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Dubai woes offer lessons for China

2014-07-29 13:26 Global Times Web Editor: Qin Dexing
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Dubai's stock market has fallen sharply over recent months, and fresh worries about the city's property market overshadow the ongoing downturn in equities.

In many ways, Dubai's property sector resembles China's. The past several years have seen throngs of investors pour into the booming Chinese real estate market. In fact, inflows of speculative capital are widely seen as the prime cause behind the country's increasingly unaffordable urban real estate prices.

In Dubai, the return of hot money is rehashing memories of the real estate market collapse which hit the city shortly after the onset of the global financial crisis. Once again, borrowing by local property developers is surging. For instance, lending to the construction industry jumped 40.1 percent to $181 billion last year, according to the central bank of the United Arab Emirates (UAE). But since the beginning of this year, home sales volumes have declined thanks to runaway price growth. If the local market collapses once again, we could likely expect a full-blown financial crisis in the UAE.

Chinese authorities should closely monitor the situation in Dubai and exercise caution when it comes to managing the market through administrative means.

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