Saturday, June 30, 2007

'Abu Dhabi homes are under-priced', says HSBC Global report

Despite the 53 percent higher Gross Domestic Product (GDP) per capita in Abu Dhabi, the average residential property prices are almost ten percent cheaper, says new research.

The HSBC Global Research in its report mentioned that "if we take Dubai as a proxy and follow the regression trend, the current GDP per capita level, the pricing of the houses in Abu Dhabi stands at Dh.14,808 ($4,035) per Square meter, rather than Dh.11,230 ($3,060) says the new HSBC Global Research report."

Residential prices in Dubai and Abu Dhabi stand at Dh.12,371 and Dh.11,230 per square meter, respectively.

In case Abu Dhabi readily opens up the property sector to the same level as Dubai, the residential property prices are likely to shoot up, says the report.

Buyers from foreign countries are permitted to purchase 99 year leases, while the investment in properties is limited to specific areas in the capital.

According to HSBC, the market rigidities and the regulations are actually curbing the potential demand, and hence the prices.

Despite the population being highly skewed towards expatriates, the foreign property ownership is comparatively restricted. There is less incentive for the expatriates to win the residency status and the settlement is impractical.

Just as in other cities, foreign workers are not eligible for permanent residency or for citizenship. The report states that "Limited accessibility to mortgage lending, coupled with high mortgage rates that are as high as seven to eight percent, are actually blocking price appreciation." Moreover, the mortgage penetration rates are the lowest in the UAE. Penetration in Abu Dhabi is even lower as more than ninety five percent of home financing takes place in Dubai.

Due to such low penetration rates, growth rates are high, and the mortgage lending in the UAE is growing by almost eighty percent during 2006.

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