Dubai property prices are hotting up and the government may have to act to stop another price crash, warns the International Monetary Fund (IMF).
The IMF fears Dubai is on track for another property slump.
The last, in 2009 saw half the value wiped off most homes and a corporate debt crisis that the emirate narrowly survived with the help of a bail-out from neighbouring Abu Dhabi.
Property prices and economic growth are back on track in Dubai, but the IMF is concerned that the boom is built on debt that could yet lead to the emirate going bust.
Harald Finger, IMF mission chief to the United Arab Emirates, confirmed property prices had surged by more than a third in the past 12 months.
House price fears
“There is no bubble forming at present,” he said. “However, should house prices keep growing at the same rate, the government will have to take action.”
This is not the first warning about rising property prices in Dubai.
The government wanted to impose lending caps on the banks to curb resign property values, but the banks responded that mortgage limits would damage their profits.
Eventually, the government backed down and no action followed, although Finger revealed more consultations are underway to cap mortgages.
Finger suggested that if a lending cap was not feasible, another option for the government would be a tax on buying homes.
Similar taxes are in place in Singapore and Hong Kong, which have both experienced similar property price hothousing over recent years.
The taxes have pushed down the number of sales of new homes, especially by speculators investing to make short term gains on off-plan properties.
Cancelled project compensation
The other problem with the Dubai property market is mortgage caps may have little effect on prices as most homes are purchased with cash.
Property development is proceeding apace in Dubai. Many of the firms with high-end projects are linked to the government. Besides homes, shopping malls and amusement parks are also in the planning pipeline.
Meanwhile, Dubai’s ruler Sheikh Mohammed bin Rashid al-Maktoum has decreed that purchasers who lost billions of dollars in the last property crash will be compensated.
The intention is to sell the stalled building projects cancelled by the authorities to raise funds that would be returned to buyers as compensation for their losses.
The concern is that selling the projects may further fuel property speculation and push up prices in the emirate.
