Abu Dhabi is limiting construction to avoid the housing glut and price declines that battered the real estate market in neighbouring Dubai, Aldar Properties PJSC chief executive officer John Bullough says.
The emirate has a shortage of 15,000 to 20,000 units and the government will let the ‘rope out on development in a measured way’, Mr Bullough, whose company is the United Arab Emirates’ second-biggest developer, said in an interview. ‘There will be, in our view, a lag between supply and demand.’
Abu Dhabi, the UAE’s capital and holder of 8 per cent of the world’s oil reserves, controls development from homes to offices and transportation links under its ‘Plan 2030′, devised in 2007. The plan foresees the population growing to as much as 5 million by 2030 from an estimated 1.6 million in 2008.
‘There is a short-term question mark, but then there is a medium- to long-term suitability,’ Aldar CFO Shafqat Malik said in an interview last week at the company’s Abu Dhabi headquarters.
‘What we saw over here is the doubling of rents and prices. Is this a sustainable way for any economy to grow? The answer is probably no.’
Aldar said it plans to deliver 3,500 homes and 140,000 square metres of commercial space over the next 18-24 months.
Abu Dhabi’s government owns 18.9 per cent of Aldar through Mubadala Development Co and 7.2 per cent through state fund manager Abu Dhabi Investment Co, according to the emirate’s exchange.
Limiting supply ‘brings up the cost of housing and can be seen as an additional tax on companies’, Jesse Downs, director of research and advisory services at Dubai-based Landmark Advisory, said in a phone interview. ‘So it could potentially curb job growth, which has a residual effect on the real estate market.’
Abu Dhabi home prices have dropped an average of 33 per cent from their peak in the third quarter of 2008, according to Matthew Green, head of UAE research at CB Richard Ellis (CBRE) Group Inc.
Dubai’s residential property values have fallen more than 50 per cent and UBS AG said last week that they may decline as much as 30 per cent more.
‘We are not in the business of releasing and withholding units or regulating prices,’ Fouad Kassem, public affairs officer for Abu Dhabi’s Urban Planning Council said in a phone interview. ‘Our role is focused on planning, and proposed projects that don’t fit with the master plan are not allowed.’
Slowing down construction was easier in Abu Dhabi than Dubai because more projects were at the planning stage when the financial crisis hit and therefore easier to postpone, Mr Downs said.
Dubai is moving to tighten control of its own property supply through a planned merger of Emaar Properties PJSC, the country’s biggest developer, with state-controlled Dubai Properties LLC, Sama Dubai LLC and Tatweer LLC.
A housing shortage in Abu Dhabi won’t help lift prices because residents can commute from Dubai, which has an oversupply, Deutsche Bank AG said in note in June. The highway linking the two cities makes ‘both markets highly interconnected’, it said.
Dubai opened its property market to foreign investors in 2002, followed by Abu Dhabi three years later, fuelling a boom bolstered by low interest rates. Prices slumped at the onset of the global financial crisis as banks clamped down on mortgages, and speculators left the market.
‘We suffered from the same thing here as the rest of the world in terms of speculation and flipping,’ Mr Bullough said. ‘Those days are gone and there is a much more pragmatic focus to purchases. The dealers, it’s fair to say, have left the market.’
Property speculation in Abu Dhabi and Dubai caused institutional investors such as ING Groep NV’s US$150 billion real estate fund to shun the markets and prompted governments in both emirates to cap annual rent increases.
‘There has been a significant reprioritisation across the whole of the development community,’ Mr Bullough said. It ‘delayed delivery of a lot of what was in the pipeline, and that bodes well for the future because it means we will be able to maintain a more effective balance between supply and demand.’
Aldar postponed its Al Dana development, originally designed as a luxury project, and asked for a redesign to suit the needs of low-income buyers, Aldar’s chief operating officer Sami Asad said in February.
‘We see greater demand at the smaller scale, more affordable end of the market,’ Mr Bullough said. ‘That’s perfectly normal for any market. You have a much higher proportion of people who can afford a medium-sized place.’
Source: Business Times, 26 Nov 2009
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