A surge in United Arab Emirates property values probably won’t lead to an asset-price bubble because credit growth remains relatively modest, according to the Institute of International Finance.
Loan growth in the second-biggest Arab economy may slow to 11 percent in 2014 from 13 percent last year, the IIF said Monday in a report.
Property prices in Dubai climbed 35 percent in 2013, according to broker Knight Frank LLP, fueling concern that the UAE’s second-biggest sheikhdom is at risk of another bust after the 2008 property crash that almost pushed it to default.
“There are major differences between the current boom and the previous, which was more driven by speculative excesses,” Garbis Iradian, deputy director for Africa and the Middle East at the Washington-based IIF, said. “The strong rebound in housing prices has been driven by a significant improvement in the underlying economic fundamentals.”
The UAE’s nonoil economic growth may accelerate to 5.2 percent from 4.9 percent, the IIF estimated. Home prices relative to income in Dubai and the capital Abu Dhabi, remain below their 2008 peak and “much lower” than major cities in emerging markets and advanced economies, according to the report.
The probability of a asset-price plunge “large enough to generate major macroeconomic and financial consequences seems fairly low in the near term,” Iradian wrote.
Still, he urged UAE authorities to ensure that policies address economic and financial risks from the housing and equity markets.
A version of this article appeared in the print edition of The Daily Star on May 06, 2014, on page 5.