Abu Dhabi Real Estate: Racing to Beat Dubai

The famous Dubai  may get all the attention when it comes to hot real estate markets in the Middle East, but Abu Dhabi, the capital of the United …

The famous Dubai  may get all the attention when it comes to hot real estate markets in the Middle East, but Abu Dhabi, the capital of the United Arab Emirates (UAE), is pushing through to the front of the line and demanding to be noticed. Its growing property market is beginning to command a keen interest from global investors.

Abu Dhabi is setting itself up to be the cultural center of the UAE, according to a May article in The Times (U.K.). It wants to become a premier destination for high rolling tourists from all over the Middle East and the world.

In a bid to diversify its oil-based economy, Abu Dhabi is spending close to $200 billion in the tourism and property sectors to get their engines going. It is opening world class museums and hotels. It’s taking its time to build up its infrastructure properly.

Abu Dhabi’s government aims “to make the city into a cultural capital of the region,” Imran Munshi, CEO of Landvest Limited, a company that specializes in promoting real estate investment and luxury home developments in the UAE, said.

Market trendspotters are noticing Abu Dhabi’s efforts and are acquiring property with the hopes that they have arrived before a deluge of speculators descends over the city.

The population and growth of Abu Dhabi is second only to Dubai in the United Arab Emirates Abu Dhabi in brief

Of the seven Emirates that make up the Middle Eastern country of the United Arab Emirates, Abu Dhabi is the biggest by size and second largest by population. Its population is estimated at 1.6 million.

Abu Dhabi City, the nation’s capital, is also the seat for the government of the Emirate itself. It is mostly located on a T-shaped island whose western coast extends into the Persian Gulf but it has suburbs on the mainland, which is less than a quarter of a mile away.

While the Emirate’s economy is oil dependent, the government of Abu Dhabi has been attempting to establish other industries, such as tourism and banking, in recent years.

Abu Dhabi’s economy rang up 98.3 billion dollars in 2007, which was 60 percent of the UAE’s overall gross domestic product (GDP), according to a 2008 report by Colliers International. The non-oil sector, mainly driven by tourism and real estate, grew by 7 percent compared to the year before. The population of Abu Dhabi city, which stands at 900,000, is expected to grow to 1.3 million by 2013.  While only 25 percent of Abu Dhabi residents are citizens of UAE, they have 50 percent of the disposable income.

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The Abu Dhabi real estate market

Long overshadowed by its more glitzy neighbor Dubai, Abu Dhabi is just now beginning to emerge onto the world stage. Until recently, the wealth of the Emirate was a result of its large oil reserves. However, realizing the importance of economic diversification, the government of Abu Dhabi has begun to lay down the foundation for sustainable tourism and banking industries.

The numbers coming out of Emirate’s fast-growing property market are astounding. The construction industry was worth $6.5 billion in 2007, and between 2005 and 2007, the value of land shot up from an average of $540 per square meter to $1,100 per square meter, according to a study by Colliers International. The percentage represented by the Abu Dhabi mortgage market in the UAE is predicted to leap from 5 percent in 2007 to 22 percent this year.

The study also found that office space occupancy rate is at 99 percent. Demand in this property sector mainly comes from growth in the service and banking industries. In addition, the openings of subsidiaries belonging to multinational companies and expansions of existing businesses along with Abu Dhabi’s economic growth have contributed towards maintaining the impressive occupancy rate. Current asking rents are about 25 percent higher than “incumbent neighbors paying passing rents,” according to Colliers International.

With occupancy rate of 98 percent, the residential market is also growing fast and trying to keep up with demand. Rental prices rose by 22 percent in 2008 when compared to figures from 2007.

The price of residential properties in the city rose by 53 percent from January to April of this year when compared to the same period in 2007, a recent article in The National, Abu Dhabi’s English newspaper, reported.

Buyers “tend to be speculators and also [expatriate] end users who have been living and working in Abu Dhabi [but] who have not until recently been able to purchase property locally,” Munshi said.

Buying an Abu Dhabi property

The city of Abu Dhabi doesn’t have a good public transportation system and suffers from traffic problems, according to an article in Overseas Property Mall. This is especially uncomfortable during the hottest months, April to September. Properties on islands close by, such as Saadiyat, less than a mile away from the downtown area, are better investment choices.

Foreign buyers who are not citizens of Gulf Cooperation Council countries can only buy property on the basis of renewable 99-year leases. In addition, these purchases are restricted to government-assigned “Investment Areas.” Off-plan property buyers must research and choose their real estate agents carefully. An agent with good connections to reputable developers is important when purchasing property that is not yet built and available for close inspection.

“All property is currently sold on 99-year leasehold basis with a UAE residence visa,” Munshi said. Having property doesn’t necessarily translate to permanent resident visa rights.

Abu Dhabi doesn’t have property taxes. All capital gains from property appreciation and rental fees are tax-free. However, for property sales, there is a registration fee of 2 percent. A 10 percent down payment is required to purchase real estate. Available mortgages usually cover up to 90 percent of the property value. Related service charges are paid in advance yearly.

The next few years

The resemblance between the current Abu Dhabi property market and that of the early real estate days of Dubai is uncanny, according to a recent article in AME Info, an online Middle East business resource. Its beginning was slow but now that it has begun, Abu Dhabi’s property market, just as Dubai’s did, is likely going to continue its brisk growth into the foreseeable future.

Real estate prices in the Emirate are expected to climb as much as 25 percent in 2008, according to an HSBC study. “Despite runaway prices HSBC said prices were still low compared to other major cities around the world such as London, Paris or Zurich,” according to Arabian Business.

International Property Investment also painted a picture of a growing real estate market by reiterating the fact that the Abu Dhabi real estate market is expected to experience an uptick in short term demand because of current scarcity in the market. This, in turn, will keep prices climbing for at least the next five to seven years.

Property prices in Abu Dhabi are already similar to those of Dubai, according to Munshi. However, it is expected that Abu Dhabi will overtake Dubai with in the next couple of years. “One feels the superior infrastructure of Abu Dhabi will most certainly [make it] a more favorable investment haven than Dubai in the long term [especially] with its strategic alliances with some of the most high profile brands in the world including Louvre museum of France and Guggenheim,” he said.

“The next few years will most certainly see a boom,” Munshi said. “Off-plan developments that are being released tend to sell out in a couple of weeks at the most.” He said he estimated yearly residential property appreciation of about 15 percent, and 12 percent for rental income. For commercial properties the estimates are even higher—at least 20 percent appreciation, with rental incomes climbing about 18 percent year for the foreseeable future.

Indeed, Dubai had better watch out. Another hot real estate market has been born in the United Arab Emirates. Abu Dhabi is calling.


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