The US monetary conditions and Dubai’s real estate market: twist or tango?
International Journal of Housing Markets and Analysis
ISSN: 1753-8270
Article publication date: 17 May 2023
Abstract
Purpose
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: the cost of serving mortgages (financing cost) and the exchange rate channel (for example, the appreciation of the US dollar and consequently the local currency). The exchange rate channel, which involves the appreciation of the US dollar and the subsequent effect on the local currency, is particularly significant in the case of Dubai, given how international the housing market in Dubai and might be viewed as a tradable good. Using recent data, the purpose of this study 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.
Design/methodology/approach
For this purpose, this 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 USA are determined by the domestic inflation in the USA, thereby, representing an exogenous shock in the UAE.
Findings
The results are robust to different specifications and suggest that a strong negative correlation between the interest rate in the USA and the housing sector demand in Dubai. Fiscal policy measures can be taken to mitigate tighter financial conditions in case of policy misalignment.
Originality/value
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.
Keywords
Acknowledgements
The authors would like to thank the three anonymous referees and the Academic Editor of this journal for the invaluable comments and suggestions that have substantially improved the manuscript. This work was sponsored by the Economic Research Forum (ERF) and has benefited from both financial and intellectual support. The views expressed in this work are entirely those of the authors and should not be attributed to ERF, it Board of Trustees or donors.
Citation
Rashad, A.S. and Farghally, M. (2023), "The US monetary conditions and Dubai’s real estate market: twist or tango?", International Journal of Housing Markets and Analysis, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJHMA-03-2023-0035
Publisher
:Emerald Publishing Limited
Copyright © 2023, Emerald Publishing Limited