Abu Dhabi is giving its public sector employees an ultimatum: move from glitzy fun-filled Dubai to the conservative capital or lose your generous housing allowance. This looks like a radical if desperate attempt to patch up its property market.

 

First there was a $10 billion bailout for its largest developer, Aldar Properties, with the last instalment last December. Then the government pushed for a merger of the troubled firm with its top-listed rival Sorouh Real Estate, a union that bankers are still working on.

 

The relocation of all of Abu Dhabi employees that work for the government or its wholly-owned entities but currently live outside of the emirate would certainly help the capital absorb a large chunk of new housing and prevent a further nose-dive in prices. Average residential housing prices have more than halved since the property slump began in 2009. It will also create a more productive workforce.

 

Just to live in Dubai, almost 20,000 people make the hair-raising daily commute to Abu Dhabi at rush hour, which can take up to two hours. More than half of those will be affected by the new rules. That's around the same number of new residential units that are expected to flood the market in the second half of this year, according to Jones Lang LaSalle. In total, 25,000 units are due to be delivered in the next 18 months.

 

Housing allowances can constitute up to half of a total monthly salary for foreigners working for the government. If the policy works in bullying people to move, it will be a rare coup for Abu Dhabi in its old rivalry with its more popular neighbour, which has a demographic dynamism that the capital looks on with envy. Abu Dhabi is probably half a decade or more away from replicating Dubai's current living standards.

 

Yet scepticism remains over the interventionist approach. Putting an artificial floor beneath Abu Dhabi's real estate market will make property problems worse in Dubai, which also suffers from oversupply. 

 

At worst, it will breed innovative workarounds with professionals registering at addresses that they don't really live at, drive up labour costs for the government, and result in larger numbers rushing to Dubai at the weekends. 

 

Still, however imperfect, Abu Dhabi is acting to solve its real estate nightmare, and shake its reputation as a dull capital. 

 

Context News

Abu Dhabi government employees will be required to live inside the UAE capital within a year, the official Wam news agency reported on September 16.

 The decision was made to ensure the safety of employees commuting long distances, often in bad weather conditions, according to Wam.- Reuters Breakingviews

* The author is a Reuters Breakingviews columnist. The opinions expressed are her own