United Arab Emirates: Selected Issues

The strong recovery in the real estate market in Dubai requires close monitoring and further measures to discourage speculative demand. The residential and hospitality segments have seen buoyant growth (although the momentum seems to have slowed in recent months), while growth in the commercial segments (excluding hospitality) has been slower. Dubai's economy is now more resilient to exogenous shocks; however, speculation in the residential segment of the Dubai's real estate market may still return at a significant scale. A number of measures that are expected to help reduce flipping activity have already been introduced. More measures from the macroprudential and fiscal toolkit for containing real estate booms may be needed, particularly if signs of flipping activity emerge strongly. Hosting a global-scale event may offer direct and indirect economic benefits, but it can also present risks. With its well-established status as a hub of regional tourism and well- developed infrastructure, the economy of Dubai (and of the United Arab Emirates) economy can benefit substantially from hosting the Expo 2020. Careful macroeconomic management and appropriate strategic planning measures will be essential to minimize cost overruns, avoid overheating, and limit real estate risks. These measures include preparing a sound feasibility study linked to the post-event period, developing realistic demand projections, financing the Expo and other project-related spending in a fiscally sustainable manner, and continuing to strengthen Dubai's public finances to increase buffers for possible cost overruns and losses.