Micro Economics: Factors Influencing UAE Housing Market - Report

This report provides a micro economics analysis of the UAE housing market. It begins with an executive summary and an introduction outlining the study's objectives, which is to develop a regression model to predict future variables in the UAE housing market. The discussion section offers a detailed ...Read More

Running head: MICRO ECONOMICS
MICRO ECONOMICS
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Table of Contents
Executive summary....................................................................................................................3
Introduction................................................................................................................................4
Discussion..................................................................................................................................4
Model formation.........................................................................................................................5
Key statistics..............................................................................................................................6
Conclusion................................................................................................................................10
Bibliography.............................................................................................................................11

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Executive summary
The regression equation that has been formed from the given set of data are
Y=77904.93345-18902.17695X1+1.473667926X2-1.065662134X3+0.302255511X4.The
average price of apartments in March 2019 was around AED 1.8 million, and the average
price of villas decreased to about AED 4.5 million. The mean of average yearly rent for
studio type of housing is around 41149 and for one bedroom apartment is around 59310. The
highest means for 2-bed room apartments is 73850. The statistics are significant in the sense
that most of the peoples in UAE are demanding two bedroom apartments.

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Introduction
The main aim of this study is to take the housing market of the UAE into
consideration. Through this study, the various factors that will help in the development of a
regression model that will help in the prediction of future variables in the housing market of
the UAE. The variables that will be considered while making the regression model are GDP
of UAE, the price index of the housing market, and many other variables. The study is
significant in the sense that it will highlight the importance of policies that will be mainly aim
to increase the housing market accessibility. The study is important because of the fact that
through the development of the regression model, the correlation and dependency will be
crucial for the development of better housing policies taken by the government.
Discussion
This section is going to offer a detailed picture of the housing market of UAE, and
through the incorporation of the regression model, the study will identify the development of
policies that will improve the business environment for the housing industry. The Federal
Reserve government of UAE has taken the initiative to clear the first 5-10 years of residency
visa for the investors that have made many investors come and invest within UAE. Apart
from this, the government is also aiming to reduce the price of property transaction to 2%
from 4% to boost up the sales1. Not only this, the huge tax-free salaries that are being given
to the employees are also favouring the employees to purchase the properties. Most of the
1 www.thenational.ae. "Why Buyers Are Now Entering The UAE Property Market". The National,
2019, https://www.thenational.ae/business/money/why-buyers-are-now-entering-the-uae-property-
market-1.837894.

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property dealers are targeting people within the income group of Dh15000 to Dh30000 per
month so that they can cater to the development of properties by 20202.
Model formation
The study will consider the development of regression equation taking the variables
like a quarterly index of property pricing for the year 2011-2018. Number of real estate
transactions that have been done in recent years from 2011-2018, the number of the
unemployment rate that is prevailing within the economy of UAE and the yearly rent of
various types of apartments that are being consumed in UAE. The study will take the help of
linear regression taking the number of household’s transactions (Y) and housing price index,
unemployment rate, yearly rent of various properties as a set of independent variables (X).
2 Rizvi, Muzaffar. "Why Affordability Is The Key To UAE's Home Market". Khaleej Times,
2019,https://www.khaleejtimes.com/business/real-estate/why-affordability-is-the-key-to-uaes-home-
market.

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Key statistics
Figure 1: Descriptive statistics of changes in housing prices for each quarter from 2011-
2018
The mean distribution of each quarter is more or less quite close to each other. The
median is always positive, and it is only negative for the quarter Q4. The house price index is
mainly helping the property price to be stable. The average price of apartments in March
2019 was around AED 1.8 million, and the average price of villas decreased to AED 4.5
million3.
3 www.worldpropertyjournal.com. "Dubai Home Prices Continue To Implode In 2019". World Property
Journal, 2019, https://www.worldpropertyjournal.com/real-estate-news/dubai-uae/property-monitor-
dubai-house-price-index-for-march-2019-average-house-price-in-dubai-2019-dubai-home-sales-data-
for-2019-dubai-property-news-11376.php.

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Figure 2: Descriptive statistics for the types of housing in the UAE
The mean of average yearly rent for studio type of housing is around 41149 and for
one bedroom apartment is around 59310 and that is evident from above table. The highest
means for 2-bed room apartments is 73850. The statistics are significant in the sense that
most of the people in UAE are demanding two bedroom apartments. Most of the people are
preferring to take the rental apartments rather than buying because of the high price of
housing that is to be purchased compared to those for rents.

