Speaking at the Qatar Property 2010 forum in Doha on 6 May, Dr Jarmo Kotilaine, Chief Economist of NCB Capital, said, “With the broader economy showing signs of picking up, investors will almost certainly begin to pay more serious attention to real estate, not least because of the opportunities created by the unusually severe correction.”

However, he believes that a failure to properly address the issues that led to the sectors collapse, by contrast, will create a risk of the pre-crisis pattern ultimately repeating. “We can’t afford to set in train another bubble,” he warned.

At one extreme is the Dubai market, the leader of the regional real estate boom and the main focus of speculative activity. At the other extreme is Saudi Arabia, which remains a fairly closed market faced with considerable excess demand in many market segments.

Buyers are returning to the market, not least because of an influx of cost-conscious residents from the neighbouring northern emirates, which had become more popular for affordability reasons. Mortgage volumes are back to pre-crisis level while rates have roughly halved to less than 2%. Also, the Kuwait market — another focal point of the crisis — is showing tentative signs of picking up, with August 2009 seeing the first year-on-year increase in sales volumes and values in 18 months.

Dr Kotilaine said, “The time has come to recognize the broader economic importance of the real estate sector and to bring it under proper, comprehensive, formal regulation in a way that takes into account the mistakes made in the past. The rapid emergence of the sector spawned a foam of speculative bubbles, which in some cases had far-reaching consequences for the broader stability of regional economies. While correction in some markets may take years to work through, the current situation represents an important opportunity for the entire region.”

The focus of much of the recent regulatory response to the crisis has understandably consisted of attempts to prevent abuse and to better protect the rights of buyers. While this will curb speculative activity, it does not automatically generate sustainable opportunities for long-term growth. One of the major challenges of the real estate sector during the boom was the relative lack of alternatives. Real estate investors must be offered higher quality and a longer-term investment perspective, not least through longer leases. It will also be essential to take continued steps to boost building standards, maintenance requirements, and the availability of appropriate real estate.

He concluded, “The market is slowly becoming more sophisticated, with buyers demanding a higher quality of services in new developments. Synchronizing the pace of residential real estate development and infrastructure modernization remains one of the main challenges facing the region. Creating a proper mortgage market will be a key pre-requisite for broadening access to residential real estate and preventing market fragmentation between high-end and ordinary properties. It is also essential for fostering mobility, whether socially, geographically or over time, as families grow.”