Abu Dhabi offers strong investor potential

Attempts to measure both best-case and worst-case scenarios in the UAE's real estate sector have been met with calls for caution by some experts.

Recent reports by Morgan Stanley - from a series entitled 'Winners and Losers in MENA Property' - indicated that the market will continue to be bullish, with substantial growth over the coming two-to-three years.

Yet they also outlined the potential outcome in the event of a market downturn - especially pertinent in the wake of the recent economic slump elsewhere in the world - based upon the model of Singapore after the Asian financial crisis.

Eamon Alashkar, Head of Capital Investment for Colliers International advises investors to be cautious, regardless of such models. 'Neither the Abu Dhabi nor Dubai markets have been tested so there is no way to predict market behaviour within them.'

The distinctiveness and relative youth of these markets makes it exceptionally difficult to anticipate the way it will move. He is wary of attempts in the report to predict the size of any correction: 'It is very difficult to quantify a price correction, since there is insufficient information about investors, their motivations and their objectives. It is therefore very difficult to estimate the size of a correction should one occur.'

The property markets of the two emirates are themselves both discreet and yet closely linked. A downturn in Dubai could impact the sector in Abu Dhabi, a caveat that Alashkar submits: 'The question of how a downward adjustment of prices in the Dubai real estate market should it occur, will affect Abu Dhabi real estate appears to be on everybody's mind, but is at the moment very difficult to predict.'

Nonetheless, he indicates that Abu Dhabi currently presents itself as a strong investment option when compared to the neighbouring market of Dubai - a more international, speculative market which could be more susceptible to credit woes.

'Abu Dhabi appears to be emerging as a carefully planned urban environment, with the growth of the city's real estate market basing itself on strong fundamental growth factors, and less room for speculating investment activity. Abu Dhabi currently suffers from a well publicised supply-side shortage. This combined with the influences of local liquidity, as well as the appetite for investment into the real estate asset class, has served to accelerate upward price movement to unprecedented levels.'

Analyst Mai Attia, author of the Morgan Stanley reports, cites Abu Dhabi as one of the main drivers of the sector's enlargement in the Mena region. Prices have been especially buoyant recently. Bolstered by oil wealth and local investment, the emirate is arguably better protected than its peers from global credit crisis that has sent tremors across global investment markets.

Conversely, overheated Dubai could face a price correction in the real estate sector within the next two years, according to latest predictions. 'If we base our projections purely on a demand-supply analysis, we can expect a price correction to occur within 18 months time assuming developments underway at present complete and deliver usable space,' says Alashkar.

'But what the global financial crisis could mean is that the point of correction may be sooner as liquidity tightens, than would otherwise occur if the city's demand-supply dynamic was left uninfluenced by externalities.'