Abu Dhabi remains far from entering a boom-and-bust cycle in its real estate market even though property prices in the wealthy emirate are rising sharply, executives said at a major industry fair.
Both Abu Dhabi and neighbouring Dubai suffered property price plunges of 50 percent or more as bubbles in their markets burst between 2008 and 2010, so the latest upswing has raised the possibility of them overheating again.
That risk was largely dismissed at this week's Cityscape property exhibition in Abu Dhabi, however. Industry executives said the local market had room to rise further without becoming overstretched, and that it had not become as frenzied as Dubai, where some prices have returned to near their pre-crisis peaks and a pull-back looks possible as soon as next year.
"I think the market has still got some way to go in terms of growth. Values have remained very stable for a considerable amount of time," Paul Maisfield, chief executive officer of real estate management firm MPM Properties, said of Abu Dhabi.
"It's only in 2013 that prices started to appreciate. We're seeing that extend into Q1. Prices will continue to grow throughout this year."
He added: "There's some way to go before we reach the top of the market. And there is still a sizeable gap between prime Abu Dhabi and prime Dubai. This will allow for future price growth (in Abu Dhabi) in the next 12 months."
Average prices in Abu Dhabi and Dubai are not far apart; according to an estimate by JLL earlier this year, average apartment prices were 1,190 dirhams ($325) per square foot in Abu Dhabi, only marginally below 1,220 dirhams in Dubai.
However, parts of the Dubai market, which began rebounding in late 2011, have seen more wild swings thanAbu Dhabi. There has been a much bigger influx of foreign money, some of it highly speculative.
By contrast, the Abu Dhabi property market's recovery has been triggered largely by local government regulatory steps to stimulate demand, including a decree depriving Abu Dhabi public sector employees of their housing allowances if they do not live within the emirate's borders.
Last November, Abu Dhabi scrapped a 5 percent cap on annual rent increases. This made investment in property more attractive; since then, landlords have hiked rents by as much as 50 percent in some cases.
"I think we are on the cusp of a recovery. The recovery has extended into a slightly more sustainable increase in value. I wouldn't term it a boom. I think that will come as more supply comes into the market," said Gurjit Singh, chief development officer at Aldar Properties, Abu Dhabi's biggest developer.
"Over the next 24 months or so we'll probably see an increase in both rents and prices. Rents and prices are both increasing, and prices are increasing faster than rents."
Abu Dhabi's real economy is growing strongly, with gross domestic product officially forecast to grow 6.7 percent this year after 7.4 percent in 2013 - rates at least one or two percentage points faster than Dubai.
"I don't think people are worried about a bubble. This year there's positivism in the market, but also maturity in the market. You don't have people coming in wanting to buy 10 units, as in the past. There is demand, and it's being driven by growth in the economy and number of jobs," said Aldar chairman Abubaker Seddiq Al Khoori.
"We have seen lots of changes and regulations coming into the market. Today we have more experienced people, developers and investors, more stringent regulation when it comes to registration and mortgages."
Maisfield noted that Aldar was now introducing resale restrictions to deter excessive speculation. For example, buyers must pay 50 percent of a property's value before they can sell it on.
"Whether other developers will bring in such controls remains to be seen," Maisfield said.
Some other steps to prevent the property market from overheating affect the entire industry; last year the central bank imposed caps on mortgage lending for home purchases.
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