Capital appreciation

Abu Dhabi's property market is hotter than the Gulf's August waters and prices are set to keep soaring.
Capital appreciation
By Dominic Ellis
Fri 18 Jul 2008 04:00 AM

Abu Dhabi's property market is hotter than the Gulf's August waters and prices are set to keep soaring amid spiralling demand and supply shortages.

Sometimes it's hard to visualise a market. You can see cranes going up, read up on facts and figures and hear all about supply and demand dynamics, but these factors in themselves do not always paint an accurate commercial picture.

Anyone visiting the first morning of the recent Cityscape Abu Dhabi exhibition, however, would have been in no doubt about the UAE capital's real estate appeal, both physically and economically.

Abu Dhabi saw the biggest average annual rent increases in the UAE in the year to March (24%), with villa prices topping the biggest hikes (57%).

The Abu Dhabi National Exhibition Centre united both entities, with queues of investment-minded people snaking round busy stands, providing first-hand evidence of the city's growing allure.

By the end of the four-day show - it was extended a day due to high demand - the deals totalled a near-stratospheric US$36bn, but this figure almost pales into insignificance when you leaf through a new 50-page report from the Abu Dhabi Chamber of Commerce and Industry, which predicts that investment in construction and real estate will hit US$205bn between now and 2012.

No prizes for guessing what's fuelling the boom; the UAE capital is earning around US$375m a day from oil revenues.

As with Dubai and Qatar, while Abu Dhabi's visionary wheels are in full motion, underpinned by its Plan Abu Dhabi 2030 masterplan, meeting existing and upcoming demand will continue to tax developers' minds.

Abu Dhabi's population is set to rise from 930,000 in 2007 to 1.3 million in 2013 and 2 million in 2020.

The latest in a long line of market reports, from EFG-Hermes, predicts a 20-25% rise in Abu Dhabi's residential rents by the end of this year and 15-20% increase next year.

Research analyst Sama Kapadia said a rapid escalation in construction costs in the last six months has contributed to higher residential property prices.

"Developers are also adopting more of a phased strategy to their projects and are bringing property to the market later, by which time land prices and the selling price have gone up even further."

Colliers International found that house prices in Abu Dhabi have jumped by 53% over the past year to US$580 per square foot, compared with an 18% price hike in the previous 12 months - and it believes the continued shortage of accommodation could push this rate higher in the next few months. Only 27,000 units are expected to be delivered by 2010, compared with a demand of more than 100,000.Asteco found that Abu Dhabi saw the biggest average annual rent increases in the UAE in the year to March (24%), with villa prices topping the biggest hikes (57%).

Villa freehold sales remain restricted to UAE nationals in Abu Dhabi although apartments are open to all on long leases.

And UK property consultants Strutt & Parker concluded in its first annual ‘Prospects for Property 08' event in April that the best prospects for real estate investors are in Abu Dhabi, although it does not expect Dubai oversupply to be an issue until 2012.

It's not just about real estate, there has to be a lifestyle change by each and every one of us.

Leading developers are busy addressing the needs of the constantly-changing scene.

Aldar Properties, whose market value now stands at US$8.4bn, recently priced its benchmark US$1.02bn five-year Sukuk Al-Ijara to fund its next growth phase.

The latest Sukuk, following on from its first US$2.53bn exchangeable Sukuk last year, was arranged by Abu Dhabi Commercial Bank, Barclays Capital, Credit Suisse, Dubai Islamic Bank, First Gulf Bank, Lehman Brothers, National Bank of Abu Dhabi, and Noor Islamic Bank.

The developer has announced projects worth more than US$70bn since its launch in 2005, including Central Market, Al Raha Beach, Coconut Island, Noor Al Ain, Al Gurm Resort, as well as the Yas Island project which includes a Warner Bros and a Ferrari theme park.

It is also starting to build its profile in the commercial sector, launching the second phase of Al Mamoura and Baniyas Towers, which will provide an additional 62,000 sq m of lettable office space in the heart of Abu Dhabi.

It also used Cityscape Abu Dhabi to showcase its Al Dana precinct, set to be a commercial-residential landmark at Al Raha Beach.

Sorouh Real Estate PJSC, an Abu Dhabi based developer, whose market capitalisation is US$6.5bn, is also spreading its construction wings, signing an agreement in April with Metro-Goldwyn-Mayer Studios Inc (MGM) and Rubicon to explore entertainment opportunities.

The first project will feature a blend of Western and Middle Eastern concepts.

The real estate company has also recently signed a deal with LLJ Property after a relationship spanning around two years.

