The unrealistic growth on the real estate sector due to speculation is a serious challenge that has put real estate financing on higher risks, says a report by the Abu Dhabi Chamber of Commerce and Industry (ADCCI).
In a research report, Abu Dhabi's main trade body has said that real estate financing in the emirate is projected to shoot up to $40 billion over the next five years, driven by the $354 billion in construction projects announced so far, record surge in demand for housing units and soaring rents of residential apartments.
But, the remarkable growth is not without any challenges.
Lack of adequate regulations to regulate the real estate market; absence of long-term in-depth studies, risk management analysis and forecasts at the GCC level; Long-term bank financing in real estate investment could affect bank liquidity.
It said that rapid developments in the sector could invite contingent changes in the market. Any possible correction in the prices of real estate assets could harm real estate financing amid lack of legislations; Defaults of clients could plunge financiers into troubles.
The report has called for learning lesson from the US's subprime crisis, as the record growth in the real estate sector in the GCC in particular and Arab countries in general could result in credit crisis as happened in the world largest economy. Unexpected boom and accelerating demand have left banks and financing institutions with little room to introduce innovative financing products to satisfy great expectations of developers, contractors and investors. The ADCCI report says that abundant supply of up-scale properties doesn't cope with actual demand of medium and low-income categories for houses, leading to a decline in prices of units, thus overshadowing the sector at large.
There is strong need for regulations to regulate the real estate sector in attracting investment so as to protect interests of all stakeholders and maintain the growth momentum.
The report asked for chalking out a strategy to match projected growth in demand for houses with growth of supply under the economic expansion plan of Abu Dhabi. The ADCCI report asked for providing accurate data on demography, population increase, incomes, and number of young men and women planning to get married to forecast the deficit in the demand-supply equation for housing. The report recommended drawing a housing plan to cater for low-medium income groups.
Similar issues are facing Dubai, and recent attempts to regulate the out-of-control growth rate include:
The removal of guaranteed residence visas in Dubai for foreign buyers
A new law to regulate the mortgage market in Dubai
The introduction of a high capital gains tax on properties bought in Dubai and sold within a year