With more than 70 per cent of the Gulf’s top property developers based in the UAE, it can rightfully claim to be the real estate capital of the region.

Unlike previous years, however, when the UAE market was dominated by Dubai’s launches of offshore islands and landmark towers, the market now spreads across the whole federation, with major projects in all seven emirates.

After Dubai, Abu Dhabi is the most significant market. Since 2005, the Abu Dhabi government has launched a series of companies to develop the emirate’s real estate sector.

Of the 100 companies in the survey, 12 are from Abu Dhabi, and even more have projects or investments in one of the city’s $250bn worth of masterplanned developments.

As Abu Dhabi development gathers pace, many expect it will eventually eclipse Dubai, especially in hinterland areas like Taweelah, where new industrial areas are being built.

The northern emirates have also joined the real estate boom. Over the past three years, Ajman, Ras al-Khaimah, Sharjah and Umm al-Quwain have all launched major projects that will create business districts, offshore islands, beachside resorts and residential communities.

The sheer scale of the projects under way across the seven emirates is immense. Taken together, these schemes will provide housing for more than three times the current population of the UAE.

Although demand currently outstrips supply, some are beginning to question whether the real estate boom is sustainable in the long term.

Plummeting stocks

Analysts covering the Dubai market now fear that with so many units under construction, it is only a matter of time before there is a correction.

In August, US investment bank Morgan Stanley predicted a 10 per cent fall in prices by 2010. While this report was dismissed by property businesses, the impact on local bourses was dramatic as real estate stocks plummeted in the following days.

A month later, Saudi financial group Samba added its voice to those concerned about Dubai’s real estate market, saying a sharp correction was a possibility. Just as Dubai’s growth has inspired growth across the federation, any correction could be similarly contagious.

Confidence is certainly not as high as it once was, especially as the global economy enters a period of recession and fears mount that market frailty in the West may be imported into the Gulf. The difficulty for potential investors is that there is little information available that can be used to make informed decisions.

Much of the research available is based on estimates and assumptions rather than hard data. “To make a decision and give a view on any industry, we should depend on the facts,” says Hashim al-Dabal, executive chairman of Dubai Properties.

“These numbers should be available for investors and developers so we can reach a market outlook that is not based on assumptions.”

To make matters worse, the sector has been rocked by a series of scandals, including employees of government-backed developers Nakheel and Sama Dubai being arrested for financial irregularities. Despite government reassurances, this has put further downward pressure on real estate stocks.

“I look at it as a positive thing,” says Al-Dabal. “Dubai wants to be transparent and not to hide from its mistakes, and this is a strong message to send our investors and partners. We do not hide, we highlight it, talk about it, and put actions in place to correct it.”

However, the negative sentiment that has crept into the market over the past few months has yet to have an impact on property prices and rentals, suggesting the economic fundamentals for real estate development in the UAE remain strong.

“There are strong non-property economic drivers in the real estate market,” says Andrew Chambers, managing director of Asteco.

“The financial centre, the new airport, and new cities such as Dubai Sports City and Dubai Industrial City, will all require people – and they need somewhere to live.”

Nevertheless, as 2009 approaches, it is unlikely that the returns on property seen over the past few years will be repeated. More stringent regulations are forcing speculation out of the market, and prices will inevitably reach a ceiling.

This does not mean that the market will no longer be profitable; it just means that as it becomes more sophisticated, the returns will begin to resemble those found in other mature markets. “Over the next two to three years, prices will steady,” says Chambers.