* Abu Dhabi property market recovery as fast as Dubai's
* Government intervention appears to be succeeding
* Scrapping of rent cap encourages investors
* Glut of supply will be risk without jobs growth
* Clearer, more extensive regulation still needed
By Stanley Carvalho
ABU DHABI, Feb 19 For years, Abu Dhabi's real
estate market has paled next to its more dynamic, glamorous
rival in neighbouring Dubai. But that may be changing as Abu
Dhabi engineers a market recovery that could attract billions of
dollars of fresh foreign investment.
Real estate prices in Dubai jumped over 20 percent last
year, analysts estimate, as the emirate rebounded from a crash
in 2008-2010 which slashed prices by more than 50 percent from
Equally dramatic, though less well publicised, was last
year's rebound in Abu Dhabi's property market, which suffered
similar damage during the global financial crisis.
Prime residential sale prices in Abu Dhabi jumped 25 percent
and rentals climbed 17 percent in 2013, real estate advisory
firm Jones Lang LaSalle estimated. Real estate services firm
Asteco said apartment sales prices rose 29 percent in the fourth
quarter of last year over the same period of 2012.
Much of Dubai's recovery has been due to an influx of
foreign money as the emirate's trade and tourism industries
boom. By contrast, Abu Dhabi's rebound appears to have been
triggered by clever government intervention in the market.
By altering the dynamics of its property market, the
emirate's government may succeed in making Abu Dhabi real estate
more competitive with Dubai and lure some of the money pouring
into the United Arab Emirates from the Gulf, India, China and
"A cross section of investors are focused on Abu Dhabi -
people from Dubai with cash are coming here because yields are
stronger," Gurjit Singh, chief development officer at Aldar
Properties, Abu Dhabi's largest real estate developer,
said last week.
Abu Dhabi and Dubai have similar populations of just over 2
million, but Dubai has traditionally had a much more active and
open real estate market.
This is partly because Abu Dhabi developers have focused on
villas for rich locals, limiting supply of high-end apartments
favoured by foreign investors. The shortage may explain why,
according to Jones Lang LaSalle, average apartment prices are
1,190 dirhams ($325) per square foot in Abu Dhabi, only
marginally below 1,220 dirhams in Dubai.
Regulation and bureaucratic red tape have also put off some
investors in Abu Dhabi, as has the emirate's conservative
cultural environment compared to freewheeling Dubai.
While there are no comprehensive, reliable figures for
foreign investment in the UAE's property sector, real estate
firms and bankers estimate billions of dollars have poured into
Dubai over the past decade, while Abu Dhabi may have attracted
less than half its neighbour's total.
But a series of steps taken by Abu Dhabi authorities over
the past 18 months appear to be changing the picture. Firstly,
the government gave Abu Dhabi public sector employees living
outside its borders until September 2013 to relocate within the
emirate or face losing their housing allowances.
This took aim at thousands of people living in Dubai and
commuting to work in Abu Dhabi. Although concrete figures for
how many families moved in response to the policy are not
available, property agents say there was a surge in demand for
Abu Dhabi housing, driving rents up; some people are still in
the process of relocating, government officials say.
Last November, Abu Dhabi scrapped a 5 percent cap on annual
rent increases. This made investment in property more
attractive; since then, some landlords have hiked rents by as
much as 50 percent.
"When rents go up, you find tenants change to investors and
that is happening in Abu Dhabi," said Masood al Awar, chief
executive of Tasweek, an Abu Dhabi-based property developer,
adding that enquires from investors in zones of Abu Dhabi where
foreigners are allowed to buy property were increasing.
Last month, Abu Dhabi Municipality announced that
residential units in those zones would be registered under Abu
Dhabi's freehold law, with property ownership deeds issued to
Officials have still not explained exactly how the
registration system will work and it appears that Abu Dhabi's
definition of "freehold" is narrower than the comprehensive,
permanent ownership meant by the term elsewhere in the world.
However, the announcement was viewed as an effort by the
emirate to make its property market more welcoming to foreign
investors. Previously, most investment in Abu Dhabi has involved
legally less definitive sales-purchase agreements rather than
title deeds, experts said.
In the last few years, Aldar and some other real estate
developers operating in Abu Dhabi, such as Tamouh and Manazel,
have announced more of the kind of high-end apartment projects
which could appeal to foreign investors, suggesting they are
alert to this source of demand.
Abu Dhabi must still meet several conditions to become a top
destination for international property investment, analysts say.
One is for the emirate to show that its real estate developers
can manage supply and demand to avoid a repeat of the kind of
imbalances which contributed to the crash several years ago.
Supply began to rise rapidly last quarter; around 10,000
housing units were delivered last year and twice that number
will be delivered in 2014, according to estimates by property
consultants Cluttons. The total housing stock in locations
monitored by Jones Lang LaSalle is around 218,000 units.
To absorb the new supply, Abu Dhabi will need to keep
expanding its population. Its huge oil sector creates wealth but
does not lure many of the foreign professionals who can be
expected to buy homes in the emirate; so it will need to create
more private sector jobs in areas such as banking and tourism.
"The next development boom will be led by construction. If a
glut of supply comes, we need to see a big change in demand.
After that what we need is a long-term job generation," said
David Dudley, regional director for Jones Lang LaSalle.
Abu Dhabi is in a strong growth phase, with the economy
officially forecast to grow 6.7 percent this year after 7.4
percent in 2013, so for now, job creation may not be a problem.
But more steps to clarify and flesh out the regulatory
environment will also be needed, lawyers and property developers
"We need additional decrees to clarify the law" on freehold
registration, said Fouad Barbar, partner at Bin Shabib &
Associates & Legal Consultants.
"Call it leasehold or freehold, what is needed is a
registration process with a registrar, a strata law and a
mortgage law. Having these will boost the market."
Government officials and executives at real estate companies
say authorities plan further steps to oversee the rental market,
to prevent the recent lifting of rent caps from causing
excessive volatitily that could drive away tenants.
Abu Dhabi Municipality declined to comment, but one such
initiative is the imminent launch of a residential property
rental index that would create zones for rent levels in the
emirate, local daily Al Itihad reported.
"It is early days but this was expected to follow after the
rent cap removal. It will protect landlords and tenants and
ensure uniformity in rents," said William Neill, head of
Cluttons Abu Dhabi.
"As market regulations improve, Abu Dhabi will see more
foreign investment in the residential property market."
(Editing by Andrew Torchia)