Global Journal of Economic and Finance Research

The present study was predominantly analysis of foreign capital flows for the purpose of assessing expansionary monetary policy response with the real estate market performance in GCC between 2010-2022. The concern wasn’t just over prices, but also the context in which they’re moving. To do this, the study uses a vector error adjustment model with quarterly data from six GCC countries. This framework made it possible to follow the propagation of a monetary shock in order to distinguish them into first round and subsequent effects on the real estate market. There is a paradox in the world between long-term interest rates and house prices. It turned out that 10% decline of the interest rate resulted in nearly 8.74% rise of housing cost, which indicated to the market’s monetary response. In this respect, FDI comes across as an unmistakable contributor. It is, individually by volume, a small proportion of domestic credit but an important factor explaining the trends and dynamics of the real estate market. Interest rate spreads, accompanied by the credit boom and amount of foreign capital flow that followed the 2015 fall in oil prices, indicate structural changes in the studied economies. These changes do not seem to be temporary but are part of a fundamental transformation in the economic landscape. But not all countries are cut from the same cloth. Such impacts, however, seem to be less in the UAE and Saudi Arabia owing to strong distinctions in the regulatory regimes and monetary policies of these two countries. Given this the study concludes that we should be cautious about real estate price developments, while opting for policies that sustain economic activity and provide for uninterrupted flows of capital.

Monetary policy, property prices, investment, capital flow, Gulf Cooperation Council.

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