A fundamental shift is taking place in the UAE property market in the wake of the industry's historic roller-coaster ride.
Property in the UAE has lost Dh734 billion (US$199.9bn) in value since the market peaked in 2008, Shuaa Capital estimates. Construction and transaction activity slowed to a crawl as the global economy tanked.
For the business to bounce back, the industry will need to recognise the basic changes in the market, analysts point out.
No longer is the industry about convincing wealthy international businessmen to buy property with the idea of quickly reselling them or generating rental yields better than they can find in stocks and bonds.
"Fundamentally we are moving from an investor's market to an end user's market," says Craig Plumb, the head of research for Jones Lang LaSalle.
More than ever, that basic change ties any recovery to efforts to grow the economy and create jobs. It will take people living and working here to spur the market.
For the next few years, economists agree, the supply and demand equation for property in the UAE is going to be out of sync.
Home prices in Dubai have dropped 50 to 60 per cent in the past three years, and yet there are another 10,000 homes scheduled for completion next year, legacies of the boom years. More than 40 per cent of office space in Dubai is vacant.
In Abu Dhabi, 50,000 homes are scheduled for completion in the next two years, a 27 per cent increase from current supply.
To bolster the market, steps need to be taken to improve the demand side of the equation.
On top of the list for many property executives is a visa policy that offers incentives for property buyers. In June the Government announced plans to offer an extended three-year visa for property buyers.
"That policy is important," says Gurjit Singh, the chief operating officer for Sorouh, the Abu Dhabi developer. "Now what needs to be fleshed out are the rules that go with it."
The UAE could boost the market by engaging in the international competition to woo retirees. Many countries in Central America and Asia already have policies in place making it easy to buy property, transfer funds and settle in their countries.
"This is not uncommon," says Mr Singh. "They allow people to stay for a substantial period of time."
Making money available for potential buyers and investors is another crucial factor.
"We need to see greater availability of financing," says Ian Albert, a regional director for Colliers International.
Developers have been actively lobbying for the Central Bank to lower rates and add badly needed liquidity to the market. Buyers turn away when they see interest rates more than 6 to 7 per cent and loan-to-value ratios far above international levels.
But the finance side of the equation needs more than simply low interest rates. Lenders need confidence they can recoup their investment if a buyer defaults. That means a quick process to foreclose, reliable valuations and an active resale market.
In Dubai, the Land Department last month auctioned eight repossessed homes, the first sign that the system was working.
Without a predictable foreclosure market, lenders still feel the housing sector is too risky for their shareholders, who look at property as a minefield after the events of the past three years.
In the same fashion, tweaks must be made to the mortgage market to make it more palatable to international buyers. Many potential foreign investors are still shocked by the possibility of going to jail for bouncing a cheque if they default on their mortgage.
Continued advances in the legal system will directly help the property market, giving buyers more confidence their rights will be protected. The move earlier this year to allow companies outside the Dubai International Financial Centre to settle disputes in the DIFC courts, which use international law standards, was a big step.
"It's good for Dubai," Richard Briggs, the executive partner at Hadef & Partners, told The National when the change was announced. "It will change the nature of litigation in Dubai as more claims work their way through the DIFC."
On a more fundamental level, developers will need to counter the negative publicity that still haunts the market in the international industry.
The quality and management of projects will increasingly become as important as price and location. "Developers need to step up to the plate and deliver good products that are well managed," says Mr Singh.
But none of the measures will make a difference if there is not a fundamental boost in the economy. Initiatives that grow the logistics, trade, shipping and aviation industries all have a direct impact on the property business.
"One of the things we've learned is that we are not decoupled from the global environment," says Mr Plumb.
kbrass@thenational.ae
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