Challenges ahead for Abu Dhabi property in 2007

Challenges ahead for Abu Dhabi property in 2007

Abu Dhabi Property Abu Dhabi Real Estate

The most recent Gulf State to join the wave of property ownership reform, Abu Dhabi is both uniquely well advantaged and determined to move ahead in 2007. There will be the first sales of off-plan apartments to foreigners on 99-year renewable leases, and the mobilization of huge construction sites.

But this is also going to be a year of considerable challenges for the sector which is somewhat late to market. The main danger is that market conditions will change. That might mean a softening of oil prices, or a downturn in the neighboring Dubai market where Abu Dhabi investors have been very active.

However, Abu Dhabi is the wealthiest city in the world per capita, with both 10 per cent of the world’s oil in the ground and an estimated $500 billion investment fund, and if deep pockets are required to overcome short-term market changes then this emirate is uniquely advantaged. Even in the worst possible circumstances Abu Dhabi will not run out of money.

Very wealthy city
This is unusual in the world of property development where high leverage, big risks and big gains for the astute or lucky are the name of the game. Abu Dhabi is more like a very wealthy person who decides to build themselves a new house; market conditions are irrelevant, it is the new house that counts.

It is this environment that makes Abu Dhabi attractive to global property funds who prize security of asset values above the opportunity to make a fast buck.

Yet if the Dubai off-plan property bubble implodes in 2007 this will present Abu Dhabi real estate companies with a challenge, as buyers would certainly take fright. Their response would likely be to keep on building in the knowledge that by the time high-rise developments were completed the sales would materialize, or else the developers would have to treat their units as rental property.

Innovation necessary
At the same time, Abu Dhabi developers are adopting innovative methods to find the contractors and building materials required to mobilize huge construction sites in the face of the competing demand from the boom in the other emirates.

Expect to see more contractor joint ventures like the one announced by Aldar Properties as this may be the only way to secure the necessary construction capacity.

All over the Middle East the oil boom is putting immense pressure on the existing supply of human resources, and recruiting such talent abroad and training people to work under local conditions takes valuable time.

This factor and the inflation in building material costs and shortages of supply are likely to plague the industry even more in 2007 than in 2006 as construction programs hit peak levels. What it means in practical terms is that delays to projects will be an increasing factor in the marketplace.

But for Abu Dhabi property 2007 will be an exciting year as the vision starts to become a reality and much more off-plan property becomes available.

Source: AME Info