AL BARSHA, United Arab Emirates -- The booming Dubai real estate has got a word of caution from the International Monetary Fund (IMF), which has forewarned the Dubai government of a possible recurrence of real estate ‘bubble’ scenario similar to the one that Dubai witnessed in 2009-10 and led to the crash of Dubai property prices. It urged the Dubai government to take corrective measures fast.
Dubai was in the brink of a bankruptcy when it had real estate meltdown in 2009-10 that triggered an economic crisis. The fall in property prices was dramatic as well as massive. Dubai and Abu Dhabi--the two richest Emirates were most affected. It was the UAE Central Bank that finally bailed out Dubai by granting it US$ 20 billion cash support.
Symptoms Persist
Though Dubai real estate made a drastic recovery from the crisis mode, the IMF fears that similar symptoms are still in sight in terms of lingering debt and surging property prices.
In the current year, 2013, real estate property prices have already increased by 35 percent compared to last year and more real estate players have announced several mega projects after seeing the surging property prices.
According to rough estimates if all the mega projects announced were to see the light of the day, then Dubai real estate will need a debt of around US$180 billion. It is no secret that many of these projects are under financing from the already indebted Government Linked Enterprises or GRE.
Though debts will undergo restructuring upon maturity mounting debts are causing great concern.
IMF Warning
According to IMF Dubai property prices will soar steeply as happened in the last 2 years. So the Dubai government should intervene to pre-empt any repeat of bubble like situation. The IMF wanted the Dubai government to levy fees on real estate market and regulate it tightly to curb speculation in the Dubai real estate market.
Dubai Government on its part, have not rejected the suggestions outright but has shelved its implementation as it does not want to harm Dubai’s status as a Tax free zone and is keen to maintain its edge and competitiveness within the Emirates.
