In 2006, four years after the property boom in neighbouring Dubai, Abu Dhabi opened up its property market to foreign investors, launching a slew of new development projects, including Al Reem Island and Al Raha Beach Development. Although investors have yet to receive the keys to their homes - the first phase of units are scheduled to open at the end of 2009 - the result has been a vertiginous rise in the value of some properties, in some cases in excess of 80%.
Until now, the rights of buyers and sellers have not been clearly defined. Last week, however, Abu Dhabi officials drafted five laws to establish a framework that will offer clarity to all stakeholders. The legislation has now been sent to the Executive Council for approval.
The new regulations include a trust-account law, called an escrow in some states; a strata law, outlining the roles and expectations of property owners in multiple-occupancy buildings; a mortgage law to enforce the rights of lenders; a requirement for developers to have titles and permits before selling units to homebuyers; and a law establishing a regulatory authority that will cover brokers, owners, surveyors, developers and associations.
The new legislation aims to chip away at the perception that Abu Dhabi's real estate sector goes unwatched, as well as to show both developers and investors that the sector is maturing. The timing is also important, as the regulations are being proposed just as real estate values are frozen by the credit crunch.
"If I buy a property at 10, is it still worth 10? I don't know. Nobody is buying and selling today," Oussama Kaissi, general manager of Abu Dhabi National Takaful Company, told OBG.
Just 12 months ago, analysts and industry insiders sneered at talk of a potential slump. However, as of the end of 2008, selling activity was stalled due to a liquidity drought between banks - much to the detriment of speculators who had bought with the intention of making a fast sale for quick profit.
Due to the cash shortage, banks have become more stringent in their lending and in many cases ceased to do so at all. A small group of speculators who cannot afford to keep up their payments have dumped their units on the market at a reduced price, the result of which - coupled with the low buying activity caused by lack of financing - has been a drop in asking prices. According to a recent report from investment bank Shuaa Capital, prices have dropped 15% since last summer.
But a small group of speculators with empty pockets combined with timid bank lending does not necessarily translate into a weak market.
Indeed, Abu Baker Seddiq Al Khouri, managing director at Sorouh Real Estate, told OBG, "My biggest issue nowadays when hiring a new employee is finding somewhere for them to live. And I am a property developer, so that illustrates the shortages."
Furthermore, a Jones Lang LaSalle MENA Investor Sentiment Survey, published in the last quarter of 2008, identified Abu Dhabi as the Gulf market where conditions in real estate are most expected to perk up over the next year and beyond.
"It is apparent that this market is seeing major growth, as revenues from the oil sector are being invested in urban infrastructure and real estate projects within the emirate," the report stated.
Though population growth in the capital averaged 7.3% over the last four years, this is expected to subside somewhat following the global economic slowdown. According to Shuaa Capital, the more measured rate of population growth will suppress near-term demand growth.
Nevertheless, the report went on to emphasise the more positive attributes of the market, stating, "Our view remains that the fundamental case and outlook for Abu Dhabi real estate is strong. Abu Dhabi's major developers, together with the leading banks, are taking initiatives to nourish the availability of property finance to boost buyer appetite."
Real estate the world over is under difficult circumstances, but for Abu Dhabi, these times can be seen as an opportunity. New regulation will give the market more sophistication, while a slight correction in inflated prices will make the emirate yet more attractive for foreign direct investment and for skilled workers looking to escape contracting economies at home.
Perhaps now is the best time - while prices are seeing a correction unrelated to fundamentals - for foreign companies to look to secure accommodation for their staff.
"For international companies setting up here, it's imperative that they secure their real estate footprint as a priority. Otherwise they may well find there simply is nowhere for them to stay," Guy Alan Sadler, chief executive officer of Profile Group Properties, told OBG.