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