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Figure 3: Regression analysis for the dependent and independent variable
In the above table, the ANOVA table is helping in the development of a regression
model that is going to help in understanding the whole model efficiently. However, the
intercept and the β coefficients are going to help the model in developing the regression
equation. The general regression equation will be in the form of Y= α+ β1X1+ β2X2+
β3X3+c. In the above equation, the β1, β2, β3 are the coefficients of the independent set of
variables. From the above model, the dependent variables Number of household’s

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transactions are entirely depending on the variables like unemployment rate that is prevailing
in UAE (X1), Average yearly rents of studio type housing (X2), 1-bed room apartments (X3)
and 2-bed room type apartments (X4). The new model that has been formed is Y=
77904.93345-18902.17695X1+1.473667926X2-1.065662134X3 + 0.302255511X4. The
above equation is claiming the fact that the number of household units to be used for the
transaction is depending on 18902 times on variable unemployment rate of UAE.
However, the negative sign of variable is signifying the fact that number of household
units that are to be used for transactions in having a negative relationship with the variable
unemployment rate in UAE. This is true in the sense that if the unemployment within UAE is
increasing, then the number of houses that are available for the transaction will decrease as
people will find hard to get enough money so that they can purchase houses.
More or less several units of households that are being sold in the UAE is depending
1.473 times on the variable average yearly rents for studio type of housing. However, the
positive sign is claiming the fact that if the average rents of studio type of housing are
increasing, then it is increasing the number of units of houses that are to be sold. To some
extent, people of UAE prefer to take studio type of housing as their preferred types of
housing to live. The average rents of 1 bedroom apartments are having a negative relationship
with types of apartments that are being transacted, which means people are not keen to rent
housing that is having one bedroom. On the other hand, the people are renting the properties
having two bedrooms. From the above analysis, it can be claimed that people of the UAE
prefer to stay with family compared to a single stay.

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Conclusion
It can be concluded stating that the people of UAE are having a higher preference
towards the studio and two bedroom apartments for rent purpose. It also indicates that to
bring in high development of resources, the people of UAE are favouring big houses for
renting purposes. Development of a better model of regression are going to bring in more
amount of better and vast level of investment in the real estate industry.

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Bibliography
Ahmed, Khaled. "From ‘Rigid’to ‘Resilient’: A Proposed Self-Build Relocatable SIP
Construction Mechanism for Sustainable Social Housing Models in
UAE." Buildings 8.4 (2018): 58.
Al-Mohana, Safa, and Abdulnasser Hatemi-J. "The Impact of Recent Crisis on the Real
Estate Market on the UAE: Evidence from Asymmetric Methods." Economia
Internazionale/International Economics 69.4 (2016): 389-428.
Elkaftangui, M. O. H. A. M. E. D., and B. Mohamed. "A Methodology for Successful
Retrofitting in the UAE Old Residential Sector towards Sustainable
Measures." Proceedings of the Obsolescence and Renovation—20th Century Housing
in The New Millennium, Universidad de Sevilla, Spain, December (2015): 14-15.
Elkaftangui, M. O. H. A. M. E. D., and B. Mohamed. "A Methodology for Successful
Retrofitting in the UAE Old Residential Sector towards Sustainable
Measures." Proceedings of the Obsolescence and Renovation—20th Century Housing
in The New Millennium, Universidad de Sevilla, Spain, December (2015): 14-15.
Guide, Global. "Emirian Home Prices, Graphed As Time-Series". Global Property Guide,
2019, https://www.globalpropertyguide.com/Middle-East/United-Arab-Emirates/
Home-Price-Trends.
Huston, Simon, Ebraheim Lahbash, and Ali Parsa. "Investigating the UAE Residential
Valuation System: A Framework for Analysis." Available at SSRN 2553738 (2015).
Khalfan, Malik, and Irfan Ul Haq. "Tenants’ Satisfaction in Abu Dhabi (UAE): A
survey." Middle East Journal of Business 14.1 (2019): 20-27.
Rizvi, Muzaffar. "Why Affordability Is The Key To UAE's Home Market". Khaleej Times,
2019,https://www.khaleejtimes.com/business/real-estate/why-affordability-is-the-key-
to-uaes-home-market.

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www.bayut.com. "Q3 Dubai Property Market Report: Prices & Rois For 2018 - Mybayut". A
Blog About Homes, Trends, Tips & Life In The UAE | Mybayut, 2019,
https://www.bayut.com/mybayut/q3-dubai-property-market-report-2018/.
www.db.com. Db.Com, 2019, https://www.db.com/mea/en/media/GDPBD00000257789.pdf.
www.thenational.ae. "Why Buyers Are Now Entering The UAE Property Market". The
National, 2019, https://www.thenational.ae/business/money/why-buyers-are-now-
entering-the-uae-property-market-1.837894.
www.worldpropertyjournal.com. "Dubai Home Prices Continue To Implode In 2019". World
Property Journal, 2019,
https://www.worldpropertyjournal.com/real-estate-news/dubai-uae/property-monitor-
dubai-house-price-index-for-march-2019-average-house-price-in-dubai-2019-dubai-
home-sales-data-for-2019-dubai-property-news-11376.php.