ABU DHABI: A RENTIER STATE IN MORE WAYS THAN ONE

1. (U) Classified by Charge D'Affaires Richard A. Albright,
for reasons 1.5 (B) and (D).



2. (U) Local press reported that commercial and residential
rents in Abu Dhabi jumped between twenty and thirty percent
in the last year as the UAE capital maintained its status
as one of the world's most expensive real estate markets.
Western property consultants confirmed that the increase
encompassed the whole rental market and not just unit
prices, and was primarily driven by a sharp rise in
commercial real estate rates mandated by the government
body which oversees building construction and rental in the
capital. Last year real estate grossed approximately $5.53
billion -- a whopping nine percent of the UAE's total GDP,
making it the third largest GDP component after oil and
manufacturing. Return on investment in real estate ranged
between 6-8 percent, considerably higher than the five
percent on stocks or 1-2 percent on bank deposits.



3. (C) Rents in the capital are likely to increase further
in the next two years as the Abu Dhabi municipality has
temporarily decided to stop the common practice of
demolishing old buildings and replacing them with new,
larger structures. The average operational life of a
building in the UAE is generally less than thirty years due
to poor construction materials and techniques compounded by
the excessively hot and humid weather which adversely
impacts concrete and metal. Given the continued demand for
commercial and residential space, the moratorium on
building replacement suggests that the Khalifa Committee,
chaired by Abu Dhabi Crown Prince Shaykh Khalifa bin Zayed,
will likely raise the rental floor (i.e. the minimum amount
for which a given type/size of property may be rented) even
higher in the years to come. (Note: The Khalifa Committee
is the giant, Abu Dhabi government-funded real estate
cartel which controls residential and commercial
construction and rental in the greater capital area. The
primary mechanism for redistribution of oil wealth to the
general citizenry, the Khalifa Committee funds real estate
projects, supervises construction, arranges for the leasing
of buildings, and apportions rent to the ostensible owners
-- effectively mandating minimum rental prices for both
commercial and residential real estate. Unrentable
facilities are simply left vacant, at considerable cost to
the government. End note.)



4. (C) Comment: Due to the lack of real estate options on
the island of Abu Dhabi, landlords know tenants have few
options when confronted with government mandated rent
increases. The moratorium on destroying and replacing
older properties in Abu Dhabi -- a decision made by the
Khalifa Committee -- reflects a belt-tightening decision on
the part of government officials. End comment.

Wahba