LLJ Property was appointed in 2006 as the exclusive sales agent for Sorouh's Marina Square project - Tala Tower and the property was one of the first towers on Reem Island to go on sale.Sorouh has also unveiled master plans for Lulu Island, set to become a tourism and residential landmark for Abu Dhabi.

Linda Loughnane, managing director of LLJ Property LLC said: "This is an important strategic step for LLJ Property, allowing us to accelerate the rapid growth of our business here in Abu Dhabi. We had the foresight three years ago to understand the enormous potential of Abu Dhabi's real estate market and had the confidence to invest heavily to establish one of the first real estate agencies that focuses on property sales in Abu Dhabi."

Sustainable focus

Ronald Barrott, CEO of Aldar Properties, which is housing half a million Abu Dhabi residents and adhering to LEED standards, said it was vital developers created projects which integrate work and residential lives and reduce car use and emissions.

He added Aldar was now aiming to send only 10% to landfill in future - in contrast to the 90% which goes to ground today.

"It's not just about real estate, there has to be a lifestyle change by each and every one of us," he said.

"There's a lot more to sustainability than setting the standards, it's about introducing it at the masterplan stage and integrating it into transport infrastructure."

Shafqat Ali Malik, chief financial officer, Aldar Properties, remains upbeat about the region's real estate, despite clear signs of an impending global economic slowdown.

"When you look at quite a few booms in other parts of the world, real estate has often been at the forefront, but we are catering for the growth in other sectors. We feel bullish about Abu Dhabi."

Legal issues

The UAE capital is weighing up more zone and land use-based relaxations, or combination of both, as it continues to develop its real estate legal framework amid increased international investor interest.

Coming to the capital

• The 1400-acre Lulu Island, located offshore from the Abu Dhabi Corniche, will feature a range of residential, resort and retail areas.

• At the gateway of Abu Dhabi city, Arzanah is Capitala's maiden project. The 1.4 million sq m project will include 9,000 residential units.

• Shams Abu Dhabi on Al Reem Island is being built to house 55,000 residents.

• Ghantoot City, from ICT real estate company, will effectively bridge the gap between Abu Dhabi and Dubai when it's completed in eight years' time. Work on the mixed-use development gets underway in August.

• The 2500-hectare Yas Island will offer a variety of modern low-rise mixed-use residential apartments and villas to rent, lease or own.

Under current regulations, foreigners can buy properties on leasehold but have no land ownership rights.

The presentation on Abu Dhabi Property Law Development from Dr Abdullah Ghareeb Al-Bloshi, executive director - Property Management, Department of Municipal Affairs, at Cityscape Abu Dhabi, concluded that "the combined approach has the advantage of allowing for a very flexible set of rules."

Dr Ghareeb outlined the municipality strategy, which is keen to establish more simple and transparent rules for foreign buyers, and consider other confidence-boosting measures, such as setting up Escrow trust regimes.

But he declined to say when any new measures would be introduced, adding any decisions would rest with the Executive Council.

Jane Dalton, solicitor at Trowers & Hamlin's, said land deals involving buyers with foreign interests have occurred, notably with leading developers Aldar and Sorouh, but are reviewed on a "case by case basis".

But Mohammed Kamal, associate, Al Tamimi & Company, believes now is the time to address the issue, since it's not only affecting foreign buyers but companies considering IPOs.

"The status of foreign ownership is the most pressing issue," he said.

"The good news is that the implementation of new laws paves the way for registration of titles routinely in Abu Dhabi."

News round up

• Dr Sulaiman Al Fahim, CEO of Hydra Properties, and Donald Trump, chairman and CEO of Trump Organisation, recently held talks to explore real estate and business opportunities within Abu Dhabi.

• Excavation on the Hydra Village Abu Dhabi eco-retreat is 50% complete. Contracts for the 2500 homes will be handed over in July, with the final handover expected to take place in 2010.

• Aldar Properties recently showcased its three theme parks - Ferrari World Abu Dhabi, Warner Bros Theme Park and Water Park - at the International Travel Expo in Hong Kong, and Asia Luxury Travel Market in Shanghai.

Aldar is also launching a double-storey shopping centre in the industrial city of Al Ruwais, whose population is expected to hit 40,000 by 2010.

• The joint venture of Hill and 3D/I+PI has received an extension of its contract by developer Sorouh Real Estate. The contract is to provide project management services during construction of Shams Abu Dhabi.

• Sorouh Real Estate bought a 60% stake in Abu Dhabi-based Pivot Engineering and General Contracting Company in May.

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