Despite the speed of construction in some parts of the UAE, the capital is taking a cautious, controlled approach.
With an estimated $200 billion in real estate development projects in hand, Abu Dhabi is all set to be transformed into a destination of the future. Construction cranes are sprouting like mushrooms in the UAE capital, which is currently undergoing one of its most significant and sustained growth periods.
Strong economic growth, population increases and the partial re-direction of the petrodollar liquidity investment away from traditional US and European markets and into the Middle East and North Africa (MENA) region have contributed to the flurry of real estate activities in Abu Dhabi.
According to Falah Al Ahbabi, General Manager of the Abu Dhabi Planning Council, "There is a real demand throughout Abu Dhabi for commercial and residential units which we are only starting to be able to supply. By simultaneously investing in tourism, industry, education and other key sectors, the Abu Dhabi Government is ensuring that the demand stretches far into the future."
Abu Dhabi is expected to have two million residents by 2020. Around 411,000 residential units are expected to be completed by that date. "The publication of Plan Abu Dhabi 2030 marks a crucial stage in planning for that growth — not only in ensuring that the area is available for housing, but that other infrastructural elements such as transport are taken into full consideration. It is simply not enough to invest in growth. This growth must be sustainable and it must occur in the right areas," says Ahbabi.
Saadiyat Island, Al Raha Beach, Danet Abu Dhabi, Najmat Abu Dhabi, Shams Abu Dhabi and Capital Centre are among the major real estate projects in Abu Dhabi that have been unveiled over the last 18-24 months. Shams Abu Dhabi, Sorouh's flagship project, is a Dh25 billion landmark development on Al Reem Island.
It is a complete new city for 55,000 residents and will be completed in 2013. The Gate District at Shams Abu Dhabi is a cluster of eight towers located at the entrance to Shams. The Dh11 billion residential, office and retail development also includes the 74-storey Sky Tower and the 63 Sun Tower.
According to Masood Al Awar, Executive Director, Sales and Marketing, Sorouh Real Estate, "The market is in fine shape and all indicators tell us that demand for residential and commercial property within Abu Dhabi will grow well into the future. Over the past year, residential property prices and rents have continued to increase, fuelled by growing demand, but supply is expected to draw nearer to demand in Abu Dhabi for the next 15 years."
According to figures revealed at the Abu Dhabi Real Estate and Investment Show 2008, the demand for smaller residential units in Abu Dhabi will surge to an estimated 100,000 units within the next five years. Speaking at the Show, Saeed Al Mullah, Business Manager of Sorouh Real estate, said, "We are racing against time. The future of the property sector in Abu Dhabi is so promising that property developers may not cope with the increasing demand for residential units, shopping malls and many other facilities."
According to him, Abu Dhabi will soon witness a remarkable growth in its economy and investment with the setting up of 30 industrial clusters spread across more than 300 square kilometres of land within the next seven years. The clusters will include metal, chemical and petrochemicals, food processing industries, construction and building materials, wood and furniture, oil and gas services and automobiles.
Speaking at Cityscape Abu Dhabi 2007, Al Ahbabi dismissed notions of cataclysmic growth in the emirate and said, "Abu Dhabi needs to grow and it will continue to grow, but our future will not be hostage to uncontrolled expansion. Abu Dhabi will continue its progress of measured growth reflecting a sustainable economy. We don't want a situation where there is too much development or just one kind of development taking place."
Sustained development
The vision of this controlled, sustained development of the city is clearly the key to understanding the current energy of Abu Dhabi's real estate investments. It has created an environment in which developers have confidence in the marketplace and the ability of the Abu Dhabi government to facilitate their developments.
Some of the other developments in the UAE capital, include Aldar's Al Raha Beach, which will be the new gateway to Abu Dhabi (comprising 11 villages with unique style and appeal); Tamouh Investments' Marina Square on Al Reem Island (which will consist of 70 per cent residential and 30 per cent commercial districts); the Beach Towers Project by the Al Badie Group; and the Hydra Village launched by Hydra Properties (located at the entrance to Abu Dhabi, this will be a self-sustaining small scale city).
According to Ian Albert, Regional Director, Colliers International, "The regulatory reform has played a decisive role in the Abu Dhabi real estate sector. In March 2005, property laws were amended to allow UAE nationals to trade in property that they owned for longer than five years. This was followed by Law 3 in August 2005 — Regulating the Registration of Real Property in the Emirate of Abu Dhabi. This law contained provisions for ownership, leasing and mortgaging of immovable property in Abu Dhabi."
"It also conferred ownership rights to UAE nationals, GCC nationals and international investors. UAE nationals are now able to own land and property anywhere in Abu Dhabi under freehold titles, GCC nationals can obtain free titles within designated 'investment areas' (including Al Reem Island and Al Raha Beach), and international investors outside the GCC can own property within these investment areas, under a renewable 99-year leasehold agreement.
"The impact of this regulatory reform is evident when you consider that the value of the real estate construction sector jumper 173 per cent between 2005 and 2006. The value of this sector was estimated at more than $6.5 billion last year," says Albert.
Compared to the rapid pace of development in Dubai, Abu Dhabi has a more measured approach. Research by Colliers International has shown that with 90 per cent of the UAE's oil reserves, Abu Dhabi remains an economy underpinned by hydrocarbon revenues. Despite the notable progress of economic diversification into the industrial, tourism and real estate sectors, Abu Dhabi does not share Dubai's imperative of becoming the business, leisure and tourism hub of the Middle East and South Asia.
"We do not anticipate a repeat of the speculation-driven development witnessed in certain locations of Dubai. Indeed, investment activity in Abu Dhabi's real estate sector has been dominated by UAE nationals thus far, providing a solid basis for the market moving forward.
"This has fostered increased confidence on the part of GCC and non-GCC nationals looking at Abu Dhabi for investment opportunities. On the residential front for example, the emirate's share of the UAE mortgage market is expected to increase from five per cent last year to 22 per cent in 2008," said Albert.
It is important to remember that the city of Abu Dhabi is itself an island, and the capital's long term growth will be inland and on the surrounding Al Yas, Saadiyat and Lulu islands.
According to Albert, while the next three years will see the completion of mixed-use developments on Abu Dhabi island, the majority of forthcoming supply for office, residential, retail and hospitality components beyond 2010 will be concentrated on the designated 'investment areas' of Al Raha Beach and Al Reem Island, coupled with real estate products supporting tourism developments on Al Yas and Saadiyat islands.
The added advantage of this growth pattern is the minimal disruption caused to existing residents and visitors by the city's expansion.
According to the Urban Planning Council, 251,000 units will be required in 2013 (against a current supply of 180,000), with 2.5 million square metres of office space needed by the same year (against a current supply of 1.4 million square metres).
"We expect the next two years to be characterised by the absorption of excess demand, for both office and residential products. This high demand is due to a chronic undersupply across the real estate market at present, caused by the imposition of a construction moratorium between 1999 and 2001. This has manifested itself in the sharp growth of rental transaction values for residential units and office space — registered at 22 per cent and 43 per cent respectively in 2006.
"Whilst the rent cap has depressed the extent of growth in 2007, asking rents for new tenants continue to escalate due to supply constraints. For example, estimates have placed the current housing shortage at almost 50,000 units," says Albert.
