Demand will outstrip supply of Abu Dhabi units until 2011 |
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Demand for residential units in Abu Dhabi will outstrip supply until the end of 2011 as the population grows and household size shrinks in the emirate, according to a new study.
"Population growth and shrinking household size should drive a shortage of at least 30,000 units in 2012," Citi Investment Research said in a report yesterday.
Abu Dhabi is planning a five per cent compound annual growth rate and above four persons per household as against developed cities at two to three persons.
Although foreign finance is not needed to make the projects under way viable, a declining foreign purchasing power may reduce future price growth, the Citi report said. "Greater reliance on domestic buyers and financing may be accompanied by more restrictions on foreign equity ownership," it added.
Sorouh has cut its foreign ownership limit from 20 per cent to 15 per cent in November. AldarAldar
issued a convertible to MubadalaMubadala in May, which should raise its stake to 19 per cent from 15 per cent in 2011, Citi said.Moreover, a sustained global credit crunch that keeps foreign buyers away for multiple years could constrain long-term price growth. However, it will not alter the volume demand for Abu Dhabi real estate.
Citi believes AldarAldar
appears to be more focused on building up the capital's property rental portfolio using mainly debt finance, while Sorouh is more skewed towards development for sale, uses land sales for finance and is venturing overseas more. "If the current global credit crunch conditions remain, both are likely to need government finance more," it said.According to Citi, Abu Dhabi is able to finance, and ultimately purchase, all of its current projects in progress because of current account surpluses and sovereign wealth accumulated in recent years even if it is eroded by poor investment returns in 2008 and if low oil prices erode this further in 2009-10.
"AldarAldar
and Sorouh also benefit from government backing and oligopolistic status," the bank said.Upside for AldarAldar
and SorouhCiti estimates substantial upside potential for AldarAldar
and Sorouh with net asset value (NAV) of Dh16.6 per share and Dh5.6 per share, respectively."We set our target prices in line with our NAV estimates, and therefore initiate coverage with buy/medium risk ratings on both names," it said in a report.
Sorouh is trading on a 30 per cent premium to its book NAV, while AldarAldar
's is at 10 per cent discount. The current share prices of AldarAldar and Sorouh imply an Abu Dhabi property price collapse from the second quarter taking into account zero value for unsold land bank, zero developer margin and no future low-cost land grants.Cash flow
The government action to consolidate mortgage finance providers TamweelTamweel
and AmlakAmlak into a new state controlled structure - Emirates Development BankEmirates Development Bank - lends weight to the argument that the government will take action to keep liquidity flowing in the UAE real estate markets, Citi said.Developers have ties with local banks to provide purchasers with preferential financing options, including up to 90 per cent loan to value on certain projects.
Sorouh and AldarAldar
announced this month that they and three other partners have created a mortgage finance joint venture named Abu Dhabi FinanceAbu Dhabi Finance, which will provide financing to Abu Dhabi purchasers in order to keep liquidity flowing.By Parag Deulgaonkar
© Emirates Business 24/7 2008
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The correction is continue in Dubai and Sharja so if the prices is not going down in AD people will take the opportunity to live in Dubai. [Report Abuse | Email to a Friend | Reply to this Comment]
The same was being said about Dubai few years and also few months back. Now we know the reality. Spin doctors are plenty in the real estate market and they have made this in to art! Now the authorities in Dubai are seriously considering to re-visit the figures given out for tourism. Fundamentals do not change overnight.When will these guys ever wake up! [Report Abuse | Email to a Friend | Reply to this Comment]