Monday, June 16, 2008

Abu Dhabi house prices jump 53%

A report from Colliers International said that house prices in Abu Dhabi have jumped by 53% over the past year to $580 per sqft, an acceleration of the 18% price hike in the previous 12 months. But the company predicts that the continued shortage of accommodation in the UAE capital could push this rate of increase still higher in the next few months.

This study highlighted just how inadequate the planned supply of housing is when compared with the demand. 

It points to the delivery of 27,000 units by 2010 against a demand for more than 100,000 units. 

This delivery of units also assumes no delays to current projects. There are also serious implications for rents in the UAE capital city. 

Colliers International says the current rent for a 1,000 sqft middle-income apartment is $37,200, which is higher than comparable property in Dubai, and 22% up on the previous year; a high-income apartment of the same size will set tenants back $50,000. 

High-end bias

The report warns that, just like Dubai, developers are concentrating on high-income properties and neglecting the affordable segment, putting additional pressure on this category. 

And according to Colliers International's estimate it will not be until 2013 that Abu Dhabi has sufficient new supply to cool the local market with the expected delivery of 140,000 units by that year. 

Currently the Abu Dhabi market has 186,200 units, which is expected to rise to 213,000 by 2010. 

However, buyers entering the Abu Dhabi market should still be very careful when buying off-plan. This is not the same as a completed property as you can not see what you are buying nor rent out it immediately, or be sure when, or even if, it will be finally delivered. 

Be very careful to who you hand your money over to in Abu Dhabi. Is this a reputable company with perhaps a government shareholding or are these people you have never heard of before? 

Dubai deja-vu

The danger in Abu Dhabi is a repeat of the Dubai experience, with property sold off-plan for well below the cost of construction; the developer later discovers that it cannot deliver and hands the money back with interest - which will likely not be enough to compensate people who have bought through re-sale before completion. 

Indeed, the huge rush to invest in projects that are little more than architect's models is worrying. There is a huge amount of hope and expectation, and a massive amount of money to tempt unscrupulous operators. 

This explosion of interest is happening so fast - thanks to high negative real interest rates in the UAE, courtesy of the dollar peg - that it threatens to spiral out of control before anything actually gets built. But the demand for accommodation that underpins it is very real and that will drive prices higher. 

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