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Abu Dhabi: The real estate sector in Abu Dhabi is at a financial risk as commercial banks avoid long-term mortgages in favour of short-term quick gains, the weekly report of the emirate's Department of Planning and Economy (DPE) warned.
"The boom in real estate business was not followed by appropriate finance mechanisms. Financial institutions lagged behind in providing property finance satisfactorily enough to meet developer, contractor and consumer expectations," the report said.
"Commercial banks, basically operating under a low-risk, quick turn-over policy, are interested only in short-term finance.
"Moreover, these banks are not allowed by the Central Bank to provide property loans more than 20 per cent of actual deposit portfolios, at a time when finance needed during the next five years is estimated at Dh500 billion; ten times the capital of all commercial banks combined.
"In addition, the real estate finance market is faced with certain challenges in the absence of organising laws, supportive mechanisms," it said.
Other challenges facing the sector in Abu Dhabi include imbalances in the supply relative to the demand for specific categories of housing, especially the middle and lower-middle income residents.
The increasing prices of building material pose yet another challenge for the healthy growth of the sector, while the problem is worsened by speculators who tend to overestimate the value of new units.
"This is a risky business which may result in a sharp drop in the value of new units, thus undermining the future of the sector and other supporting sectors such as building and construction," the report warned.
The land value in the capital has increased by more than 100 per cent from an average of $540 per square metre in 2005 to $1,100 in 2007, according to Colliers International, which forecasts that the share of Abu Dhabi in the UAE mortgage market will increase from 5 per cent in 2007 to 22 per cent in 2008.
The current supply of 180,000 residential units in Abu Dhabi is not sufficient to meet the growing demand, with more than 100,000 units needed by 2010 to balance the market, according to Colliers.
Nevertheless, the required increase is only expected to hit the market as from 2011, whereas 140,000 units are expected between 2011 and 2013.
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