Microeconomics Study on Housing Market in UAE

This study explores the housing market in UAE from a microeconomics perspective, analyzing factors influencing demand and pricing strategies. It examines the correlation between rental prices of villas and sales in apartments, as well as the impact of socio-economic variables. The study also includes a sensitivity analysis for alternative scenarios and provides implications for business policy. The findings highlight the importance of selling price and rental values in influencing consumer demand in the housing market.

Running head: MICROECONOMICS
MICROECONOMICS
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Table of Contents
Introduction................................................................................................................................3
Results........................................................................................................................................3
a) Executive summary of outcomes...........................................................................................3
b) Information supporting the choice of the variables, including the socio-economic variables
(model specification)..................................................................................................................4
c) Detail concerning the model development and data acquired...............................................4
d) A sensitivity analysis for alternative scenarios, and interpretation of the elasticity and the
implication to pricing strategy...................................................................................................5
e) Interpretation of the results with implications to business policy..........................................5
Conclusion..................................................................................................................................6
Bibliography...............................................................................................................................7

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Introduction
The housing market of the UAE is basically looking to be subdued and the
contribution of the federal government will be highly important to pull UAE out of this crux
situation. In 2017, the actual spending of federal government in UAE is around AED 48.572
billion. The total spending of the government in the economic affairs increased to about AED
1.021 billion and about AED 621 million has been spent in housing industry1. The current
scenario of investment within the housing sector of UAE is mainly going to bring in
increased level of demand of houses.
Results
a) Executive summary of outcomes
Rental price of villas is having low level of correlation with the variable total number
of houses that are being demanded within the economy but is having high correlation with the
variable sales in apartments. This is only possible if the goods are perfectly substitution to
each other. The value of the correlation for sales in apartments and rental price of villas are
0.89 that is close to 1. The regression equation can be formulated as Y= 2362+70X1+114X2.
This means the demand of housing is depending on factors like rental and sales value of
housings.
1www.arabianbusiness.com/."UAE Federal Government Spending Tops $13.2Bn In
2017". Arabianbusiness.Com, 2019, https://www.arabianbusiness.com/politics-economics/397110-uae-federal-
government-expenditure-reached-1322b-in-2017.

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b) Information supporting the choice of the variables, including the socio-economic
variables (model specification)
It is highly important to bring regression analysis so that the linear regression can take
hold of correlation effect that is being present within the independent variables. Through
introduction of socio-economic variables, the study is going to incorporate the variables in
the form of inflation rate, value of the rents of flats and apartments to the consumers, selling
price of the villas and apartments and rental price of villas and apartments as the set of
independent variables. The model is going to incorporate the number of houses that are being
in demand as the set of dependent variables. The main aim of the study to consider such
variables that will be easily helpful for the identification of the consumer behaviour. Through
the identification of consumer behaviour the government will be able to identify the gaps in
the policies that are mainly going to be implemented. In order to increase the overall resource
distribution of the UAE in the housing sector is mainly going to highlight the future areas
within the residential industry that will be open for investments. Through the regression
analysis, the study will be able to highlight the degree and direction of relationship with the
dependent and independent variables.
c) Detail concerning the model development and data acquired
In order to develop model, the study has taken the data from journals and authentic
government websites. The data on the selling price of both villas/townships and apartments
have been taken from authentic websites, the rental price will definitely aim to highlight the
consumer choice of preferring types of housing that are available for renting or buying
purpose. However, the types of housing that has been in demand is one of the important
aspects in the sense that it has been seen that in UAE, the peoples are having more preference
towards apartments and having high preference in renting the property compared to buying
the property. The model is taking the p value as the most significant one in order to reject or

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accept the null or alternative hypothesis. It is one of the important tools in linear regression
because of the fact that if p-value is lower than α=0.05 then we fail to reject the null
hypothesis.
d) A sensitivity analysis for alternative scenarios, and interpretation of the elasticity and
the implication to pricing strategy
The sensitivity analysis is mainly going to help the study in identifying the scenarios
in the housing industry that are having opportunity for the elasticity and the price strategy.
Most of the private companies will set the price based on their marginal costs for the
production. Now among all other consumer goods, the price of house is very elastic in nature.
Increase in the price of housing industry in UAE will decrease the overall demand of the
customers. Now in order to increase the purchasing power of the currency of the people
living in the country of UAE the government of UAE needs to increase the expansion of the
job opportunity within the areas that are suitable for housing industry expansion. Government
should improve their policy implementation in such a way that can increase the employment
opportunities within the area.

