Controls are required to help guard against the risk of a repeat of the boom and bust cycle in the Dubai property market, the regional director of the IMF said yesterday.
Masood Ahmed, the director of the IMF's Middle East and Central Asia Department, also said new projects starting needed to be carefully managed to avoid Dubai government-related firms getting into fresh financial troubles.
"It's important from looking at the stock of real estate that is coming on to the market to be careful to ensure measures are in place to moderate the pace of growth to avoid any risk of the boom and bust cycle," said Mr Ahmed, who was in Dubai to launch the IMF's regional outlook update.
Dubai residential sales prices rose by 18 per cent in the first quarter of the year compared with a year earlier, according to the property consultants Jones Lang LaSalle. The numbers are the latest signal that the property market is staging a resurgence.
As sentiment among investors and developers has risen, a clutch of new projects have been unveiled such as Mohammed bin Rashid City, planned to include the world's biggest shopping mall, sprawling parks and more than 100 hotels.
While not naming any projects in particular, Mr Ahmed raised concern about some schemes.
"There's also some big projects being proposed in Dubai and we think these need to be done in a way that minimise any financial risk for the government-related entities, particularly any financial liability for the sovereign," he said.
Dubai World, the Dubai government-owned company, was the most high-profile casualty of the unravelling of the emirate's property market and the wider global crisis as it restructured US$25 billion in debt in 2011.
Concerns about property prices rising too fast too quickly have emerged in recent months as queues have returned outside developer sales launches and data from the property broker CBRE showed the number of deals fell by almost a quarter during the first three months of the year.
Prices were rising too quickly considering there was a 30 per cent vacancy rate in existing housing stock, said Farouk Soussa, the chief economist in the Middle East at Citigroup.
"We have investor demand coming back into the market, which isn't necessarily a bad thing … but I have no doubt in my mind that on top of investor demand you also have speculators coming back into the market," he said. "Where speculative demand exists clearly the lack of end user spells risk to the downside."
Still, other market observers also caution that some of the conditions contributing to the boom and bust in the property market in 2008 are not present now. Then, the market suffered as an abundance of cheap credit dried up as the global financial crisis deepened. Lending levels linked to the property market are far lower now.
"Lenders are much more comfortable now," said Giyas Gokkent, the chief economist at National Bank of Abu Dhabi. "In 2009, 2008 people were losing their jobs and there was no confidence in terms of lending. Right now, there's more visibility [and] values of property are at a much more reasonable level."
In an effort to more closely regulate the property market, the Central Bank has also drafted loan-to-value limits on mortgage lending.
Tim Fox, the chief economist of Emirates NBD, said he believed a significant amount of the investment coming into the property market was more "sticky", or long term in nature, than in the past, meaning that it was more sustainable and less prone to a sudden reversal.
"A lot of the investment now is also in cash so there is less risk of the market becoming over-leveraged, especially with the authorities also moving to introduce restrictions on mortgage lending earlier this year," he said.
Mr Ahmed praised Dubai government-related entities for so far managing their debt scheduling "quite successfully".
"Nevertheless, debt levels in Dubai are still quite high. They're about 100 per cent of GDP and with substantial amount of debt rollover coming due in the next few years including some of the debt restructured in 2009 and so our view is that's important to deal with these issues proactively," he said.