Abu Dhabi property still an excellent buy

At today's oil price there is $260m a day flowing into Abu Dhabi, or an annual income of $94.9bn.

An oil price of $104 a barrel compares with the modest $32 a barrel the emirate needs to fulfill its annual budgetary requirements.

It is an enormous natural bounty, however you look at it. And in Abu Dhabi today there is 100% occupancy of office and retail space and almost no availability in the residential rental market.

At the same time the government has embarked on its most ambitious building schemes since the 1960s and 1970s with the creation of a series of massive companies.

These projects are barely mobilized on site and work will stretch for many years into the future. Unlimited finance has met unlimited ambitions with projects like the museum island and its largest-in-the-world Guggenheim and Middle East branch of the Louvre museum.

Not surprisingly this nascent property market is entirely off-plan at the moment, and not a single apartment for foreign buyers has been completed, and only a few hundred villas for nationals. It has therefore assumed something of the nature of a speculative bubble like Dubai in its early days of property ownership for foreigners.

However, without arousing the enthusiasm of potential buyers in this way there would be no market. You only get a real estate market going by offering the prospect of some fairly spectacular gains. But the Abu Dhabi Government is not about to let off-plan collapse in a heap.

Dubai is clearly the model that is being followed - and that is perfectly reasonable given recent experience and as another emirate of the UAE federation. On this model we should expect the off plan market to now be gradually regulated and channelled into more modest, but sustainable levels of house price growth.

As in Dubai the best buys in the off plan space will be from those companies with the best reputations, financial banking and the best locations. Abu Dhabi has yet to experience any of the scandals now besetting the off plan market in Dubai but it is a fair guess that in due course not every scheme will deliver exactly as promised.

At this stage in the cycle Abu Dhabi property is still on a strong upward path. It is a stage in which investors can still reap handsome rewards, if not exactly as much as the pioneers of a year ago. Corrections are always possible in emerging markets but highly unlikely in the context of a red hot economy like the UAE, unless the Abu Dhabi Government fails to curb the worst excesses and it still has plenty of time to do that.


See also:
Aldar leads the way in resale monitoring
Abu Dhabi property price increases 'certain'
Abu Dhabi property prices to increase until 2012