DUBAI: Real estate developers and investors in the UAE have expressed deep concern over the continuous decrease in the rate of return on investment (ROI) in the local real estate market.

The rate of ROI has dropped sharply from 20 per cent last year to between 5pc and 15pc during this year.

The main contributing factors to this phenomenon are the skyrocketing prices of building materials and the double-digit electricity rate increases.

The real estate market has witnessed a series of dramatic changes and transformations during the period from the fourth quarter of last year to the beginning of the current year, according Fakhruddin Group subsidiary, Fakhruddin Properties chief executive officer Yousef Fakhruddin,

"Some companies were about to incur heavy losses as their profit margins diminished, but the government intervention which solved the cement and steel crisis has come to their rescue," he said.

"The current scenario can be mainly attributed to the prices of building materials, the rise in maintenance costs and the high water and electricity costs, especially in the new buildings."

"The stable 5pc return on investment will contribute significantly to containing the 35pc inflationary pressures in the sector," he said.

"The market is still competitive for investors and will remain attractive until there is a demand-supply balance."

"Liquidity may be pumped into capital markets or injected into other investment opportunities in the tourism or aviation sectors, while investment in the property market will focus on rent, purchases and sales," he added.

Some real estate developers have proposed solutions to address the current problem, such as acquiring stakes in building materials manufacturing companies, especially the cement and construction steel factories, or sending representatives to the countries of origin to get competitive prices.