US Monetary Policy and Dubai's Real Estate: A Twist or Tango? - Insights from PHOREE Real Estate

PHOREE Real Estate is proud to present insights from a recent study titled "The US monetary conditions and Dubai’s real estate market: twist or tango?" published on emerald.com. The study, authored by Ahmed Shoukry Rashad and Mahmoud Farghally, was published in the International Journal of Housing Markets and Analysis.

The study explores the impact of US monetary policy on the performance of the real estate sector, particularly in dollar-pegged countries like the UAE. The recent wave of monetary tightening in 2022, in response to the cost-of-living crisis, has been associated with a decline in housing prices globally. The study examines two main channels through which US monetary policy may affect the real estate market in such 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 is particularly significant in the case of Dubai, given the international nature of its housing market. The study uses recent data to evaluate the spillover impact of US monetary policy on the housing market performance in Dubai.

The study collected unique longitudinal data on the volume of monthly transactions of residential properties and performed a panel-data analysis using within-variation models. The changes in the interest rate policy in the USA, determined by domestic inflation in the USA, represent an exogenous shock in the UAE.

The results suggest a strong negative correlation between the interest rate in the USA and the housing sector demand in Dubai. The study concludes that fiscal policy measures can be taken to mitigate tighter financial conditions in case of policy misalignment.

This study is one of the few that have looked at the spillover impact of global monetary conditions on the real estate market in the GCC region. PHOREE Real Estate believes that these insights will be valuable for investors and stakeholders in the real estate sector.

(Source: 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, Emerald Publishing Limited.)