Buyers should look beyond $354bn investments

A new 50-page report from the Abu Dhabi Chamber has highlighted $272bn in planned investments in the emirate over the next five years.

The study claimed the total value of projects planned topped $354bn of which more than half are in the construction sector. Abu Dhabi's GDP rose by 18% last year and will increase by 14% this year, says the report.

Investments from 2008-2012 are cited at $205bn for construction and real estate, $63bn for tourism, $52bn for manufacturing, $25bn for oil and gas, and $14bn for utilities.

All sectors are expected to maintain high growth rates with industry the second largest component after oil. And 65% of investment is coming from the private sector, which includes companies with large government stakes, forecast to peak as a percentage share worth $25bn in 2008.

Investment-led

To say that the Abu Dhabi economy is investment-led would be something of an understatement. There is clearly a huge amount of domestic inward investment coming up on the back of the oil boom. Abu Dhabi is earning around $375m a day from oil revenues, an annualized $137bn.

Investing into real estate against this economic backdrop ought to be a no-brainer. However, all that glitters is not gold and property buyers should exercise caution in entering this very new property market.

In particular, be careful with whom you are dealing. All the real estate companies are very young and growing very fast, and not all will prove reputable and reliable concerns. Be especially wary of quick construction time promises, and look for evidence of good forward planning on construction costs.

Off-plan speculation is exploding in this market, and again it is important not to lose your head. The Burj Dubai is being used as a benchmark for prestige property in Abu Dhabi, as one might reasonably expect, but it is for the buyer to decide whether this benchmark is really justified.

Overpaying

Overpaying for off-plan in the expectation of flipping it to another buyer in the near future might be a nice way to turn a quick profit but is not a long-term business model, and late comers are going to get their fingers burnt on this speculative activity.

The other big worry with regard to Abu Dhabi property is that there is such hype - and this report from the Abu Dhabi Chamber is typical of hype that knows no bounds - that reality just has to disappoint expectations. And disappointed expectations in real estate can be very expensive, especially in a market with no completed property actually available for sale to foreigners.

What happens when the oil price cools, as one day it must unless we are to believe that the industrialized world can continue its economic expansion with $125 plus oil?

It is hard to imagine that all these projects will then go ahead, and today's buyers who choose the best locations from the best developers at the best prices will be glad their kept their heads.