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IMF Says Less Concerned About Frothy Dubai Housing Market

IMF Middle East director Masood Ahmed says risks associated with Dubai’s property market have decreased, in part due to steps taken by local authorities to stamp out speculation.

A recent surge in Dubai real estate prices has become less of a worry for the International Monetary Fund, its Middle East director said Monday, reversing his earlier calls for additional reforms to prevent another market bubble.

An apparent slowdown in price increases has proven the effectiveness of government efforts to calm market froth, said the director, Masood Ahmed, and led the IMF to reassess its stance on the need for further reforms.

“I think all of these [regulations] are little grits of sand in the machine that have helped to slow down that pace, which is good, so we are certainly a little less concerned about that,” Mr. Ahmed said. “We still think it’s an area to watch. It’s important to keep watching that going forward, but compared to May our degree of concern would be lower.”

Dubai’s property market was one of the world’s best-performing before the global financial crisis hit at the end of 2008, sending prices down by more than half in some areas. After a period of stagnation, the market recovered sharply beginning last year, leading to renewed fears of a bubble.

Average apartment prices in Dubai went up by 31% year-on-year in the third quarter, according to a report by Asteco Property Management. But prices actually declined by 1% during the three-month quarter, the report said, underscoring how prices have moderated more recently.

Dubai has responded to worries of a new bubble in part by doubling real estate transaction fees to 4% of sales prices last year, while the central bank of the United Arab Emirates, the country of which Dubai is a part, instituted borrowing limits on mortgages. IMF Middle East director Masood Ahmed praised those moves in May, but he said “stronger measures” should be considered to calm market froth.

Given the market’s slowdown, however, additional measures don’t appear to be as urgently needed.

“If you look at the last few months, I would say that the pace of that property market price increase has moderated quite a lot,” Mr. Ahmed said, adding that the credit should go to government measures for quelling the rise.

Mohamed Alabbar, the chairman of Emaar Properties, Dubai’s biggest developer, also said on Monday that he was unconcerned about real estate prices, although he would welcome more frequent reviews of property-related regulations to keep up with rapid developments in the market.

“We developers have learned a very, very tough lesson, too, and we watch what we’re doing almost on a daily basis,” he said. “I think the governments have also learned.”

Mr. Ahmed gave his assessment as he unveiled the IMF’s economic outlook for the Middle East and North Africa, which painted a relatively grim picture for a region fraught with conflict and beset by high unemployment and government budget woes. The IMF is projecting a 2.6% rise in regional GDP this year, followed by 3.8% next year, a rate it says is not sufficient to redress unemployment and raise living standards to equal the developed world.

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(via WSJ Blogs)

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