Abu Dhabi real estate faces a tricky year ahead

Neighbouring Dubai has its bedrock of at least 35,000 units that have been delivered and completed since freehold sales began more than six years ago, while 46,000 are under development as off-plan units, according to the emirate's Real Estate Regulatory Authority (Rera).

Abu Dhabi followed three years later with its first sales to foreigners, benchmarked against the much higher prices achieved in Dubai at that time than in 2002, and has still to deliver a single completed apartment to its new owners.

In Dubai, Rera has been working furiously for the past 18 months to bring a formerly open and informal property market under the kind of regulatory framework seen in other parts of the world, establishing trust accounts for off-plan deposits and handling complaints from buyers and seeking amicable solutions with developers.

Immature market

The word often used is that the Dubai property market is more 'mature' - and that refers not just to its chronological age but the number of properties actually delivered and the regulatory framework.

Clearly it has been helpful that Dubai has been able to sort its real estate market's inevitable growing problems out before the market faced a downturn.

Abu Dhabi does not now have that advantage, and the evidence of the market downturn is obvious, although some off-plan sales have still been concluded in the UAE capital this autumn and sales have not come to a complete halt like in Dubai. However, sales are much slower and anybody trying to flip an off-plan unit can forget about it.

The problem going forward is that everybody who has bought in Abu Dhabi has paid much higher prices than the early buyers in Dubai. It is true, however, that prices are up by an average of 89% in 2008, according to Colliers International, which does give some cushion against a downturn to many buyers.

2009 correction

But this still leaves open the extraordinary conclusion that in 2009 we are likely to see a correction in Abu Dhabi property prices before a single unit has been handed over.

No doubt as in Dubai there are cases of units now changing hands for less than their original prices because owners desperately need the money to repay stock market margin loans or other debts from the global financial crash this autumn.

Anybody looking to buy a unit in the UAE capital today is going to be keenly watching for these opportunities, and that just has to mean that prices are falling in reality.

How steep will this correction get? That is really the big issue for Abu Dhabi property going into 2009. It will be hard for such a new market to sustain buyer confidence and avoid a meaningful correction.

But Abu Dhabi is a special place with financial reserves like no other city on earth, and going forward new sources of mortgage finance will be the key to avoiding a realty slump, provided action is taken fast enough.

See also:
Sorouh to aid sub developers 'if necessary'
Abu Dhabi 'able to finance' all current real estate projects
Abu Dhabi developers change focus to suit financial constraints