First with Financial Comment from Arabia

Abu Dhabi repeating 90s building moratorium policy error

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Abu Dhabi risks repeating the building moratorium policy error of the late 1990s in cutting back on its construction programs.

According to a Bloomberg interview with Aldar Properties CEO John Bullough the emirate is limiting construction to avoid the housing glut and price declines that have battered the real estate market in neighboring Dubai.

90s building moratorium

In the late 1990s Abu Dhabi imposed a construction moratorium that left the emirate unable to cope with the rapid upturn in housing demand of the oil boom of the 2000s. Its real estate is among the most expensive in the world, and a shortage of housing has led many to commute from Dubai.

History appears to be repeating itself. Instead of projecting growth forward Abu Dhabi is indulging in a knee jerk response to the current market downturn. That means accommodation will therefore again be in short supply when the next oil boom happens, and Peak Oil theory suggests that may not be long away.

Then Dubai will again have the modern office accommodation, apartments and infrastructure for an oil boom, and be able to provide such space at a reasonable price. Indeed, the financial pain being experienced now will be rewarded by future rental streams.

There is always a good argument for building infrastructure during a boom when money is available and confidence high. This is fixed capital that nobody can take away when a boom subsides. Conversely building during an economic slump means cheaper construction prices and building material costs.

National priorities

If the UAE is true to its record then Abu Dhabi will step up its building program again just as the boom sends construction and material costs very much higher. Getting the national building program in step with a vision of economic development is very important.

It will be interesting to see which emirate has it right: Dubai in overbuilding during the boom and completing projects afterwards, or Abu Dhabi in starting late and dropping projects at the first sign of trouble.

But if Abu Dhabi is serious about its 2030 plan to expand its population from 1.6 million to five million within that timeframe then it ought to be building more and not less in the current recession.


Written by Peter Cooper

November 25, 2009 at 2:09 pm

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