Stock market crash and rents boost Abu Dhabi realty outlook

Take the 2006 UAE stock market crash and Dubai property.

When local stocks came tumbling down many thought the end of the Dubai real estate boom was on the cards.

In fact what happened was quite the opposite. Investors who pulled money out of stocks bought property, and those who might have put their money into stocks decided to buy real estate instead. Dubai property prices have more than doubled since the 2006 stock market crash.

Will we see the same thing now in the fledgling property market of Abu Dhabi where not a single apartment has been delivered yet for a foreign buyer?

Dubai precedent

Well, you really only need to look at the 2006 experience in Dubai for an answer to that question. Besides the supply and demand position in Abu Dhabi for completed property, which underpins the off-plan market, is extremely strong.

Last week's report from property consultants Asteco showed that rents continued to surge in the UAE capital in the third quarter with increases of up to 36%. The average cost of renting a home in Abu Dhabi is now on a par with central areas of London and New York.

A survey by rivals Jones Lang LaSalle said the UAE will offer the best performing global real estate market over the next one to two years, with investors particularly confident about the future performance of the Abu Dhabi market where projects worth over $500bn have been announced.

Jones Lang LaSalle said the Gulf region offers strong relative international value with 8%-8.5% yields for prime commercial property. On an annualized basis, Abu Dhabi residential rentals jumped an amazing 87%.

Prices double

Residential property investors in the UAE capital have also enjoyed a near doubling of capital values. The problem of course is that off-plan buyers will have to wait for their properties to be delivered to benefit from the high rents, either as landlords or end-users saving on their annual housing costs.

However, it is very hard to imagine a worst-case scenario of a collapse in the Abu Dhabi off-plan market before actual delivery. It is certainly possible that off-plan premiums will go through a correction phase, and that might leave late-buyers with high gearing in difficulty.

But having a few over-stretched speculators is not the same as a general collapse in market confidence with all investors heading for the exit at the same time.

That might well happen in stock markets, and the present situation in UAE bourses is not far removed from this phenomenon. But where do investors put their money locally if they abandon stocks? Abu Dhabi real estate will likely be a major beneficiary.


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