Abu Dhabi real estate among the cheapest in the world
Wednesday, 26 September 2007
A new research report from HSBC Global Research points out that property prices in Abu Dhabi are among the lowest in the world compared to per capita GDP. Rental yields obtained on Abu Dhabi property also point to significant undervaluation.
The research note on Sorouh Real Estate cites average house prices in Abu Dhabi and Dubai as $3,060 per square metre and $3.371 per square metre respectively.
This is low by comparison with other major cities, particularly when viewed in the context of the high GDP per capita of these cities.
'The regression equation suggests that for the current level of GDP per capita, relative to other global cities, housing prices in Abu Dhabi should stand at around $9,385 per square metre, while in Dubai they should stand at around $7,772 per square metre,' concludes HSBC.
The world's second largest bank argues that Abu Dhabi property prices have been 'held back by restrictive regulation and an immature mortgage market. If Abu Dhabi closes the regulatory gap with Dubai, we see residential prices almost immediately jumping to [circa] $4,000 per square metre from $3,060 square metre in 2006, reaching $5,000 per square metre by 2010.'
At a time when house prices are tumbling in the US and have just recorded their first decline for two years in the UK, that might be contrary to global market forces, but there is no reason why such a localised disconnect cannot occur.
It is also supported by the very high rental yields obtained in Abu Dhabi and Dubai, say 8-10 per cent against 2-3 per cent in London and not much more in New York.
This suggests that either rents should fall or capital values rise to bring rental yields more in line with global norms, and few would expect rents to fall anytime soon with oil at a record $80 a barrel. On the contrary rents are more likely to go up further enhancing the case for higher house prices.
Markets freed from former restrictions do tend to pull up towards global averages. Even in Russia property is now far closer to Western price levels after more than a decade of price adjustments, and Moscow property is among the most expensive in the world.
Property buyers with a long-view would therefore be well advised to consider the UAE. Both Abu Dhabi and neighboring Dubai have dynamic oil-fuelled economies and young property markets that will surely one day be valued at levels comparable with other major world cities.
The anomaly is that they are so cheap right now. It is the same story for commercial as opposed to residential property.
Rental yields in the office market in Abu Dhabi are at the top of global levels at eight per cent, notes HSBC, and the emirate has one of the world's tightest office markets as only one per cent of offices are vacant. The implications for price levels are obvious.
Caption Property in Abu Dhabi is among the cheapest in the world when taking on board the emirate's per capita GDP.
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Internet
The research note on Sorouh Real Estate cites average house prices in Abu Dhabi and Dubai as $3,060 per square metre and $3.371 per square metre respectively.
This is low by comparison with other major cities, particularly when viewed in the context of the high GDP per capita of these cities.
'The regression equation suggests that for the current level of GDP per capita, relative to other global cities, housing prices in Abu Dhabi should stand at around $9,385 per square metre, while in Dubai they should stand at around $7,772 per square metre,' concludes HSBC.
The world's second largest bank argues that Abu Dhabi property prices have been 'held back by restrictive regulation and an immature mortgage market. If Abu Dhabi closes the regulatory gap with Dubai, we see residential prices almost immediately jumping to [circa] $4,000 per square metre from $3,060 square metre in 2006, reaching $5,000 per square metre by 2010.'
At a time when house prices are tumbling in the US and have just recorded their first decline for two years in the UK, that might be contrary to global market forces, but there is no reason why such a localised disconnect cannot occur.
It is also supported by the very high rental yields obtained in Abu Dhabi and Dubai, say 8-10 per cent against 2-3 per cent in London and not much more in New York.
This suggests that either rents should fall or capital values rise to bring rental yields more in line with global norms, and few would expect rents to fall anytime soon with oil at a record $80 a barrel. On the contrary rents are more likely to go up further enhancing the case for higher house prices.
Markets freed from former restrictions do tend to pull up towards global averages. Even in Russia property is now far closer to Western price levels after more than a decade of price adjustments, and Moscow property is among the most expensive in the world.
Property buyers with a long-view would therefore be well advised to consider the UAE. Both Abu Dhabi and neighboring Dubai have dynamic oil-fuelled economies and young property markets that will surely one day be valued at levels comparable with other major world cities.
The anomaly is that they are so cheap right now. It is the same story for commercial as opposed to residential property.
Rental yields in the office market in Abu Dhabi are at the top of global levels at eight per cent, notes HSBC, and the emirate has one of the world's tightest office markets as only one per cent of offices are vacant. The implications for price levels are obvious.
Caption Property in Abu Dhabi is among the cheapest in the world when taking on board the emirate's per capita GDP.
............
Internet