Cost of property

In the last few years Abu Dhabi has overtaken neighbouring Dubai as the hot ticket for investor interest.

Nominated by real estate services company Jones Lang Lasalle as a 'World Winning City' in the making, forecasting that the city would be a regional hub by 2015, and with a glut of development projects underway, the predicted growth rate looks set to continue for the foreseeable future.

Reports by investment houses Morgan Stanley and EFG Hermes have both concluded that prices in Abu Dhabi's real estate sector are almost certain to keep rising, at double digit rates, until 2012.

Indeed, Abu Dhabi's Department of Planning and the Economy (DPE) puts figures for the growth rate in the real estate sector at 23% per year.

'A structural shortage of good quality space across the various types of real estate, combined with pent-up demand and strong immigration growth prospects underpin the supply-and-demand dynamics of the emirate's real estate market,' states the EFG Hermes study.

The rise is driven by the acute shortage of both commercial and residential units in the emirate, which at present are not even numerous enough to cater to the city's existing population.

The Morgan Stanley report highlights this by pointing to the city's estimated current, and forecast, figures. Assuming 180,000 units for a population of just under one million in 2007, the number of units does not begin to account for the demand until approximately 2012, when and estimated 278,000 homes will cater for a population of 1.5 million.

'Everything is off-plan,' says Fadi Antar of Better Homes. 'We're expecting units to start coming online from mid-to-end 2009 on the offshore developments, Al Reef may be sooner.

'Our expectations of the market are in line with the Morgan Stanley report, it'll keep growing. The Grand Prix is scheduled for Autumn 2009 so most of the development on Yas Island will be ready by around March.'

'There's going to be a dramatic undersupply for many years yet if you look at the figures and the sheer amount of people coming in,' agrees LLJ Property's Andrew Covill.

This is good news for those looking to invest in property, the shortage - a result of the emirate's 1990s moratorium on building - means that demand will surpass supply for the foreseeable future.

The plethora of announced projects that are set to come online over the next few years will only be catering to the city's existing needs, and a report by Colliers International shows that prices have already risen by 53% in the 12 months to May this year.

In conjunction with this, however, the bad news for potential investors is that getting hold of available opportunities is made harder by the scarcity, and the financial bar for entry-level properties is set that much higher as a result.

Potential buyers will also find that very few ready-built units are available to them, the vast majority of projects will be selling on an off-plan basis.

Speculative buyers

With a Royal Institution of Chartered Surveyors report placing around 80% of sales in Abu Dhabi as speculative investments, local developers have begun to try to discourage overheating of the market.

Aldar Properties, the developer of the Raha project, has announced that it will be bringing in measures to monitor the resale of off plan contracts, while Al Qudra Holding charge a fee of 2% on the current market value of a unit on all transfers.

'The market after Cityscape Abu Dhabi was just too hot, sellers were being unrealistic. It needed a while to settle down, so the summer 'lull' has given it that. Prices were very, very low before, so any increase looked like a large percentage, but it's become more mature now. If the sellers are realistic they'll find buyers,' says Covill.

'There aren't that many options in terms of communities, Al Reem and Al Raha developments account for two thirds of the market: But there is a lot within these communities. Al Reem Island has approximately 70,000 mixed use units and Raha Beach has about 40,000,' notes Antar.

'But over the next nine months we're going to see a lot of new developments announced.'

Government investment and legislative changes

Although the sale of freehold property is still not feasible, recent initiatives by the Abu Dhabi government in order to attract investment by non-nationals includes allowing foreigners to own units on a 99-year lease basis.

The government has also announced plans to invest $275bn on infrastructure and real estate projects over the next five years.

These projects; including the Saadiyat, Yas Island, Reem Island and Capital City developments amongst others, are being carefully overseen by the authorities.

Abu Dhabi's relative youth on the international property circuit and room for growth means that the government can keep a tight rein on the sector, monitoring the release of units to ensure that the market is not flooded with thousands of new units at any one time and keeping prices buoyant and demand high.

'Given the current supply and demand dynamics, where supply is not expected to catch up with demand over the next 18-24 months at least, prices and rents will continue to rise in all the real estate segments,' Says EFG Hermes.

Abu Dhabi is also setting itself up for the future with its Plan 2030. The bringing in of brands such as the Louvre and Guggenheim, for the first time outside of their respective countries, shows how committed it is.

The vast oil-driven wealth that is driving the emirate's growth forward is another guarantee of investment security. The government has the ability, and the will, to step in should the market look to be in difficulty.

'Dubai is more established, Abu Dhabi is a bit younger, but you've got to look at the wealth behind it and the master planning. I firmly believe in it, it's got a long way to go,' says Covill.

'There is still so much to come that hasn't yet been unveiled, it's only the tip of the iceberg.'