Below is the weekly report by Abu Dhabi Department of Planning '&' Economy: Introduction Abu Dhabi has never seen such building and construction spree. Many projects are underway, changing not only the face of the Emirate, but also local economy as well. Real estate business GDP share of non-oil sector jumped to about 9%, given the huge investments which the official estimates put at AED 750 billions.
A main feature of Abu Dhabi socio-economic developments is the big push given to local economy infrastructure projects, in addition to cash surplus which both had a distinctive impact on the radical change in real estate business. There was a quantative and qualitative development in the housing units needed to satisfy ever-growing demand.
Last week's second "Cityscape Abu Dhabi 2008" Real Estate Exhibition, which was held under the auspices of His Highness General Sheikh Mohammed Bin Zayed Al Nahayan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces, reflected sector's ever-growing importance. As many as 300 exhibitors representing 50 countries put on display multi billion dollar-worth projects sponsored by well-known local companies such as Al-Dar, Sorouh, Reem, Borooj and Al-Qudra, along with giant internationally recognized corporations.
Status
A main feature of Abu Dhabi socio-economic developments is the big push given to local economy infrastructure projects, in addition to cash surplus which both had a distinctive impact on the radical change in real estate business. There was a quantative and qualitative development in the housing units needed to satisfy ever-growing demand.
Last week's second "Cityscape Abu Dhabi 2008" Real Estate Exhibition, which was held under the auspices of His Highness General Sheikh Mohammed Bin Zayed Al Nahayan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces, reflected sector's ever-growing importance. As many as 300 exhibitors representing 50 countries put on display multi billion dollar-worth projects sponsored by well-known local companies such as Al-Dar, Sorouh, Reem, Borooj and Al-Qudra, along with giant internationally recognized corporations.
Status
The real estate business realized a remarkable development, with sector's GDP share jumping from AED 6.8 billion in 2002 to more than AED 14 billion last year, with a growth annual rate of 22%, which is expected to go up until 2010 given the AED 400 billion-worth projects already netted in the Exhibition.
Real estate business boom instated Abu Dhabi as a key player and a strong competitor in real estate sector in the region, which offered local and foreign companies excellent investment opportunities. Investments focused on real estate development and related businesses such as building and construction, building materials, insurance and finance.
High Highness Sheikh Khalifa Bin Zayed Al Nahayan, President of the United Arab Emirates, issued the decree No. 23/2007 forming "Abu Dhabi Council for Reconstruction Planning" to supervise reconstruction development in urban and remote areas by laying out necessary plans, policies, regulations and control measures.
The Emirate also announced "Abu Dhabi Vision for 2030" to draw up necessary policies for the next 20 years and develop Abu Dhabi City in such a way as to cater for Emirate's strategic requirements.
The added value of the real estate business reflects sector's crucial contribution to Abu Dhabi economy.
Real estate business boom instated Abu Dhabi as a key player and a strong competitor in real estate sector in the region, which offered local and foreign companies excellent investment opportunities. Investments focused on real estate development and related businesses such as building and construction, building materials, insurance and finance.
High Highness Sheikh Khalifa Bin Zayed Al Nahayan, President of the United Arab Emirates, issued the decree No. 23/2007 forming "Abu Dhabi Council for Reconstruction Planning" to supervise reconstruction development in urban and remote areas by laying out necessary plans, policies, regulations and control measures.
The Emirate also announced "Abu Dhabi Vision for 2030" to draw up necessary policies for the next 20 years and develop Abu Dhabi City in such a way as to cater for Emirate's strategic requirements.
The added value of the real estate business reflects sector's crucial contribution to Abu Dhabi economy.
Figure (3) shows that this value grew annually by 22% on average over the past five years.
A number of important factors such as real estate development, the economic and legal context, fully-integrated infrastructure, facilities and transparency strengthened Abu Dhabi ability to attract direct foreign investments worth AED 17.8 billion over the past five years, of which construction and contracting sector snatched 21%.
Available statistics show that real estate total fixed capital realized an average annual increase of about 61% over the past five years, while the sector's fixed investment quota amounted to 16% of total economic business, against a meager 7% in 2007.
This leap is attributed to the big increase of real estate projects. Investments were increased by real estate companies, and private finance and bank loans encouraged individuals to build their own houses.
