DUBAI: Dubai has learned lessons from the global financial crisis, including the importance of budget discipline and the need to regulate its property market, its Department of Finance said in a research paper published Thursday.
The paper may help to reassure investors in Dubai as the emirate’s asset markets recover rapidly from their 2008-10 crash, raising concerns about the risk of them overheating once again.
When deteriorating global conditions caused a property bubble to burst in Dubai five years ago, prompting home prices to plunge over 50 percent, the emirate nearly defaulted on its debt and emerging markets around the world were hit.
In its paper, titled “The Global Financial Crisis, Lessons Learned,” the DoF lists 11 lessons.
Several of them are related to the property market, including the need to register real estate deals and prevent harmful speculation, and the importance of regulating the rental market to “keep it within permissible limits.”
At least some of those lessons appear to have translated into policy; last year Dubai doubled its real estate transaction fee to 4 percent in an effort to make speculation harder.
The paper also suggested Dubai should adjust its economic focus, by emphasizing commercial rather than residential real estate, and by relying on “advanced” industry rather than property to fuel the economy.
Other lessons listed in the paper include “fiscal discipline on lending operations,” an apparent reference to the fact that state-linked firms borrowed too much before the last crisis and were forced to restructure billions of dollars of debt.
The DoF also mentioned the need to monitor the economy and review development plans, and to keep the size of the public sector within “acceptable boundaries.”
Buoyed by a renewed inflow of money from abroad, Dubai residential real estate prices jumped more than 20 percent last year and analysts estimate they may return to pre-crisis levels next year.
The International Monetary Fund has repeatedly warned that another property bubble may form in Dubai if authorities in the emirate are not careful.