End users fuel new Abu Dhabi growth

UK-based investment house Lewis Charles Securities (LCS) this week announced that they would be launching a fund concentrating on real estate opportunities in Abu Dhabi at the beginning of November.

According to LCS this will make them the first UK fund to go into the emirate.

LCS CEO Stavros Loizou said that the group is reducing potential risk by paying 100% of the value of off plan units up front, thereby eliminating the need for established payment schedules, and securing a discount on final cost.

'A key element in our investment strategy is securing the inbuilt equity available to those able to source cash deals,' Loizou said. 'It reduces the fund's exposure in terms of borrowing (clearly a key concern at the moment) and due to the inbuilt equity realised from day one, it also protects against any market downturn, to quite a significant degree.'

LCS is banking on the supply and demand imbalance that is organically fuelling prices on upcoming developments.

Shift in property investment

The imbalance continues to work in the favour of both investors and developers.

'All of the developments that we have launched in the past have been fully taken up by investors and end users,' Gurjit Singh, chief property development officer at Sorouh Real Estate told AME Info. 'Going forward, we will be very focused now on developments where we can work together with mortgage providers to target market end users.'

Currently year on year appreciations in Abu Dhabi developments are averaging increases of approximately 40%.

'The Abu Dhabi market is quite interesting, the supply issues lag far behind demand,' said Singh. 'That is also coupled with the fact that organic population growth is currently 6% year on year, which is creating a lot of continued demand. There is still a fair amount of strength going forward for real estate in Abu Dhabi, especially due to the shortage. The affordable property segment especially has a lot of potential.'

The credit crisis has prompted a change in the type of investor now looking at the city's real estate sector. As with LCS, many are not seeking a 'safer' investment in which to place their finances rather than concentrating on speculation. This, in turn, is beginning to affect how the city's major developers market their services.

Liquidity gains in importance

'If you put the credit crisis on the table, I think that you'll find that developers have to be smarter in coming to the market from now on. Liquidity is now of paramount importance to the end user so we have to go hand in hand with the finance providers,' said Singh.

'We noticed the shift at Cityscape Dubai. We went with cautious optimism to sell units on the Ark Tower, and we still managed to sell a sizeable number of units, 200 actually. That was a good test for us in terms of the types of consumer coming to the market.

'They are savvy, they want to know if they can get financing, they want to know if the rental income is sustainable on a longer term investment and in the location that they are buying in. And those are normal questions in any other market, but in the past it was quite different, it was a more speculative investor.'

Speculation may have been replaced by end user investment, but the uptake on offered properties continues to be strong.

See also:
Will Abu Dhabi beat the global financial crisis?
Will the global financial crisis affect Abu Dhabi off plan sales