ABU DHABI HOUSING DEMAND EXPECTED TO GROW

UNCLAS ABU DHABI 001285 SENSITIVE SIPDIS STATE FOR NEA/ARP AND EEB E.O. 12958: N/A TAGS: ECON EFIN SOCI PGOV AE SUBJECT: ABU DHABI HOUSING DEMAND EXPECTED TO GROW ¶1. (SBU) Summary: At a November 9 conference on Abu Dhabi's economy, several senior real estate officials expressed confidence that the Abu Dhabi residential market is likely to weather the current world financial downturn. While some projects, including the high-profile Saadiyat Island megaproject, may be scaled back, officials argued that the sector will mature in coming years to include more mid-range residential properties. All predicted Abu Dhabi's infrastructure and economic development plans would ensure the continued growth of the sector. End Summary. Growth Positive... -------------- ¶2. (SBU) Pointing to a recent Abu Dhabi Chamber of Commerce and Industry statistic that the current shortage of 28,000 residential units may rise to 70,000 by 2010, several major real estate development executives expressed optimism the sector will continue to grow. Officials from all the prominent public, quasi-private and private sector firms (Abu Dhabi Commercial Properties, Al Qudra Real Estate, Burooj Properties, Sorouh Real Estate and the Tourism Development and Investment Company) argued that the fundamentals of Abu Dhabi's real estate sector are strong, and residential shortages are expected for the next five years. While in the past the real estate sector may have been inflated by speculators, developers were most optimistic about the continued demand for mid-range properties (apartments and villas) for professional third-country residents. Gurjit Singh, Chief Property Development Officer at Surouh, noted that many expatriates have savings that could be used to purchase residences in Abu Dhabi. As in any market, Burooj Managing Director Adel Al Zarouni noted that potential buyers must be convinced buying makes financial sense, but all were optimistic that the current and anticipated demand was a good sign for developers. But Liquidity Drives Reflection -------------- ¶3. (SBU) All speakers agreed that tight international and local liquidity would impact the market. TDIC CEO Lee Tabler admitted that the firm had already "reprioritized" its Saadiyat Island project. As the less commercial aspects (e.g. museums) of the project required significant cash, TDIC was already working with the Abu Dhabi government and banks to determine how to proceed. Sorouh's Singh said even established developers had to ask banks for flexibility, while demonstrating their business fundamentals are strong. Similarly, end-users (residents) are also challenged by banks' current restrictive lending policies. Adjustment Positive -------------- ¶4. (SBU) Participants agreed that the current financial crisis is likely to bring an end to the speculation that was driving up real estate prices in Abu Dhabi. The acting CEO of Al Qudra, Claus Peter Rees, said high-end European investors are likely to exit the market, but predicted Emirati investors will shift their investments from abroad to local real estate. Despite the current difficulties, Al Zarouni predicted that Abu Dhabi's continued economic growth would help attract domestic and international capital to the UAE and "make the crisis an opportunity." ¶5. (SBU) Specifically, participants said the world economic slowdown will bring down developers' construction and material costs. They also praised the Abu Dhabi 2030 infrastructure plan, which provides real estate companies with key infrastructure development plans that affect their business. With every indication that the government of Abu Dhabi is committed to economic development and diversification, the panel was universally optimistic about the sector's mid- to long-term future. ¶6. (SBU) Comment. While the organizers were careful not to invite comparison to Dubai, the group's comments clearly showed that many here believe Abu Dhabi's real estate market fundamentals are stronger. The government continues to demonstrate its commitment to a rational development plan for infrastructure, housing and services. However, if the big firms are openly talking about rationalization and financing challenges, smaller companies will be hard pressed to remain profitable in the short term. End Comment. OLSON