Will Abu Dhabi property sales overtake Dubai this year?

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The organisers of the fourth Abu Dhabi Real Estate and Investments Show, which was held in the capital over the weekend, have reported over $400m in combined sales during the event. This compares with $1.3bn in cash land transactions in Dubai for January. Abu Dhabi is therefore probably still lagging in realty sales, but the question is for how much longer. It looks as though the biggest ever real estate show in Abu Dhabi last week proved an overwhelming success with the kind of volume of sales that reminds observers of the rush to buy in Dubai during the off-plan sales boom of 2003-5. Of course Dubai is now a much more mature market than in those days with sales of completed property more important to the re-sale market than off-plan. This is to be expected as people generally prefer to buy units that they can live in or let rather than speculate in off-plan, although off-plan sales are still strong in Dubai in selected projects where the developers have not been put-off by the stringent cash management requirements of the new trust law. In Abu Dhabi the property market for foreigners is presently entirely off-plan and apartments only because the ownership of a villa would usually entail freehold tenure which is not allowed. And of course completed apartments are just not available yet. The earliest completions will be in spring next year. Boom time However, it is clear from the IREIS 2008 event last week that property sales in Abu Dhabi have moved up another notch, and that the boom which began in the second half of next year has continued. The lowering of US interest rates could not have come at a better time for Abu Dhabi real estate, even if local mortgage rates have yet to reflect the cut in the UAE base rate to three per cent. Lower interest rates on deposit accounts will in any case encourage local investors to put their cash to work in property schemes. In Hong Kong property transactions surged by 63 per cent in the last quarter of 2007 to their highest level for 10 years as its currency is pegged to the US dollar like the dirham, and so low US interest rates are followed. What we are seeing in the UAE is a less sophisticated version of the same phenomenon with a rush into property driven by the falling cost of money, and now in Abu Dhabi as well as Dubai. Mortgage rates stuck It is a shame that local Emirates' mortgage providers have not responded like their counterparts in Hong Kong with a 100 basis point cut in home lending rates. But pressure will build now for a change in UAE mortgage rates too. In Hong Kong it is now cheaper to buy a home than to rent, and real interest rates are negative. Prices are much higher than in Abu Dhabi or Dubai but affordable homes are still 35 per cent off their 1997 peak, and experts predict a sharp closing of this gap. It is not clear how much Abu Dhabi property prices will rise as a response to the lowering of US interest rates. But prime apartments in Hong Kong sell for more than double the price in Abu Dhabi, and per capita GDP is lower in Hong Kong. The price rise could therefore be considerable.

 

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