Abu Dhabi 'able to finance' all current real estate projects

Indeed, conservative estimates from the International Monetary Fund place the emirate's sovereign wealth at between $250bn and $750bn.

A report by Citi has further found that, though a sustained credit crunch would curtail long term price rises, it would not have any effect on the demand for real estate units in the city.

'Abu Dhabi is able to finance all of its current projects in progress,' say report authors Hasnain Malik and David Spiez. 'Even if this is eroded by poor investment returns in 2008 and if low oil prices erode this further in 2009/2010.'

The backbone of the market, the enormous supply and demand imbalance, is set to remain constant - providing confidence to a market that has seen values in neighbouring cities plummet.

Sector not reliant on outside demand

No additional demand is needed to account for the oncoming supply, at least until the end of 2011, the report confirms.

This is based on population growth estimates of an average of 5% annually in the emirate, and shrinking household sizes, which is predicted to still leave a shortage of approximately 30,000 units by 2012 - meaning that the sector's future growth is essentially self-reliant.

Nor are external economic factors likely to cause projects to be put on hold: 'Foreign finance is not needed to make projects underway viable, but declining purchasing power may reduce future price growth. Greater reliance on domestic buyers and financing may be accompanied by more restrictions on foreign equity ownership.'

This underlines a move by Sorouh in November, when the company reduced its foreign ownership limit from 20% to 15%.

The creation of the government-backed Emirates Development Bank, which include finance providers Amlak and Tamweel, and the launch of Abu Dhabi Finance - a joint endeavour by Aldar, Sorouh and three partners - will serve to ensure continued domestic access to liquidity for investors in the city's real estate sector, further driving the market.

Government backing mitigates risk

'Both Aldar and Sorouh [the city's two biggest developers] have substantial funding requirements in order to realise the full value of their land banks,' the report states.

'The current poor credit environment globally cuts off some of the potential sources of funding but we believe that the flexibility of developer business models and the backing of the Abu Dhabi government substantially mitigate this risk.

'If oil prices average $75 in 2009 then the rate of addition to the current account surplus will drop sharply but remain positive, on our estimates. An oil price of $50 would lead to a current account deficit in 2009, but this would follow a substantial 2008 addition to the current account surplus.'

It is also worth noting that the mostly foreign driven interest in Dubai's real estate market presents a much smaller part of Abu Dhabi's property sector. The city's major developers also have the option of turning from producing sales-targeted developments to a business model of keeping control of assets and leasing out completed units - thus driving guaranteed income revenues.

See also:
Abu Dhabi real estate and finance houses create joint lender
Abu Dhabi developers change focus to suit financial constraints
Will Abu Dhabi beat the global financial crisis?