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e) Interpretation of the results with implications to business policy
Figure 1: Correlation coefficient of independent variables
(Source: Created by Author)
The above table is showing the fact that selling price of villas/townships are having
positive and high level of correlation with the total demand of housing in UAE. This is
showing the fact that if the selling price of villas and townships are increasing then demand
of villas will definitely decrease and that is normal according to the law of demand. On the
other hand, rental price of villas is having low level of correlation with the variable total
number of houses that are being demanded within the economy but is having high correlation
with the variable sales in apartments2. This is only possible if the goods are perfectly
substitution to each other. The value of the correlation for sales in apartments and rental price
of villas are 0.89 that is close to 1. The regression equation can be formulated as Y=
2 Al Zaabi, Yahya Hamad, and Genanew Bekele. "The House Price Dynamics and the Macro-Economy: an
Empirical Perspective of UAE." International Conference on Advances in Business, Management and Law
(ICABML). Vol. 2. No. 1. 2018.

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2362+70X1+114X2. This means the demand of housing is depending on factors like rental
and sales value of housings.
Conclusion
The study successfully concluded that both selling price and rental values are two
important factors that are mostly influencing the demand of the consumers. Most of the
consumers are willing to stay in high rise apartments and very few are preferring villas and
one bed room apartments. Due to such heavy demand of high rise apartments, the
government of UAE are facing troubles in delivering the incomplete projects to the residents
of UAE.

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Bibliography
Al Zaabi, Yahya Hamad, and Genanew Bekele. "The House Price Dynamics and the Macro-
Economy: an Empirical Perspective of UAE." International Conference on Advances
in Business, Management and Law (ICABML). Vol. 2. No. 1. 2018.
Andreoni, James, Nikos Nikiforakis, and Jan Stoop. "Online Supplementary Material to: Are
the rich more selfish than the poor, or do they just have more money? A natural field
experiment." (2017).
Ghaleno, Mahin Rashki, and Mohammad Esmaeil Ezazi. "Identification of Effective Factors
on Admitting the Secondary Market of Housing Mortgage for Housing Finance in
Tehran Province." International Business Management 10.16 (2016): 3396-3402.
Käyser, Sabine C., et al. "Study heterogeneity and estimation of prevalence of primary
aldosteronism: a systematic review and meta-regression analysis." The Journal of
Clinical Endocrinology & Metabolism 101.7 (2016): 2826-2835.
Maina, Kamau, and Samson Nyang’au Paul. "INFLUENCE OF LOW-COST BUILDING
MATERIALS ON HOUSING PROJECT IN REDUCTION OF HOUSING DEFICIT
IN NAIROBI CITY COUNTY, KENYA." Journal of Entrepreneurship and Project
Management 4.2 (2019): 23-37.
Rashid, Audil, et al. "Ecological footprint of Rawalpindi; Pakistan's first footprint analysis
from urbanization perspective." Journal of Cleaner Production 170 (2018): 362-368.
www.arabianbusiness.com/. "UAE Federal Government Spending Tops $13.2Bn In
2017". Arabianbusiness.Com, 2019, https://www.arabianbusiness.com/politics-
economics/397110-uae-federal-government-expenditure-reached-1322b-in-2017.

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Andreoni, James, Nikos Nikiforakis, and Jan Stoop. "Online Supplementary Material to: Are
the rich more selfish than the poor? Evidence from a natural field experiment."
(2017).