The off-plan market - which has been known to drive up real estate prices - will soon disappear in the UAE, according to a financial expert.

Speaking at Dubai Property Society’s (DPS) monthly networking event, Ali Al-Shihabi, the founder and the CEO of Rasmala Investments, argued that the real estate market in the UAE is divided now into two segments. One is what he calls the “real property market,” which includes completed or near-completed properties; and the second segment is the “paper property market,” which includes off-plan projects.

“In general, projects that lie in the first segment will witness a temporary decline in property prices, but they will not face difficulties as UAE banks are expected to meet their existing obligations to projects. On the other hand, the paper market will simply die, because developers will be unable to secure financing for the foreseeable future. Additionally off plan buyers will disappear due to lack of speculative appeal since rapid increases in prices are no longer expected and also because of lack of bank financing - it will no longer be easily granted to would-be off-plan buyers because banks are increasingly reluctant to lend against a property that has yet to be built,” he said.

While the lower demand for off-plan property will help stabilise property prices - and ultimately encourage more end-users to enter the market - Al-Shihabi notes that many of the market players now are having second thoughts and putting off their investments. Hence, the real estate investment market will slow down for quite some time.

According to recent studies, the global financial crisis is expected to slow down UAE’s growth to 2.7 percent in 2009, down from the 4.8 percent that was previously projected - a direct result of investor pessimism over the global credit crisis. In accordance, inflation, though expected to remain at 12 percent this year, is expected to drop to 8 percent in 2009.

“As the US and major European economies are facing severe economic slowdown, it is not likely that our regional markets will escape from the effects of the crisis,” said Adel Lootah, executive director of Dubai Property Society. “However, I believe that, as the Gulf markets have matured, they have differentiated themselves from other emerging markets in the eyes of investors as being quite stable. This is the essential criteria for would-be investors for choosing where to invest their money while the current global market experiences difficulties,” he said. –TradeArabia News Service