US embassy cable - 03ABUDHABI2345

C O N F I D E N T I A L ABU DHABI 002345 
 
SIPDIS 
 
STATE FOR NEA/ARP, NEA/RA, EB, EB/CBA, 
EB/ESP, M/OBO/REPM/RPM, M/OBO/OPS/AM/NEA FOR DAN ROMANO 
AMEMBASSY TUNIS HOLD FOR FSI: OLIVER JOHN 
 
E.O. 12958: DECL: 5/12/13 
TAGS: ECON, EFIN, EINV, ETRD, TC 
SUBJECT: ABU DHABI: A RENTIER STATE IN MORE WAYS THAN ONE 
 
1. (U) Classified by Charge D'Affaires Richard A. Albright, 
for reasons 1.5 (B) and (D). 
 
2. (U) Local press reported that commercial and residential 
rents in Abu Dhabi jumped between twenty and thirty percent 
in the last year as the UAE capital maintained its status 
as one of the world's most expensive real estate markets. 
Western property consultants confirmed that the increase 
encompassed the whole rental market and not just unit 
prices, and was primarily driven by a sharp rise in 
commercial real estate rates mandated by the government 
body which oversees building construction and rental in the 
capital. Last year real estate grossed approximately $5.53 
billion -- a whopping nine percent of the UAE's total GDP, 
making it the third largest GDP component after oil and 
manufacturing.  Return on investment in real estate ranged 
between 6-8 percent, considerably higher than the five 
percent on stocks or 1-2 percent on bank deposits. 
 
3. (C) Rents in the capital are likely to increase further 
in the next two years as the Abu Dhabi municipality has 
temporarily decided to stop the common practice of 
demolishing old buildings and replacing them with new, 
larger structures.  The average operational life of a 
building in the UAE is generally less than thirty years due 
to poor construction materials and techniques compounded by 
the excessively hot and humid weather which adversely 
impacts concrete and metal. Given the continued demand for 
commercial and residential space, the moratorium on 
building replacement suggests that the Khalifa Committee, 
chaired by Abu Dhabi Crown Prince Shaykh Khalifa bin Zayed, 
will likely raise the rental floor (i.e. the minimum amount 
for which a given type/size of property may be rented) even 
higher in the years to come. (Note: The Khalifa Committee 
is the giant, Abu Dhabi government-funded real estate 
cartel which controls residential and commercial 
construction and rental in the greater capital area. The 
primary mechanism for redistribution of oil wealth to the 
general citizenry, the Khalifa Committee funds real estate 
projects, supervises construction, arranges for the leasing 
of buildings, and apportions rent to the ostensible owners 
-- effectively mandating minimum rental prices for both 
commercial and residential real estate. Unrentable 
facilities are simply left vacant, at considerable cost to 
the government. End note.) 
 
4. (C) Comment: Due to the lack of real estate options on 
the island of Abu Dhabi, landlords know tenants have few 
options when confronted with government mandated rent 
increases.  The moratorium on destroying and replacing 
older properties in Abu Dhabi -- a decision made by the 
Khalifa Committee -- reflects a belt-tightening decision on 
the part of government officials.  End comment. 
 
Wahba