Abu Dhabi // The Gulf could face a property market crash if the region is hit by a political crisis or demand for housing suddenly drops, an Arab League official has warned. But Dr Refat al Faouri, director of the league's Administrative Development Organisation (AADO), also reassured investors yesterday that with the current stability and plentiful supply of capital, the construction boom was likely to go on for some time.
His only concern was that inexperience, insufficient legislation and a lack of focus on green building techniques could mean the industry did not develop to its full potential. Dr Faouri was speaking at a meeting to launch the first Arab real estate and urban development conference, which is being organised in conjunction with Abu Dhabi's Chamber of Commerce and will run from Oct 26-28. He said: "A property crisis can happen here in two cases. One, if supply exceeds demand. Two, if a political and military problem breaks out." But as both were unlikely, "there shouldn't be any fear of investing in property, which always serves as a safe haven against any turbulence".
The region had strengths that would keep the building boom going - capital, an increasing population, and social and political stability. "All of these are investment attractions," he said. But Dr Faouri said there were also challenges, including lack of experience in property management, gaps in the law, insufficient expertise in property appraisal and a dearth of environmentally friendly buildings.
October's conference is expected to address these issues and suggest mechanisms to help overcome them. At least one report is expected to give an estimation of the size of the region's property market. The conference will also look at the mortgage crisis engulfing the US and see if there are lessons to be learnt. Dr Faouri said: "Avoiding a mortgage crisis is very difficult, but being ready for it can alleviate its implications."
Mortgages make up a small proportion of the UAE economy at the moment but their importance is likely to grow. EFG Hermes, an investment banking company, in a study released last January, predicted a ten-fold growth of the UAE's mortgage market from US$4.4bn (Dh16.5bn) today to US$44bn by 2012. Currently 60 per cent of the UAE mortgage market is controlled by two companies, Amlak and Tamweel. Analysts were confident the UAE's property market would continue to flourish as a result of its dramatic population growth and its ongoing economic liberalisation.
EFG Hermes estimated earlier this year that the country's population would increase by 1.4 million over the next five years. And the Government has announced the introduction of legislation to facilitate foreign investment. Othman Zubair, a consultant with the AADO, said conference organisers had set themselves two goals - to outline a strategy to avoid a crisis like the one that has hit the US mortgage market and give advice and insight into the region's fledging property market. "We are aiming at coming up with a future vision for the Gulf's property market by drawing on the US experience."
* With additional reporting by Omar Zaafrani firstname.lastname@example.org