Foreign Real Estate Research Articles

The Diversification Benefits of Foreign Real Estate: Evidence from 40 Years of Data

We investigate the potential of global real estate to improve the long-term performance of a US equity portfolio, utilizing a recent dataset of 40 years’ worth of US stocks, US real estate, 13 foreign stock markets, and 13 foreign real estate markets across diverse regions. Despite a modest performance in terms of risk and return, foreign real estate has consistently lower correlations with US stocks compared to foreign equities. Rolling correlation analysis indicates that foreign real estate markets remain relatively segmented compared to foreign equity, despite increasing financial market correlations over time. Efficient frontier analysis demonstrates that portfolios including foreign real estate consistently outperform those limited to US stocks and US real estate or those including foreign stocks, indicating the importance of foreign real estate in optimizing portfolio performance. Subperiod analysis reveals that foreign real estate retains its diversification benefits even in the latter, more integrated period. Our results are robust when using Conditional Value-at-Risk as a measure of risk. Overall, our findings highlight the persistent diversification benefits and superior risk-adjusted returns from incorporating foreign real estate into US equity portfolios.

Exploring determinants impacting foreign direct investment in the real estate sector: a study on the Indian economy

PurposeForeign direct investment in the real estate (FDIRE) sector is required to bridge the gap between investment needed and domestic funds. Further, foreign direct investment is gaining importance because other sources of raising finance such as External Commercial Borrowing and foreign currency convertible bonds have been banned in the Indian real estate sector. Therefore, the objective of the study is to explore the determinants attracting foreign direct investment in real estate and to assess the impact of those variables on foreign direct investments in real estate.Design/methodology/approachJohansen cointegration test, vector error correction model along with variance decomposition and impulse response function are employed to understand the nexus of the relationship between various macroeconomic variables and foreign direct investment in real estate.FindingsThe results indicate that infrastructure, GDP and tourism act as drivers of foreign direct investment in real estate. However, interest rates act as a barrier.Originality/valueThis article aimed at exploring factors attracting FDIRE along with estimating the impact of identified variables on FDI in real estate. Unlike other studies, this study considers FDI in real estate instead of foreign real estate investments.

국내 부동산 PF 시장 활성화를 위한 전략

This study aimed to compare and analyze domestic and foreign real estate project finance research to explore strategies for revitalizing the domestic real estate project finance market. Therefore, This study compared and analyzed domestic and foreign research on real estate project finance, using 'real estate project finance' as a keyword for domestic research and 'real estate project finance', 'housing project finance', and 'building project finance' as keywords for foreign research. We focused on four criteria:topic, research method, research results, and research significance. The analysis showed that domestic real estate project finance research only focused on real estate finance and financial aspects, and quantitative studies that analyzed correlations between limited variables. We also found that research related to SME real estate project finance and effective project development was insufficient. In contrast, foreign research mainly focused on effective project development in real estate project finance, such as increasing the likelihood of project success, minimizing risks, developing effective project evaluation tools, and sustainable development of the real estate project finance industry of which validity of such analysis was verified through case analysis of the United States and Japan.
 Based on these differences, this study proposed strategies such as as SME-tailored project development,focsing on risk reduction in SME PF projects as well as developing effective evaluation tools. considering sustainable SME real estate PF development strategies.

Chinese Foreign Real Estate Investment and Local Voting in US Presidential Elections

Abstract Despite the increasing globalization of housing markets, little is known about its political implications. This study investigates whether rising Chinese investments in US homes influenced local voting in recent US presidential elections. Building on pocketbook/sociotropic voting and nativism theories, I develop hypotheses on the electoral consequences of foreign real estate investment through greater home demand and equity, improved local economies, and changing neighborhoods. Using difference-in-differences designs that combine a unique shock to Chinese capital outflows in 2013 with county-level measures of local attractiveness to Chinese investments, I find that greater exposure reduced Democratic vote shares in both the 2016 and 2020 presidential elections. Furthermore, an initially larger white population strengthened this effect, while a larger college-educated population weakened it. In contrast, local equity gains, housing competition, or economic strength did not systematically influence the effect. Together, the results appear more consistent with the pro-conservative effects of nativism.

