Analysts have forecast that Dubai, which continues to experience robust demand scenario, will continue to outstrip supply for a few more years while the promising Abu Dhabi market is about to take off and is expected to maintain high rental yields in excess of seven per cent until 2013.
According to Damac Capital's analysts Hany Seif and Pamela Chikhani, although the Dubai property market represents a small fraction of the global market, it will remain a major force in the regional real estate investment market.
According to Asteco, a Dubai-based real estate agent, the property market in Dubai accounts for 47 per cent of the market in the entire GCC. Abu Dhabi is a distant second, with 14 per cent. Thus, together Dubai and Abu Dhabi account for more than 60 per cent of the real estate market of the GCC. It is estimated that over the next 10 years, real estate investors will pump in almost $300 billion into Dubai's real estate developments.
HSBC's real estate analysts Walid Khalfallah and Majid Azza believe that Abu Dhabi is fast establishing itself as a new regional real estate market.
"The Abu Dhabi story is gaining credibility. After a slow start to the year, sales activity has picked up in the second half of 2007. The market remains extremely tight, with stronger-than-expected growth in rents [22 per cent] and prices [18 per cent]," they said in a recent report.
Credibility
Land prices in Abu Dhabi have almost doubled (at least 75 per cent growth). Although the market is in its infancy with an almost non-existent secondary market, Abu Dhabi will consolidate credibility through further deregulation.
While there has been some progress this year, as some apartments are now being offered on a freehold basis, expatriates are still not allowed to own the corresponding land and are limited to a few investment areas. Furthermore, unlike Dubai, foreign property owners in Abu Dhabi are still not eligible for residency visas.
The office market, however, remains the most lucrative, with prices and rents increasing by 35 per cent and 43 per cent, respectively (which has led to a notable shift in supply from residential to office). Given the amount of wealth in Abu Dhabi, HSBC analysts believe there is still room for further price appreciation.
With vacancy rates standing below one per cent across the sector, the supply shortage seems to have widened. Some delivery delays last year due to planning problems, rising costs and labour strains have added to the supply shortages.
Based on the UAE government forecasts, the population of Dubai will reach 2.74 million by 2015, although the rate of expansion is likely to slacken considerably after 2010. Population growth will be sustained primarily by the influx of expatriates.
In Abu Dhabi too, changing demography is projected to play a key role in the direction of the market. In Q3 2007, the Abu Dhabi government revealed its "Plan Abu Dhabi 2030", an urban structure framework master plan designed to guide the evolution of the emirate till 2030. The plan assumes a population growth of 40 per cent over the next six years.
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