Marc Da-Silva looks at investing in the next big property investment opportunity in the United Arab Emirates.

June 18, 2008

The property market in Abu Dhabi is still developing and is not interlinked with the financial markets, as is the case in some other mature economies. Consequently, the property market in Abu Dhabi does not operate on the same fundamentals as a more established property market.

The release of new residential property schemes in Abu Dhabi is currently happening in a controlled fashion, thus avoiding an oversupply. Yet, the city's population is increasing, placing extra pressure on the property sector.

Furthermore, a glance at the United Arab Emirates' maturing mortgage market seems to suggest that property prices will indeed appreciate further. 

Buy to let
Investors in property in Abu Dhabi seeking a longer term property investment will be keen to learn that double figured property rental yields have been achieved by some buy to let investors. Prices of property in Abu Dhabi will therefore have to rise, so that property rental returns achieve traditionally lower yields, as is the case in more mature property markets.

Tax efficiency
As a domicile in Abu Dhabi, there is no Income or Capital Gains Tax to pay, making the emirate a tax haven, and there is no restriction on setting up residency. Property in Abu Dhabi is offered on a leasehold basis of up to 99 years, as there are no freeholds available. The cost of buying property in Abu Dhabi equates to around 1.5 per cent of the price of the property in Abu Dhabi.

The economy
Abu Dhabi has the largest fossil fuel reserve in the UAE, is the fourth biggest natural gas producer in the world, has the world's highest income per capita, is home to almost all of the Arabic Fortune 500 companies, and is currently sitting on over 88 billion barrels of proven oil reserves.

Nonetheless, the emirate is now actively trying to reduce its reliance on oil, and is diversifying its economy into the financial services and tourism sectors. Billions of pounds have been allocated for infrastructure projects and the development of residential, leisure and cultural schemes across the oil-rich emirate.

Abu Dhabi is determined to challenge Dubai and establish itself as a major tourist destination, buoyed by its subtropical climate and 700 km coastline of unspoiled beaches and cultural sites.

Tourist attractions include the Louvre and Guggenheim museum, a wildlife reserve, a UAE public library, the National Theatre, and the £13.5bn Saadiyat Island.

In 2009, Abu Dhabi hosted its first ever Formula One grand prix on the Yas Island, which includes a Ferrari theme park. Elsewhere, Aldar Properties is develop a $3 bn (£1.5 bn) Motor World, including service centres and a museum, as well as offices, hotels and homes for 30,000 people.

David Nicholls of EM concepts says: "The plans for Abu Dhabi are truly remarkable. The transport infrastructure is also already sound and the states pockets are bottomless."

The emirate is served by several major airlines, including British Airways, BMI, Eagle Air, KLM, Etihad Airways, Gulf Air, Qatar Airways and Lufthansa. 

James Gonzalez of Obelisk comments: "Abu Dhabi plans to be a premier global tourism destination. Within the next three years, the emirate will see major investment in airport infrastructure, which will increase airport capacity from seven million to 20 million passengers a year by 2011."

Abu Dhabi's rapid growth and rising tourism levels is driving demand, causing a massive property surge, similar to that experienced in Dubai a few years ago.

Some information contained within this article may have changed since it was first published. HomesOverseas strongly advises you to seek current legal and financial advice from a qualified professional.

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