A leap in bank lending to the construction industry indicates financial institutions have resumed pouring money into real estate projects in the last few months, after cutting back sharply in the wake of Dubai's 2008 crash.
At the same time, property prices have been soaring on the back of Dubai's economic boom, increasing the chance of the market rising to unsustainable levels.
Surging supply and unsustainable demand are a risky mix — the same combination that got Dubai into trouble six years ago, forcing state firms to reschedule tens of billions of dollars of debt and jolting financial markets around the world.
This time, authorities say they are aware of the dangers, and they have taken regulatory steps to slow demand growth. But the steps are still modest compared to those by other global cities facing the same problem, such as Hong Kong and Singapore.
“It's too early to be calling top, but credit growth of that pace tells you that the cycle is accelerating rapidly,” said Simon Williams, HSBC's chief economist for the region.
“Such a huge increase in lending is simply not consistent with economic order and stable asset prices. The time for policy action is now, before bubbles really get going, not when they are already in place.”
Dubai house prices posted the fastest year-on-year rise of any of the world's major markets in January-March for the fourth straight quarter, soaring 27.7%, consultants Knight Frank said. Rents rose about 30% on average in the same period.
The value of real estate deals in Dubai, with a population of 2.3 million, jumped 38% in the first quarter to some 61 billion dirhams ($16.6 billion), the Land Department said.
There are good reasons for property prices to rise, including annual economic growth around 5% and inflows of money from Arab investors seeking safety in a turbulent region.
While some prices have almost returned to their pre-crash peaks, they are well below some other global business cities. Prime real estate in Dubai costs between $6,200 and $7,500 per square metre ($580-700 per square foot), against $27,600-33,700 in Singapore, according to Knight Frank.
The volume of real estate deals has not reached its pre-crash peak but demand is showing signs of slowing. Propsquare Real Estate said sales volumes so far this year were down about 25% year-on-year as prices become less affordable.
“The gap between what the seller is asking for a property and what the buyer is willing to pay is huge at the moment,” said Parvees Gafur, Propsquare's chief executive.
Yet the Land Department described the first-quarter surge in real estate deals as “impressive” and looked forward to more.
“We expect the next three quarters to be similarly active, especially as this period follows the launch of a number of stimulating economic projects in Dubai and the disclosure of some of the preparations for the city’s hosting of Expo 2020,” said the department's director general Sultan Butti Bin Merjen.
The government fuelled the current property boom when it announced plans, in November 2012, for a huge development including the world’s largest shopping mall, over 100 hotels and a park almost a third larger than London’s Hyde Park.
Meanwhile, most of the more than 200 man-made islands off Dubai laid out in the shape of a world map that symbolised the 2008 property market crash remain empty after state-owned developer Nakheel's near debt default in 2009.
Authorities have taken some steps against price speculation and “flipping”, in which investors buy and sell properties - many of them unbuilt - in quick succession. Late last year, Dubai doubled the fee charged on property deals to 4%, while the UAE central bank imposed caps on mortgage lending.
Some real estate developers have taken their own action; partly state-owned Emaar Properties allows resale only after about 40% of payment for a property has been made.
But these steps are minor compared, for example, to a 15% fee imposed on the quick resale of property by Hong Kong and a 30% fee introduced by Singapore. Last month, the International Monetary Fund warned that Dubai might need to consider such tools as well.