Real Estate investment was motivated by other factors, such as rising rent value, secure risk-free investment, streamlined real estate management procedures and quick turn-over. Statistics show that housing and commercial unit construction costs were covered within less than five years on average (according to unit type), against 10 years at minimum for the same business in the developed countries.
This encouraged various investors to concentrate on real estate business --- a trend strengthened by the banking sector which played a leading role by offering easy-term loans.
Driving Forces of Real Estate Boom Many factors have been feeding real estate boom in Abu Dhabi. They can be summed up as follows:
A number of important factors such as real estate development, the economic and legal context, fully-integrated infrastructure, facilities and transparency strengthened Abu Dhabi ability to attract direct foreign investments worth AED 17.8 billion over the past five years, of which construction and contracting sector snatched 21%.
Available statistics show that real estate total fixed capital realized an average annual increase of about 61% over the past five years, while the sector's fixed investment quota amounted to 16% of total economic business, against a meager 7% in 2007.
This leap is attributed to the big increase of real estate projects. Investments were increased by real estate companies, and private finance and bank loans encouraged individuals to build their own houses.
Real Estate investment was motivated by other factors, such as rising rent value, secure risk-free investment, streamlined real estate management procedures and quick turn-over. Statistics show that housing and commercial unit construction costs were covered within less than five years on average (according to unit type), against 10 years at minimum for the same business in the developed countries.
This encouraged various investors to concentrate on real estate business --- a trend strengthened by the banking sector which played a leading role by offering easy-term loans.
Driving Forces of Real Estate Boom Many factors have been feeding real estate boom in Abu Dhabi. They can be summed up as follows:
1. Record economic growth sustained by open-minded, free-market policies which strengthened investors' confidence and helped in attracting local and foreign investments. Abu Dhabi GDP growth rate reached 17% in 2007.
2. Increasing government spending on infrastructure projects, plus strong official support for real estate investments which encouraged the private sector to step in.
3. Abu Dhabi development, whereby all possible facilities are made available to the private sector including modern infrastructure. More facilities and support are guaranteed by future economic schemes.
4. Growing local demand on various types of housing and commercial units, at a time when supply is much lower than demand. The shortage of housing units reached 7500 units last year, and is expected to hit 20.000 by the end of this year.
5. Exploding population. Total Abu Dhabi residents are expected to hit 2.11 million in 2025, compared to a slim 1.5 million at the end of last year, with an average annual growth rate of about 5.2%.
6. Strong demand for both residential and hotel apartments as a result of increasing number of tourists and Emirate's growing trend to promote Abu Dhabi as a tourist attraction. The number of arrivals is expected to reach 3 million in 2015.
7. High standard of living and high income which reflected on the quality and cost of housing units in demand. Abu Dhabi topped world list in terms of average GDP per-capita share which hit $ 60.000 (approximately AED 222.000) in 2006.
8. Growth of various economic sectors thanks to Emirate's economic diversification policy providing for less dependence on oil. This resulted in strong demand for property.
9. High real estate investment turn-over, which ranged between 155 and 255 of invested capital, compared to 6% only elsewhere. This was strengthened by rising rent value in the Emirate.
10. Massive reforms were introduced into real estate laws during the past period, which opened new horizons for real estate investment.
Property Finance According to foreign reports local real estate market is the fast growing in the world. The current expansion of real estate business in Abu Dhabi was a clear indication that there is dire and pressing need for improving property finance mechanisms in order to maintain an ever-growing stabilized boom in future.
The boom in real estate business was not followed by appropriate finance mechanisms. Financial institutions lagged behind in providing property finance satisfactorily enough to meet developer, contractor and consumer expectations. The boom reflected a deep financial gap and a growing demand for finance, which did not exceed AED 5 billion UAE wide, and the same for bank loans.
Real estate investment has become a successful, money-making project which encouraged various sectors and corporations to step in. But a 9-digit capital is needed, along with long-term (as long as 25 years) finance. But commercial banks, basically operating under a low-risk, quick turn-over policy, are interested only in short-term finance. Moreover, these banks are not allowed by the Central Bank to provide property loans more than 20% of actual deposit portfolios, at a time when finance needed during the next five years is estimated at AED 500 billion, i.e. ten times the capital of all commercial banks combined. In addition, real estate finance market is faced with certain challenges in the absence of organizing laws, supportive mechanisms.
