Sorouh Gates construction – courtesy Sorouh

Aldar, the company that developed Abu Dhabi’s Yas Marina Formula One race circuit, has been massively funded by the government there.  With recent EU economic woes increasing, and the price of oil stagnant, its the companies are a bit “on the ropes” as far as potential profitability and liquidity are concerned. Goldman Sachs and the National Bank of Abu Dhabi are leading talks over the proposed merger, while Credit Suisse advises Aldar, and Morgan Stanley works with Sorouh individually. Challenges remain regardless of any talks however, the country being faced with ever increasing suppl-demand concerns regarding their property holdings.

Shares of the two companies jumped a bit on the news of a potential merger Aldar still being up 35.9 percent year-to-date and Sorouh up 36 percent, according to reports. On a final note here, if attention to a corporate website means anything at all, Aldar’s new one, plus the fact that there has been no press release posted on the old one in a year, shows a company focused elsewhere beyond growth for us. Aldar’s last press release spoke of the Abu Dhabi Education Council penning a deal with the property group in October of 2011.

As for the most recent construction project reports, this PDF from the firm shows a bit of where those billions are tied up. Not to be too critical, but throwing money into such projects as YAS Water World Abu Dhabi at a time when most of the world cannot afford lunch, this is not exactly gripping investment potential.

As for Sorouh, the news front is slightly better online visibility wise at least. The company website shows a release having been made for the completion of the world’s tallest bridge structure of a penthouse at ey residential development. We’re not sure exactly who keeps records of such world records, but Richard Amos, the company’s CFO, looks as if he’s lost some sleep in the 2012 report given below. Not to sound too critical, sometimes the little signs add up to a lot in these matter. It remains to be seen if the two companies will merge, and whether or not any such merger can result in black ink for those concerned.

Middle East countries to develop more affordable homes © Cobabunga - Fotolia.com

Their main motivation is obviously to sell more property, but they are also being encouraged by their governments, who are trying to improve living standards throughout the region, as the lack of affordable housing was part of the reason for the recent unrest in the region. Bahrain and Saudi Arabia have realized this is a real issue, and Saudi Arabia has already promised to spend around $30 billion on building more affordable homes and creating jobs. King Abdullah has also pledged $67 billion which will be spent on 500,000 new homes.

Bahrain has a shortfall of around 50,000 affordable homes, and is now looking towards filling this shortage. The governments do have a certain amount of influence over the developers as they are able to launch large housing projects and award the contracts to state linked firms. Some developers are partly owned by the government, or have been bailed out by the state. The largest developer in Abu Dhabi, Aldar Properties received a $5.2 billion bailout from a state owned fund, and whereas in the past it has built Abu Dhabi’s Formula One racetrack and the marina and yacht club, its focus is now on mid-income housing.

In Dubai, Nakheel, the state’s largest developer has just written off $21.4 billion from the value of its real estate property in the wake of the world’s biggest downturns, and Nakheel was forced to reduce its workforce and to halt a number of projects including the man-made islands of Jebel Ali and Deira. Bahrain also has an enormous housing project underway on a six billion-dollar development of artificial islands called Durrat Al Bahrain, but unlike Nakheel’s Dubai Palm development, most of the housing is in the mid-income range.

Even if the government wasn’t encouraging developers to build more affordable homes, it would make perfect sense for them to shift their focus towards mid-income housing.

The Sun & Sky Towers, Abu Dhabi's tallest construction. Image courtesy of MarceloDubai

Additionally, the developer generated earnings from numerous housing projects in the UAE, as well as rental income from its portfolio of property investments and revenue from subsidiary companies.

Talking about the company’s stronger than expected financial performance, managing director Aubaker Seddiq Al Khouri explained that “the increase in profitability has mainly been driven by us handing over Sun and Sky Towers, which is Al Reem Island’s first completed project.”

The handover, while far from complete, remains “very much on track”, with almost 150 families now already living in the Sun and Sky Towers, which was finally beginning to feel like a community, said Al Khouri.

“In addition, there has also been an encouraging demand for leasing and sales in the two towers, which we believe has been spurred by our rent-to-own innovation, which is the first offer of its type seen in Abu Dhabi,” he continued.

Artist's impression of Al Reem Island's vision. Image courtesy of Emirates 247

“By maintaining a strong delivery program and making efforts to boost our earnings we have ensured that we stay ahead of the field as the finest example of a robust business model. By continually strengthening and diversifying our streams of income, through expanding our recurring income portfolio and also engaging with the government more in housing projects, we are setting an example for others to follow.”

