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Slow and Steady Wins Abu Dhabi Property Race
12/04/2013 12:00 pm EST
The old adage “Slow and Steady Wins the Race” could not be more apropos than in regards to the housing market in Dubai this year, writes Orlando Crowcroft, of The National.
It has often appeared a tenet of development in this country that slow and steady wins the race—and with new projects announced seemingly weekly in Dubai, as the end of 2013 nears, this trend seems more relevant than ever.
Dubai's boom days seem to have returned off the back of rising tourism, but bar a number of significant project launches in the luxury hotel sector, Abu Dhabi has seen the beginning of a recovery this year.
“In Dubai, we are seeing a large amount of investment, we are seeing a real return of speculative activity and returns and lots of new launches, both individual and master-planned projects—but Abu Dhabi really hasn't got to that stage yet,” says Matthew Green, the head of research at CBRE in Dubai.
He says that is a healthy position for the capital to take.
“We've had a couple of individual projects launched, but nothing major, which I think is good,” Mr. Green says.
“For now, just seeing a bit of stability for a while isn't a bad thing.”
He points out that with 40,000 residential units due to be completed over the next three years, as well as a huge amount of commercial property, oversupply remains an open question for the capital. As a result, he adds, a lack of new projects is far from negative.
The current climate stands in notable contrast to the years of 2006, 2007, and 2008, when the rapid opening of the Abu Dhabi market—including new land and property laws, the launch of the 2030 Vision, and the creation of special investment areas—fueled a major property boom in the emirate.
“The scale of development projects launched during the boom years created a significant oversupply across most asset classes, as projects reached completion at a time of weak demand—and this needed to be addressed,” says David Dudley, the head of Jones Lang Le Salle's Abu Dhabi office.
The Government did this by deliberately slowing down government-backed property developments, with many large-scale speculative projects being postponed or scaled back. Organizations such as the Tourism Development and Investment Corporation, and Aldar reassessed dozens of potential schemes.
The result, argues Mr. Dudley, is a better environment for contractors.
Rather than announcing projects that may or may not be built—or, more problematic, may be started and then stalled—newly unveiled developments should now go ahead as planned.
“Now, the highest-priority projects going forward are those that maximize payback on historic infrastructure spend, and projects that deliver wider economic and social benefits to the emirate” Mr. Dudley says.
“There is no shortage of construction opportunities—just a different type. We have moved from the dominance of speculative development to development focused on infrastructure—airports and other transport infrastructure, tourism attractions, and malls, health care, and education, and housing communities focused on end-users.
In Dubai, adds Mr. Green, much of the new master-planned developments hitting the headlines in both local and international media are likely to have extensive timeframes.
“Dubai's major master-plans have to be viewed in context—they are long-term projects and you expect it to come through over a ten or 15-year period. We're not including supply in any of those projects until 2017 onwards,” Mr. Green says.
Abu Dhabi's hotel landscape has not been short of project launches this year, with the opening of the St Regis on the Corniche, and the Eastern Mangroves Suites adding 300 rooms and 88 hotel apartments, adding to the country's already substantial hospitality supply.
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With the Novotel and Premier Inn Abu Dhabi due to open before the end of the year, an estimated 5,700 rooms are expected to come on to the market by 2015.
“Abu Dhabi is up to 20,000 keys now, and there is still a lot more to come. [The Government] is trying to constrain it by not granting more licenses for five-star hotels, but we'll have to wait and see what kind of impact that will have on the market,” says Mr. Green.
He adds, since the rapid rise in hotel developments in this country in 2009, to coincide with its first Formula One Grand Prix, the hospitality market in the capital has had to fight for growth.
But Mr. Green says that is set to reverse with growing economic strength powering developments such as the planned museums on Saadiyat Island, large-scale leisure, retail, and entertainment projects on Yas Island and the capital's airport expansion. This, in turn, will push up visitor numbers, while a reduction in quarter-on-quarter hotel additions limits supply.
As for other sectors, including commercial and housing, the bottom-end and middle of the country's market are likely to gradually give way to the top-end, Mr. Green says, as new high-quality projects come online and tenants take advantage of oversupply to upgrade.
This is especially true in the emirate's free zones—including, among others, the financial services' hub Al Maryah Island, twofour54, Kizad, and the airport free-zone. Together, these projects add up to multibillion-dollar spend over the coming years, which could serve as a boost to GDP and employment growth, driving demand for both housing and office facilities.
“A lot of the residential stock in Abu Dhabi is very old and what you are seeing is a widespread migration towards the investment zones, where the best projects are being delivered,” says Mr. Green.
“New supply is coming through, but the older products are generally quite tired and we will continue to see a flight to quality.”
And quality is what Abu Dhabi is becoming increasingly known for.
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