Dubai’s government is working on new rules to protect its real estate market and prevent any excessive rise of property prices that could end in a crash, a senior official said on Tuesday.
The bursting of a property bubble in 2009-2010 caused prices to plunge by more than 50 per cent, pushing Dubai close to a debt default. The market is recovering strongly this year, with apartment prices up about 20 per cent from a year earlier, and the International Monetary Fund has warned of the danger of another bubble.
“We didn’t create the bubble, it was a global crisis. The real estate challenge is over now,” Sheikh Ahmed bin Saeed al-Maktoum, chairman of Dubai’s Supreme Fiscal Committee and uncle of the emirate’s ruler, told reporters.
But he added, “We are working on our regulations. Sometimes I don’t see that (high property prices) are a good thing. We don’t want Dubai to become an expensive city.”
Sheikh Ahmed did not give details of the proposed regulations. In a July report, the IMF said Dubai might need to intervene in its property market to prevent another boom-and-bust cycle.
Last year the United Arab Emirates central bank tried to introduce caps on home mortgage lending as a way to head off another bubble, but it suspended them after lobbying by commercial banks, which complained their business would suffer.
The central bank is now negotiating revised caps with the banks, which are expected to be announced by the end of this year. But the IMF said that because much home buying in the UAE was done with cash rather than mortgages, the mortgage rules would need to be complemented by other measures.
If property prices continue to surge, one suitable step might be introducing fees on real estate market activity, said Harald Finger, IMF mission chief to the UAE.
However, Dubai’s business success has been built on a low-tax environment, so it is not clear whether the emirate would be willing to consider such a step – especially if the rest of the UAE did not implement similar policies.
Sheikh Ahmed also said Dubai was not currently in negotiations with Abu Dhabi to refinance $20 billion of crisis-related debt that will come due in 2014.
As its real estate market crashed and state-linked companies struggled with their debt in 2009, Dubai borrowed a total of $20 billion from Abu Dhabi and the federal government of the UAE.
This comprised $10 billion from the UAE central bank and $5 billion each from two state-owned banks in Abu Dhabi, National Bank of Abu Dhabi and Al Hilal Bank. The central bank debt is due to mature in February 2014, and the commercial bank debt in November 2014.
“Dubai companies are doing well and can take care of their own debt,” Sheikh Ahmed said. Asked if the two parties were holding discussions to refinance the Abu Dhabi debt, he said, “No, we are not talking to Abu Dhabi.” He did not elaborate.
Debt market analysts believe Abu Dhabi may quietly roll over the debt if Dubai is not ready to pay it back next year.