If you missed the boat (or rather the abra) with Dubai, why not try Abu Dhabi, suggests Joan Gill

Abu Dhabi has a lot going for it; the largest and wealthiest of the emirates, it is also the richest city in the world. It contributes to 60 percent of the United Arab Emirates’ (UAE) GDP as well as 95 percent of its oil reserves and 92 percent of the proven gas reserves. The GDP per capita is currently US$98 billion and is expected to reach US$159 billion by 2010. According to Fortune magazine, the emirate’s 420,000 nationals are worth US$17 million a piece.

Why should you think about buying property in Abu Dhabi? Just look at the numbers. The current population of Abu Dhabi City is 900,000 and is expected to grow to 1.3 million in the next five years; the population of Abu Dhabi the nation is over 1.5 million and will likely grow to 1.75 million by 2010. Abu Dhabi’s economy is rocketing and experts are predicting that 250,000 residential units will be needed in the next 10 years, 100,000 of which will be required by 2010.

Abu Dhabi is following hot on the footsteps of Dubai, and over the next five years the government plans to spend US$200 billion on infrastructure projects, tourism and real estate. The construction sector alone was worth US$6.5 billion in 2007, and by 2012, 2.7 million tourists are expected to visit annually.

Housing in Abu Dhabi doesn’t come cheap, as the country is cashing in on the success of its neighbour, Dubai, rather than working on a “build and they will come” philosophy. But property laws as of August 2005 allow 99-year land ownership to foreigners in specific areas, namely Al Reem Island, Al Raha Beach, Yas Island and Saadiyat Island.

Investor hotspot Al Reem Island, currently being developed by three different companies (Sorouh Real Estate, Tamouh Investments and Al Reem Investments), is a natural island located about 500 metres off the coast. Covering 633 hectares with 77,000 units, it will be home to 280,000 residents and host facilities ranging from schools, medical clinics and malls to golf courses, hotels, resorts and beaches on completion in 2012.

Property prices here range from US$490 per square foot to US$1,225 per square foot (HK$3,827 to HK$9,569). Potential investors should be advised that while most of the units are only available on the secondary market, some select companies are able to sell units directly from the developer.

One such is IP Global, a Hong Kong property investment partner. Managing director and founder Tim Murphy says, “I bought and sold 27 complexes [on Al Reem Island] from Hydra Properties within one day. Since then I’ve been begging them for just 20 or 30 more.” These units at Hydra Heights went for between US$544 per square foot and US$605 per square foot.

Murphy has recently obtained several floors of serviced apartments in the adjacent Hydra Executive Tower; these are on the market for around US$760 per square foot.

The good news for potential landlords is that, according to Colliers International, high income asking rent now amounts to around US$45 per square foot a year, while mid-income is about US$35 per square foot a year.

What’s more, Murphy points out that “those interested in renting property in Abu Dhabi have to pay up to a year’s rent in advance”.

Demand for housing is currently surpassing supply with occupancy levels hanging high around 98 percent. Long waiting lists for tenant hopefuls are common on virtually every development, and many apartments are even let months prior to their completion date.

Colliers reports that the second half of 2007 saw a 22 percent increase in rental prices and an 18 percent rise in sales prices, with commercial properties following a similar pattern. Rental returns have risen 20 percent on average per year over the last two years, and sales prices grew 53 percent during the 2007- 2008 period (up from 18 percent the previous year).

As with any investment, there are some underlying risks. Commercial director of Hydra Properties Mohamad Al Habech draws attention to rising construction costs, and says that “the current rate of inflation is ranked around 9 percent but unofficially it is more like 19 percent”.

Nonetheless the future of Abu Dhabi looks rosy. Habech predicts that “while rental yields will continue to rise, the property market will continue to be active with a secondary market soon to develop. Residential space will remain scarce, meaning that investing in Abu Dhabi will remain a smart idea.”