Abu Dhabi property prices to climb 25%

SOARING PRICES: Property prices in Abu Dhabi are expected to rise 25% this year, HSBC said. (Getty Images)

Real estate prices in Abu Dhabi are to shoot up by as much as 25% in 2008, HSBC said in a report, just the latest to predict surging prices will continue unabated in the UAE capital.

The lender said prices would be driven by the rising cost of raw materials due to further weakening in the value of the US dollar and by the continued shortage of housing in the market, UAE daily Gulf News reported on Saturday.

Residential prices rose 30% year-on-year on an average in January, HSBC said.

Rents and property prices in Abu Dhabi surged 22% and 18% respectively in the second half of 2007, according to HSBC, while office rents have grown around 40% over the last two years, according to property consultancy Colliers.

Some estimates put the shortage of houses in the emirate as high as 50,000 for 2008, while the costs for materials such as cement and steel is expected to rise 19% this year.

Soaring housing costs have fuelled inflation in the UAE, which hit a 19-year high of 9.3% in 2006, the last official figure, and is predicted to hit a 20-year high of 12% this year.

Around 50% of inflation is caused by a shortage of housing supply, officials have said.

Despite runaway prices HSBC said prices were still low compared to other major cities around the world such as London, Paris or Zurich.

Abu Dhabi-based Sorouh Real Estate said earlier this month the price of homes in the capital could rise by at least 20% this year because of supply constraints.

In an effort to control rents and inflation, Abu Dhabi last month followed Dubai's lead and lowered its rent cap from 7% to 5%.

However, analysts have questioned whether the lowering the cap will make any difference to inflation.

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