MIDDLE EAST - The Dubai Government has formed a committee to tackle the impact of the financial crisis on its previously affluent property market and to restore investors' confidence.
The move is the government's latest effort to safeguard the United Arab Emirates from the effects of the credit crunch, and follows Dubai's finance ministry's decision to inject Dh70bn (€15bn) into the financial system in a bid to improve banks' balance sheets and encourage them to continue lending.
The government is considering relaxing financial repayment terms for property buyers to help boost the falling property sector and help balance supply and demand. Sales have dropped significantly in the last few months, with estate agents reporting that some developments have reduced their prices by as much as 40%.
HSBC said property prices in Dubai fell by 4% in October.
Speculation and uncertainty has caused investors to pull out of their property investments, bringing prices down for the first time since the property boom in 2002 when Dubai allowed foreign investors to enter its property market.
Dubai's index fell by nearly 4% in a single day last week amid renewed fears over the country's real estate sector.
Emaar properties, the region's largest developer by market value, ended 6.53% lower on that day, while construction firm Arabtec lost 8.96% and has announced plans to review its job policies in light of the financial crisis.
According to research carried out by Collins Stewart, the investment banking group, the Government of Abu Dhabi is likely to halt or delay any new, major projects as a result of the credit crunch hitting the region while the country's economic growth is also expected to suffer.
A report issued by Collins Stewart said: "Governments as well as state-owned companies have huge cash reserves that will cushion the downturn. However, this is all relative, and we expect the 12-15% regional growth of 2007 to moderate to under 10% in 2008 and turn negative in 2009, in the order of 5-8%."
Regulations for standardised contracts, due to be introduced soon by the Dubai Government, could stall a market revival, as they could make property prices seem more expensive and detract investors.