However, The UAE may find itself soon face to face with one single option: energize finance mechanisms will put in place the real estate financial system, which requires orchestrated action by government and private agencies to introduce a variety of finance packages to both investors and consumers without undermining everybody's rights.
All indications make it inevitable to set up specialized, cash-loaded real estate finance banks/institutions. Meanwhile, commercial banks could establish more property investment companies/funds run by technical, financial and administrative committees, and allocate a certain portion of their capital to this purpose instead of taking the risk of direct finance of real estate projects. They could also introduce new finance formulas such as shares and Islamic loans, and raise local capital efficiency.
Islamic real estate investment funds are expected to grow in the coming years, especially after Islamic finance had realized an average growth rate of about 15% annually in the last three years. Bonds world wide amounted to $97 billion last year, most of them in the Gulf and in Malaysia. Real estate represented 25% of total bonds which are expected to grow by more than 30% this year.
The forthcoming stage requires plans to energize real estate finance mechanisms, and government and private sectors should cooperate in laying out solid infrastructure and introducing variable effective mechanisms compatible with the boom in the real estate sector. "Cityscape Abu Dhabi 2008" Exhibition, which drew to a close on Friday, hosted a real estate business conference - a giant step in the right direction.
Challenges Real estate business in Abu Dhabi has many assets of success that can support sector's growth in future. However, certain challenges lie ahead: housing units expected to be complete in the coming period outweigh the actual needs of different categories of customers, which makes a sharp drop in prices only inevitable in the medium and long run unless a quick remedy is provided. More demand, local and otherwise, is necessary to offset over-supply.
This reality is only confirmed by the fact that certain categories of real estate business - deluxe and sale-only housing units- are about to outweigh supply -- a critical stage on which the whole future of the sector depends. The present (mal) practice of supplying these units regardless of the actual needs of prospective customers may lead to over-supply, thus pushing prices sharply down, which will have a negative impact on a once booming business.
The high prices of buildings and construction materials, which sky-rocketed in the last years, had a negative impact on the performance of construction business. The trend is expected to continue in future, thus affecting supply, at a time when we have an over-supply.
The problem is worsened by speculators who tend to over-estimate the value of new units. This is a risky business which may result in a sharp drop in the value of new units, thus undermining the future of the sector and other supporting sectors such as building and construction.
Real estate is a vital business. That is why banks and businessmen's over-dependence on this business has to be put under tight control. It is also necessary to speed up structural reforms plans in order to rectify the course. This is only possible by means of effective economic and financial policies to straighten out the supply-demand equation, and secure a soft landing and a sustained growth.
The real estate business in the UAE is open to various explanations, correct in most cases, regarding defining real estate factors, without a single index to depend on when making a decision to buy or sell. Prices usually vary from one unit to another in the very same area, and are set solely at owner/agent discretion, thus failing to reflect the true value.
Real estate business control requires comprehensive, detailed statistics which should be released periodically to reflect the latest market developments. They should indicate new real estate projects, growth trends, actual supply and types of housing units in demand.
/WAM/
2. Increasing government spending on infrastructure projects, plus strong official support for real estate investments which encouraged the private sector to step in.
3. Abu Dhabi development, whereby all possible facilities are made available to the private sector including modern infrastructure. More facilities and support are guaranteed by future economic schemes.
4. Growing local demand on various types of housing and commercial units, at a time when supply is much lower than demand. The shortage of housing units reached 7500 units last year, and is expected to hit 20.000 by the end of this year.
5. Exploding population. Total Abu Dhabi residents are expected to hit 2.11 million in 2025, compared to a slim 1.5 million at the end of last year, with an average annual growth rate of about 5.2%.
6. Strong demand for both residential and hotel apartments as a result of increasing number of tourists and Emirate's growing trend to promote Abu Dhabi as a tourist attraction. The number of arrivals is expected to reach 3 million in 2015.
7. High standard of living and high income which reflected on the quality and cost of housing units in demand. Abu Dhabi topped world list in terms of average GDP per-capita share which hit $ 60.000 (approximately AED 222.000) in 2006.
8. Growth of various economic sectors thanks to Emirate's economic diversification policy providing for less dependence on oil. This resulted in strong demand for property.
9. High real estate investment turn-over, which ranged between 155 and 255 of invested capital, compared to 6% only elsewhere. This was strengthened by rising rent value in the Emirate.
