Conference Paper
The US Monetary Conditions and Dubai’s Real Estate Market: Twist or Tango?
No.
ERF29AC_12
Publisher
ERF
Date
May, 2023
The monetary policy is an important driver of the real estate sector’s performance. The recent wave of monetary tightening in 2022 in response to the cost-of-living crisis has been associated with the decline in housing prices across the globe. There are two main channels through which the US monetary policy may affect the real estate market in the dollar-pegged countries: (1) the cost of serving mortgages (financing cost) (2) the exchange rate channel (for example, the appreciation of the US dollar and consequently the local currency). The exchange rate channel is particularly important in the case of Dubai, given how international the housing market in Dubai and might be viewed as a tradable good. This paper uses recent data to evaluate the spillover impact of the US monetary policy on the housing market performance in the dollar-pegged countries using Dubai as a case study. For this purpose, the study collected unique longitudinal data on the volume of the monthly transactions of residential properties and performs a panel-data analysis using within-variation models. The changes in the interest rate policy in the US are determined by the domestic inflation in the US, thereby, representing an exogenous shock in the UAE. Our results are robust to different specifications and suggest that a strong negative correlation between the interest rate in the US and the housing sector demand in Dubai. Fiscal policy measures can be taken to mitigate tighter financial conditions in case of policy misalignment. Few studies have looked at the spillover impact of the global monetary conditions on the real estate market in the GCC region. This study fills this gap by exploring the impact of the US financial conditions on Dubai’s real estate, using panel data analysis.
Research Fellows
Ahmed Rashad
Assistant Professor of Economics, Anwar Gargash Diplomatic...
Authors
Mahmoud Farghally
Assistant Expert, Policies and Studies for the...