Al Khouri also said that, looking ahead to the final six months of 2011, the company expects to see more progress in its business profitability.

“In the long term, the case for investment in Abu Dhabi is very compelling, and we intend to continue doing so,” he revealed.

New properties in Abu Dhabi could see rents drop by 10%. Image courtesy of Real Estate Channel

If this prediction is true then it would be extending a decline which could last several years.

The construction industry in Abu Dhabi suffered from the financial crisis at a much earlier stage than Dubai, although its subsequent decline has been much slower than the spectacular free fall suffered by Dubai, which is currently the worst performing market in the Middle East. Since the height of the boom rents in Abu Dhabi have dropped 40% from their peak according to Jones Lang LaSalle.

Apparently there will be 50,000 new homes which is 27% of the current supply in Abu Dhabi completed by 2014, with around 16,000 being completed this year. The worry is that developers may need to drop rents by more than 10% in order to attract tenants.

Last decade's construction boom has seen Abu Dhabi flooded with new properties. Image courtesy of Blogspot

It’s estimated that the market may take up to three years to absorb this supply of new homes, and that the oversupply will prevent rent and price increases. Offering tenants long-term leases and making sure properties are managed effectively will help mitigate some of the risk, and could help attract REITs and investment funds in the future.

At the moment the UAE isn’t an attractive prospect as yields and transparency need to improve. The property market in Abu Dhabi was only opened up to foreign buyers in 2005, some three years later than Dubai.

Visit the original news source, Zainab Fattah at Bloomberg.

Park Hyatt Abu Dhabi Hotel and Villas

The Tourism Authority in Abu Dhabi expects 2.7 million visitors in 2012, and the new hotels will help keep all of those happy, comfortable, and ready to shop or do business in the Arab emirate.  The Hyatt Capital Gate is catered to the needs of business guests, while the Park Hyatt Abu Dhabi Hotel and Villas offers a peaceful resort atmosphere for leisure guests.

“Both our hotels are situated along the beautiful turquoise waters that surround Abu Dhabi and offer stunning views of the city’s natural coastline. While Park Hyatt Abu Dhabi Hotels and Villas offer an escape from the city, Hyatt Capital Gate is in itself, an escape within the city,” said Thierry Bertin, Vice President of Worldwide Sales, South West Asia, Hyatt International.

Hyatt Capital Gate in Abu Dhabi

The 5-star Hyatt at Capital Gate earned a spot in the Guinness Book of World Records as the “World’s furthest leaning man-made tower”, leaning four times farther than the Leaning Tower of Pisa.  It stands 524 feet high with 35 stories and 200 rooms.  It leans 18 degrees west.  Development of the project began in September of 2007.

Park Hyatt Abu Dhabi and Villas is located on Saadiyat Island on nine kilometers of environmentally protected coastline with views of the waterfront from most of its rooms.  With 306 rooms, suites, and villas, it is designed with luxury and relaxation in mind.  The resort includes swimming pools, the Atarmia Spa with nine treatment rooms, private terraces, fitness facilities, and a tennis court.

London real estate remains popular with the world's rich. Image courtesy of blog.luxuryproperty.com

Both cities remain at the top of the global cities index in the Wealth Report, with property accounting for around 35% of ‘High-net-worth individuals’ portfolios, coming second only to business investments.

Interestingly however, the report also shows that the world’s wealthiest people see Asian cities such as Mumbai and Shanghai slowly closing the gap on New York and London in the next decade.

Citi Private Bank. Image courtesy of HBR Consulting

Despite these positive indications, there were a number of cities where the value of property decreased quite significantly, such as Dublin, which saw a huge 25% drop, while property values in Dubai fell by 10%. Other cities, ranging from Los Angeles and Chicago to Abu Dhabi and Hanoi also suffered with falling prices and oversupply, causing those once booming markets to readjust.

Monaco real estate is still the world's most expensive. Image courtesy of Metrolic

Overall, 14 cities slid down the rankings in the report, while 16 moved up, including 8 cities from Asia, with Shanghai and Kuala Lumpur leading the charge. However, the western world also saw some success, notably in Munich, the city’s resurgence indicative of renewed confidence in the German economy, while Toronto and San Francisco also performed well.

The most expensive residential location in the world remains Monaco, trailed by London in second place.

According to the report, cities with the most appeal to investors in Asia are those that are seeing a strong recovery from the economic downturn.