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Is Abu Dhabi Real Estate About To De-Couple From Dubai?

Is Abu Dhabi Real Estate About To De-Couple From Dubai?

It is no secret that Dubai’s real estate market has been in reverse since about October 2014 (12.2 per cent in the past year to June, according to Knight Frank), is this a sign of things to come in Abu Dhabi as well?

Traditionally Abu Dhabi’s real estate market has mirrored that of Dubai but been between 12-18 months behind (according to CBRE and JLL), if history repeats itself then we should see Abu Dhabi take the same dip soon. In fact the Abu Dhabi sales market has been flat since Dubai hit its bump in Q4 of 2014 but despite that rents have been steadily rising by around 2% per quarter in the Capital. See our Q2 report here.

Most people believe that Dubai real estate has fallen due to a slowdown in the Dubai or wider UAE economy resulting in people losing their jobs and leaving their properties just as they did in 2008. That isn’t the case – we are seeing a very different type of slow-down this time round. The Dubai economy is still growing and according to recruitment companies such as Monster.com companies are still hiring. Dubai rents and sale prices have fallen for two main reasons, the first is sentiment – investors see a future of low oil prices will impact Middle East trade and therefore the Dubai economy. The second and more powerful driver is supply in Dubai, HSBC for one has predicted that Dubai housing supply will increase by 25% over the next three years. Supply is outstripping demand and forcing prices down (see article here).

The fundamentals for Abu Dhabi look very similar. Population growth and hiring is still as strong as it is in Dubai will all sectors except oil services and a few other putting on jobs (education, infrastructure and aviation are the strongest performers). Sentiment has been hit the way it has in Dubai with people seriously worried about the “new normal” of long term lower oil prices and how that might affect government spending (the true driver of Abu Dhabi growth). The one thing that is different between the two Emirates is supply. Abu Dhabi will add 2% to its housing stock in 2015 and not much more in 2016. Abu Dhabi’s housing market, like much of its economy, is government driven with few independent developers with land banks.

Governments, unlike their privately owned counterparts, are slow to react to market drivers and the pace of construction in Abu Dhabi, despite housing shortages, has been painfully slow. Add to this the pain that the rift between Aabar and Arabtec and the jittery nature of Aldar’s releases (after being so publicly and painfully burnt in 2009) and we have supply issues that will not go away. With no new houses and an expanding population rents are increasing.

Sentiment has held back sale prices because everyone is waiting for Abu Dhabi to follow Dubai into a dip – I don’t believe it will happen. Abu Dhabi has no supply and plenty of demand, to the extent that we will see rent rises well into 2017 and I expect sale prices to break their slumber and start their march northward again at the end of this year and through 2016 at the very least.

This is where Abu Dhabi and Dubai’s real estate sectors part company. They will likely re-sync once Abu Dhabi deals with its pipeline issues but for now you can’t use one to gauge the other. Each must now be judged on its own merits.

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