J.P. Grobbelaar, director of research and advisory at Colliers International, a real estate consultancy, said high levels of speculation in residential and commercial properties prior to the crisis exaggerated the downturn. His comments came on the second day of the Ministry of Economy-sponsored Abu Dhabi Outlook Summit.

"The downturn in the property market was expected for some time," said Grobbelaar. "No one expected it was going to be as severe, but it had to happen. In many ways the correction was a good thing for the market because we are now returning to fundamentals."

Grobbelaar said a healthy recovery of local property markets will have to be based on supply and demand, factors which developers seem to be relying on more now rather than speculation.

Residential rent values in Dubai have declined by 38 per cent since the beginning of the year according to HC Securities research. Abu Dhabi has seen an 18 per cent drop, according to Colliers.

Investor activity

Analysts point to the recent increase in investor activity in both markets as evidence of initiation of recovery.

"It seems like the market is being driven by excess liquidity and easy monetary policy," said Majid Azam, Middle East and North Africa real estate analyst for HC Securities. "With low interest rates and a depreciating currency, money is moving out of the banks and into real assets, including property."

He said the oversupply of residential units in Dubai and undersupply in Abu Dhabi is causing a "spill-over effect" from the latter and slowly transforming both markets into one.

Source: Zawya