"We have been seeing a rapid acceleration in growth over the past two to three years, not just in terms of new projects that have been launched but also in prices of properties. But this spurt in property prices on Reem Island is unbelievable. Although Abu Dhabi is a very interesting market, we think that the market is currently being driven to a large extent by speculation," Vincent Easton, sales director, Sherwoods Independent Property Consultants, told The Business Weekly.

Although speculation is healthy - it helps draw international interest, capital and attracts investors who can make rapid short-term gains - it is unfortunately not sustainable, he added.

Rapid appreciation
"There are chances that you are creating a bubble effect. Ideally what should have been a gradual appreciation over three years happens in just a nine-month period, it raises questions as to where the market will move going forward from here," he warned.

Easton observed that when a market attracts mainly speculators interested in short-term gains, a risk factor was involved over when they would exit or whether they would have the commitment to continue their future payment plans.

"In some cases, there is a chance that defaults may occur with regard to funds available for making those payments," he said.

"There have been instances where payment plans would be 2.5 per cent on day one and a second 2.5 per cent payment in 30 days time. However, there are many players in the market who were buying at 2.5 per cent and trading out before their second payment. This may be okay when the market is accelerating at a fast pace and demand is outstripping supply. But if for whatever reason that starts to slow down, a risk scenario emerges with the exit of speculators," he explained.

Healthy level of interest
Easton said the situation was no different in Dubai, where during the first six months of this year, thousands of people were queuing up overnight during Emaar's launch of residential units in Downtown Burj Dubai, when only 200 to 300 units were available.

"So there is still a huge demand for premier projects. This is fine and shows that there is still a healthy level of interest in the UAE," he added.

Compared to other international cities, Dubai is still a young market that is maturing gradually. "There has been a huge leap forward with the setting up of the Real Estate Regulatory Agency (RERA). Although there is the need for more structuring, regulations and more transparency in the market, RERA and the Land Department have done very well up to this point," Easton remarked.

By Vinod Kumar PK

© The Business Weekly 2008

 

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