10. Massive reforms were introduced into real estate laws during the past period, which opened new horizons for real estate investment.
Property Finance According to foreign reports local real estate market is the fast growing in the world. The current expansion of real estate business in Abu Dhabi was a clear indication that there is dire and pressing need for improving property finance mechanisms in order to maintain an ever-growing stabilized boom in future.
The boom in real estate business was not followed by appropriate finance mechanisms. Financial institutions lagged behind in providing property finance satisfactorily enough to meet developer, contractor and consumer expectations. The boom reflected a deep financial gap and a growing demand for finance, which did not exceed AED 5 billion UAE wide, and the same for bank loans.
Real estate investment has become a successful, money-making project which encouraged various sectors and corporations to step in. But a 9-digit capital is needed, along with long-term (as long as 25 years) finance. But commercial banks, basically operating under a low-risk, quick turn-over policy, are interested only in short-term finance. Moreover, these banks are not allowed by the Central Bank to provide property loans more than 20% of actual deposit portfolios, at a time when finance needed during the next five years is estimated at AED 500 billion, i.e. ten times the capital of all commercial banks combined. In addition, real estate finance market is faced with certain challenges in the absence of organizing laws, supportive mechanisms.
However, The UAE may find itself soon face to face with one single option: energize finance mechanisms will put in place the real estate financial system, which requires orchestrated action by government and private agencies to introduce a variety of finance packages to both investors and consumers without undermining everybody's rights.
All indications make it inevitable to set up specialized, cash-loaded real estate finance banks/institutions. Meanwhile, commercial banks could establish more property investment companies/funds run by technical, financial and administrative committees, and allocate a certain portion of their capital to this purpose instead of taking the risk of direct finance of real estate projects. They could also introduce new finance formulas such as shares and Islamic loans, and raise local capital efficiency.
Islamic real estate investment funds are expected to grow in the coming years, especially after Islamic finance had realized an average growth rate of about 15% annually in the last three years. Bonds world wide amounted to $97 billion last year, most of them in the Gulf and in Malaysia. Real estate represented 25% of total bonds which are expected to grow by more than 30% this year.
The forthcoming stage requires plans to energize real estate finance mechanisms, and government and private sectors should cooperate in laying out solid infrastructure and introducing variable effective mechanisms compatible with the boom in the real estate sector. "Cityscape Abu Dhabi 2008" Exhibition, which drew to a close on Friday, hosted a real estate business conference - a giant step in the right direction.
Challenges Real estate business in Abu Dhabi has many assets of success that can support sector's growth in future. However, certain challenges lie ahead: housing units expected to be complete in the coming period outweigh the actual needs of different categories of customers, which makes a sharp drop in prices only inevitable in the medium and long run unless a quick remedy is provided. More demand, local and otherwise, is necessary to offset over-supply.
This reality is only confirmed by the fact that certain categories of real estate business - deluxe and sale-only housing units- are about to outweigh supply -- a critical stage on which the whole future of the sector depends. The present (mal) practice of supplying these units regardless of the actual needs of prospective customers may lead to over-supply, thus pushing prices sharply down, which will have a negative impact on a once booming business.
The high prices of buildings and construction materials, which sky-rocketed in the last years, had a negative impact on the performance of construction business. The trend is expected to continue in future, thus affecting supply, at a time when we have an over-supply.
The problem is worsened by speculators who tend to over-estimate the value of new units. This is a risky business which may result in a sharp drop in the value of new units, thus undermining the future of the sector and other supporting sectors such as building and construction.
Real estate is a vital business. That is why banks and businessmen's over-dependence on this business has to be put under tight control. It is also necessary to speed up structural reforms plans in order to rectify the course. This is only possible by means of effective economic and financial policies to straighten out the supply-demand equation, and secure a soft landing and a sustained growth.
The real estate business in the UAE is open to various explanations, correct in most cases, regarding defining real estate factors, without a single index to depend on when making a decision to buy or sell. Prices usually vary from one unit to another in the very same area, and are set solely at owner/agent discretion, thus failing to reflect the true value.
Real estate business control requires comprehensive, detailed statistics which should be released periodically to reflect the latest market developments. They should indicate new real estate projects, growth trends, actual supply and types of housing units in demand.
/WAM/
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