Abu Dhabi: A wealth of opportunities

Hundreds of thousands of homes are due to be built in oil-rich Abu Dhabi. Christopher Hall gets a preview

Combine an extraordinarily wealthy local economy with a fabulous climate and a pro-property business regime, and you usually create a booming market for new homes.

Add a touch of glamour such as a new Formula One grand prix circuit and an upmarket international theme park, and you have a winning mix. Put it all in the world's most prosperous emerging region, the Middle East, and you have both a great property investment opportunity and a sought-after second home destination. Welcome to Abu Dhabi.

"It's like a formative version of Dubai, some 90 miles away, in that the developments so far are high-rise and high-density. But it's a more lucrative and expensive market because it has wealthier locals and it may learn from Dubai about improved infrastructure," explains Alex Upson, of British estate agency Cluttons, which is opening an Abu Dhabi market in the autumn.

Abu Dhabi is the richest of the seven emirates in the United Arab Emirates, and has an extraordinary demographic profile. The average net worth of its 420,000 citizens, including assets such as oil and gas reserves, is £8.75m per person. In each of the past two years, per capita income grew by 9 per cent. Abu Dhabi has the biggest fossil fuel reserve in the Middle East and is the fourth largest natural gas producer in the world. Little wonder, then, that its property industry has until now taken second place to the development of its natural resources. However, all that is about to change.

Its population is currently 930,000, but is set to rise to 1.3m in 2013 and two million in 2020.

"Literally hundreds of thousands of new homes are scheduled to be built in the Abu Dhabi region in the coming years to accommodate a growing population and the need for consultants working in the booming oil and IT industries," explains Upson.

Some of those are likely to be holiday homes, as Abu Dhabi wants tourism – including property purchase by foreign holidaymakers – to rise from its current 750,000 to three million by 2015. It has identified two islands as key locations for holiday homes.

Al Reem, about a 30-minute drive from the international airport, is earmarked for 280,000 permanent residents, shopping malls, a golf course, resorts and artificial beaches, with the first elements having a scheduled completion date of late 2009.

Among the residential schemes, there will be Harbour Heights, a 40-storey tower with on-site recreation centres, a healthcare centre, schools, hotels, shopping centres and, in the grounds, golf courses and beaches. Nearby is Marina Bay, a 24-storey mixed-use scheme of hotels, shops, offices and, on the upper floors, apartments overlooking Al Reem marina.

"Abu Dhabi is growing fast, and the landscape is set to witness a significant change in the coming years. Coupled with the current construction boom and expected increase in population to more than double within a decade, this makes Abu Dhabi an ideal investment opportunity," claims Hussain Sajwani, of DAMAC, the UAE developer responsible for both Harbour Heights and Marina Bay.

Yas Island, under construction now for 18 months, will be completed sooner, as it has to host the 2009 Abu Dhabi Grand Prix next spring. There will also be a Ferrari theme park, hotel and beach resorts and a watersports theme park.

"In keeping with Abu Dhabi, these are likely to be distinctly upmarket compared to the Disney variety of park. The apartments that will be built on Yas and Al Reem will be similarly distinctive and expensive," predicts Upson. Some attractions coming in the near future include local versions of the Guggenheim and Louvre museums.

In years to come, there will also be a landmark suburb called Masdar, designed by British architect Lord Norman Foster. This will be a car-free, carbon-neutral scheme for 50,000 people, located in a 6.5 square kilometre plot which has been ear-marked for 1,500 energy-efficient IT businesses.

The residential property market in Abu Dhabi has only recently been thrown open to international investors, with most so far still coming from within the Middle East region. The surge in demand has led to a predicted 25 per cent price increase in the year to late 2008, and a 35 per cent rise in rental value, according to research by the investment bank EFG-Hermes.

"A structural shortage of good quality space across the various types of real estate, combined with pent-up demand and strong immigration growth prospects underpin the supply-and-demand dynamics of the real estate market," says Sana Kapadia, the report author.

A recent research report from Strutt & Parker, another British estate agent that has a new office in Abu Dhabi, suggests that office space will double to 2.7 million square metres by 2013 and rise to 4.5 million by 2020. Retail space will soar from 860,000 square metres today to 2.8 million by 2013 and 4.7 million by 2020.

"There is currently a historic undersupply in all real estate sectors," says Strutt's UAE director Miles Payne. "At the same time, there's an oil boom and large sovereign wealth funds are adding liquidity to the region."

Property investors and holiday home buyers with a taste for the exotic have seen this kind of development before in Dubai. It was thought at the time that was a one off, but it seems Abu Dhabi is another emirate with aspirations to become a property hub – and there is every indication that such ambitions will pay off.

Buyer's guide

*Foreigners may buy 99-year leases on properties in designated "Investment Areas" such as Al Reem, Saadiyat Island, Al Raha Beach and Yas Island.

*Off-plan properties are secured with a 10 per cent deposit and stage payments, as in Dubai, and most other "mature" property markets.

*There are registration fees of up to 2 per cent of a property's purchase price. A service charge is then paid annually in advance.

*Securing a mortgage can be complicated. Many foreign investors buy in cash by extending the borrowing on their principal home.

*There is no corporation or income tax, and there are no restrictions on the repatriation of capital or rental revenue.