This week Aldar Properties advisor Christopher Sims told the City Expansion conference in Abu Dhabi that the emirate plans Dhs1 trillion, or $270 billion, in new construction projects. So how will this huge explosion of real estate development in neighboring Abu Dhabi affect Dubai?
Abu Dhabi has been slow to join the regional real estate boom, but with new property ownership laws in place since last summer, the emirate has already launched several huge projects, including the $14.7 billion Al Raha Beach and $6.8 billion Shams Abu Dhabi project by Sorouh Real Estate.
The development pattern has thus far copied Dubai almost to the letter: a small number of initial projects have attracted headline-grabbing sell-outs, and confirmed the public appetite for real estate in Abu Dhabi. Now the marketing of much larger schemes has begun with attractive financing for investors.
The Gulf News this week ran a full-page advertisement for The Park high-rise towers on the Al Reem Island facing the Abu Dhabi Mall, promoted by Profile Group Properties, with up to 20 years of finance available from Abu Dhabi Islamic Bank for UAE national and non-residents.
It is going to be interesting to see how the UAE responds to such projects at a time when speculative interest in off-plan property buying in Dubai has turned down, with certain developments now selling at negative premiums, i.e. a loss. Equally the emergence of an alternative real estate market within the UAE must have implications for Dubai.
However, the wealth of Abu Dhabi is not to be underestimated, or the desire of its citizens to own property in their own city. Indeed, strictly speaking this is the first opportunity of genuine ownership, as previously gifted properties could not be sold.
There will also be those investors who missed out on the Dubai property boom, and decide to try their luck in Abu Dhabi instead. Only time will tell if this is a viable investment strategy, and much will depend on the pricing policy in Abu Dhabi.
Dubai under-priced initial developments to create a market, will Abu Dhabi follow the same pattern? It remains to be seen, although the Al Gurm upscale villa project, for example, launched with prices from $2.2 million upwards which might be considered on the high side, although in a new real estate market this could be cheap for a luxury, Maldives-style location.
This sort of project may draw public attention away from Dubai. But equally by introducing a new real estate law Abu Dhabi has set itself as a pioneer within the UAE, and is helping to establish owning property as an investment class. Once the mystique and novelty surrounding UAE property is over, then prices can climb to international levels which are much higher.
Quite how long and what ups and downs there are along this road is a moot point. But for a very wealthy country like the UAE establishing a modern real estate market is going to have many spin-off benefits, probably including huge one-off gains for some investors. And that will almost certainly benefit Dubai property in the long-run, even if this looks like unwelcome competition in the short-run.