The UAE’s Central Bank has voiced its first concerns about potential overheating in the property market wake of the recent resurgence in the real estate sector.

In its annual financial stability report, the central bank said average rental yields in Dubai and Abu Dhabi could indicate growing imbalances and an overheating real estate market.  

Dubai house prices rose 27.7 per cent over the 12 months to March 2014, the fastest of any market in the world, according to a recent report by Knight Frank.

“Significant investment is again taking place in the offplan segment, with investors enticed by the attractive payment plans, with many offering low initial deposits and back-ended structures, which are allowing more people to enter the market,” says Matthew Green, head of research and consultancy UAE at CBRE Middle East. “The sheer volume of new project launches in the residential market is once again becoming a point of concern, although, as yet, the actual delivery of new supply has not reached a point where demand is being rebalanced.”

Green says government intervention to curb speculative buying activity is already apparent. “In recent years, Dubai’s real estate sector has shown steady progress towards maturity through a series of new regulations aimed at tightening the regulatory environment and protecting investors,” he says. “It is hoped that these recent regulatory changes, together with the Dubai Land Department’s doubling of transfer fees on property sales, will help to hold down speculation and enable Dubai’s real estate sector to see more sustained growth in the long term. However, with a flurry of project announcements and renewed investment activity, the market should, quite rightly, be cautious of overheating.”