Abu Dhabi and Dubai, the future of real estate seems to be dynamic and diverse.

However, Abu Dhabi seems to be keen to promote itself in a different way from Dubai. The ongoing development in the Capital may change the way a potential tourist plans his vacation when coming to the UAE.

"We believe that tourists will visit both Abu Dhabi and Dubai in the future for a combination of cultural and leisure attractions, as opposed to just Dubai today," TNI said in the report.

The Capital has never received significant coverage in the past because of its lack of tourist attractions. The setting up of the Abu Dhabi Tourism Authority and conversion of Reem Island, Saadiyat Island and Yas Island into luxury resorts with mixed-use facilities are all part of the plan to increase tourist traffic to Abu Dhabi.

Tourist traffic to the Emirate has been rising steadily in the recent past. The numbers released by Abu Dhabi Tourism Authority show a 12% rise in tourist arrivals to the Emirate in 2006: 1.34m compared to 1.21m. If the projects currently being developed are a success, the growth rate should be higher in the next four or five years. The Abu Dhabi Tourism Authority expects tourist arrivals to reach 3m by 2015.