VZCZCXRO4866
RR RUEHDE
DE RUEHAD #0674/01 1831059
ZNR UUUUU ZZH
R 021059Z JUL 09
FM AMEMBASSY ABU DHABI
TO RUEHC/SECSTATE WASHDC 2672
INFO RUEHDE/AMCONSUL DUBAI 8326

UNCLAS SECTION 01 OF 02 ABU DHABI 000674 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN SOCI PGOV AE
 
SUBJECT: UAE REAL ESTATE: DOWN BUT NOT OUT 
 
REFS:  A) DUBAI 12 
 B) 08 ABU DHABI 1285 
 
¶1. (SBU) Summary: That the UAE experienced a real estate boom 
through early 2008 is well known.  Equally well know is that the 
Emirates experience a subsequent bust driven in part by the world 
financial crisis.  In response, UAE federal and local governments 
strengthened much needed real estate regulations, and developers 
consolidated and cut back projects.  The market is now seeing 
promising indications of stabilization, although concerns remain. 
Analysts say Gulf investors remain interested in the UAE property 
market, while local residents continue to look for real estate 
bargains.  End Summary. 
 
-------- 
The Boom 
-------- 
 
¶2. (SBU) During 2007 and early 2008, the prices of UAE real estate 
increased significantly, shooting up almost 300 percent.  (Note: 
Much of this growth was driven by new policies allowing foreigners 
to buy dwellings, but not the underlying land.  End Note.)  The 
spectacular returns led to significant speculation (in the form of 
rapid purchase and resale known as "flipping") and investments by 
many who had no intention of living in the properties they bought. 
Strong economic growth led to a demand outstripping available supply 
(especially in Abu Dhabi) driving up prices, according to Redha 
Maslam, Director of Tharwat Economic Consultancy Company. 
Residential and commercial rent in all emirates, particularly Abu 
Dhabi and Dubai, rose significantly, crossing 100 percent for some 
apartments.  The UAEG passed laws to cap annual rent increase at 
five percent in Abu Dhabi and in Dubai, but little regulation of 
property sales existed. 
 
-------- 
The Bust 
-------- 
 
¶3. (SBU) According to Property Wire report, UAE real estate prices 
have declined 65 percent from September 2008.  Owners, unable to 
secure loans or now unemployed, refused to make installment 
payments, asked for revised payment plans or just abandoned their 
down payments.  Many developers were unable to continue construction 
or pay subcontractors for completed work.  Morgan Stanley estimates 
that more than USD 260 billion in projects have been cancelled or 
postponed in the past year.  Market studies indicate that rental 
prices have now fallen to 2006 levels in Dubai, and early 2008 
prices in Abu Dhabi.  Dubai's Real Estate Regulatory Authority 
(RERA) statistics indicate that the average annual rent for a studio 
in Dubai Marina now ranges from USD 17,697 to USD 20,419, from a 
peak of USD 24,503.  A one-bedroom apartment in the Greens 
development now has declined to USD 24,503 from USD 35,383. 
Expatriates working in Abu Dhabi are increasingly commuting from 
cheaper rentals in Dubai, as the capital's rental demand still 
outstrips supply (Ref B). 
 
------------------- 
GOVERNMENT RESPONSE 
------------------- 
 
¶4. (SBU) As prices collapsed, government officials moved swiftly to 
regulate and support the real estate market.  The Dubai Land 
Department issued an amended law (No. 9 of 2009) to help developers 
complete projects.  The retroactive law ties buyer refunds to the 
project completion, making it harder for investors to exit 
properties near completion.  Amendments stipulate that in cases 
where developers have completed at least 80 percent of construction, 
a purchaser who defaults will lose all the money paid.   Abu Dhabi 
and Ras Al Khaimah are also creating real estate regulatory 
authorities, modeled after Dubai's RERA, to regulate the sector, 
particularly "off-plan" developments (Ref A). 
 
¶5. (SBU) In an effort to attract new investors and retain current 
owners, the UAE Ministry of  Interior finally clarified in May that 
foreigners who own developed real estate (valued at over USD 270,000 
(AED 1 million) can enter the country on a multiple entry visa and 
stay up to a maximum of six months.  While some investors claim 
other requirements, such as having a fixed monthly income of almost 
USD 2,723 (AED 10,000) are excessive, clear regulations are 
appreciated.  The federal and local governments are also encouraging 
mortgage industry growth to spur new purchases.  Historically, few 
Emirati properties were financed with a mortgage, as nationals 
received government assistance and expatriates were not allowed to 
buy real estate (prior to the recent liberalization).  The industry 
was tarnished by the near bankruptcy of two of the UAE's largest 
mortgage lenders, Amlak and Tamweel, who have been rumored to be 
slotted for merger, perhaps with the newly created Emirates 
Development Bank.  However, the CEO of the new Abu Dhabi Finance 
Company told EconOff that consumer interest in his products remains 
high. 
 
 
ABU DHABI 00000674  002 OF 002 
 
 
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Signs of Recovery 
------------------ 
 
¶6. (SBU) As summer approaches, reports indicate signs of 
stabilization -- and even recovery.  Press reports indicate that Abu 
Dhabi rents have risen as much as 20 percent, while Dubai property 
sales rose six percent in recent weeks.  A recent HSBC survey shows 
real estate prices rose four percent in April and five percent in 
May 2009, but warned that it is too early to call it a trend. 
According to the report, the stabilization in pricing appears to be 
the result of several factors, including:  low base prices, 
improving liquidity, declining mortgage rates, attractive rental 
yields, robust volumes, and improving consumer confidence.  Foreign 
investors also seem to be back in the market, and the majority of 
transactions are being conducted without financing.  Industry 
analysts report Gulf investors continue to have strong interest in 
UAE real estate, particularly in Dubai, which remains a popular 
regional destination for business and tourism.  One Dubai business 
man told us capital flight from Iran and Pakistan has also prompted 
significant new investment in Dubai in the past 1-2 months. 
 
¶7. (SBU) However, others remain pessimistic.  A senior Abu Dhabi 
government official believes real estate prices may continue to 
decline through 2010.  Faysal Urfali, General Manager of 
International Development Company (IDC), a leading Abu Dhabi 
business group, told EconAssistant that he did not expect the Dubai 
real estate sector to fully recover before late 2010.  The 
unrealistic prices of the boom have fallen, but demand is still 
slowing.  In contrast, properties in Abu Dhabi are still demanded by 
foreigners, even in areas which are not yet allotted for foreign 
ownership. 
 
¶8. (SBU) Comment: While prices appear to be stabilizing, most 
investors recognize that the dizzying returns of 2007 are gone for 
good.  Dubai's focus has clearly shifted from real estate to core 
business in logistics and services.  Abu Dhabi's economic 
development plan targets diversification in non-construction 
sectors, particularly industry and manufacturing.  The new line from 
many Emirati business and political leaders is that the worst is 
over, but the full extent of real estate losses -- and related 
financial sector repercussions - likely remains to be seen.  End 
Comment. 
OLSON