On real estate market transparency: The relationship with ICT trade and investment

The relationship between information and communication technology (ICT) investment, ICT trade, and real estate market transparency is examined in this paper. National-level bi-annual data from a sample of advanced and emerging market economies for the period 2004–2018 underpins this work. The regression analyses suggest greater levels of capital investment in ICT and ICT trade are associated with increased transparency in the real estate market. The effect is more pronounced in emerging economies than in advanced ones. Real estate market transparency is also higher in contexts having less restrictions on foreign real estate investment, coupled with corruption controls. These findings also align with existing literature inferring that countries with common law traditions are often more transparent than those from civil law origins.

Local Effects of Global Capital Flows: A China Shock in the U.S. Housing Market

Abstract This paper studies the real effects of foreign real estate capital inflows. Using transaction-level data, we document (i) a “China shock” in the U.S. housing market characterized by surging foreign Chinese housing purchases after 2008, and (ii) “home bias” in these purchases, as they concentrate in neighborhoods historically populated by ethnic Chinese. Exploiting their temporal and spatial variation, we find that these capital inflows raise local employment, with the effect transmitted through a housing net worth channel. However, they displace local lower-income residents. Our results show that real estate capital inflows can both stimulate the real economy and induce gentrification.

Is Rising Residential Land Prices a Consequence of Domestic or Foreign Land Demand? Evidence From Mauritius Island

Some emerging island economies have been fostering foreign direct investments in the real estate market. Given the rise in real estate demand under such contexts, this must have entailed a rise in land demand, and subsequently, land prices could have been affected. This study assesses if the rise in land demand caused by domestic and/or foreign land demand has been influencing residential land prices in Mauritius. To undertake the research, annual data was collected from the year 2000 to 2019 and a structural time series approach was used. It was found that unobserved components, namely the trend level and slope, as well as the cycles were significant in explaining land prices. It was concluded that fluctuations in land prices are significantly explained through latent variables, such as regulations in the land market, fiscal policies concerning mortgage loans, and speculative land buying among others. It was also found that foreign real estate investment (FREI) used as a measure of foreign land demand did not significantly influence land prices. To further probe the factors affecting land prices in Mauritius, domestic demand-side factors were considered and it was found that income, population, unemployment, and real construction costs were significant in explaining land prices.

A dynamic analysis of the influence of foreign real estate investments on residential land prices in Mauritius

PurposeMauritius’s residential real estate sector has undergone an increase in foreign investment over the past decades. This study aims to establish if the increasing level of foreign real estate investments (FREI) has increased land demand and land prices. The study also aims to depict whether the relation between FREI and land prices prevails at an aggregate and/ or a regional level.Design/methodology/approachData from 26 regions, classified as urban, rural and coastal is collected on an annual basis over the period 2000 to 2019, and a dynamic panel regression framework, namely, an autoregressive distributed lag model, is used to take into account the dynamic nature of land price modeling.FindingsThe findings show that, at the aggregate level, in the long-term, FREI does not have a significant influence on land prices, while in the short term, a positive significant relationship is noted between the two variables. A regional breakdown of the data into urban, rural and coastal was done. In the long term, only in coastal regions, a positive significant link was observed, whereas in urban and rural regions FREI did not influence land prices. In the short term, the positive link subsists in the coastal regions, and in rural regions also land prices are positively affected by FREI.Originality/valueUnlike other studies which have used quite general measures of FREI, the present research has focused on FREI mainly undertaken in the residential real estate market and how these have affected residential land prices. This study also contributes to research on the determinants of land prices which is relatively scarce compared to research on housing prices.

A Study on Investment Opportunities & Perils in Korea for Foreign Real Estate Investors

Foreign institutional investors are one of the major groups of investors in the financial sector. Because of their particular characteristics and limitations, 'conventional assets,' such as equities, bonds, and cash, dominate institutional investors' asset allocation. To attain higher and more consistent return profiles, major Korean institutional investors have been rearranging their asset allocation strategies to include more exposure to the real estate industry. Real estate prices grow more efficient and closer to their long-term equilibrium as a result of rules. Any foreigner intending to purchase property in Korea must notify the government, according to the Real Estate Transaction Report, Etc. Act. If a foreign buyer chooses not to file an acquisition report, they must comply with the same legislation (the Act on Real Estate Transaction Report, etc.) that requires the submission of all real estate purchase reports. International investors that invest in designated zones for foreign investment or in firms with foreign ownership that provide certain recognized high-level technology services can additionally benefit from other tax incentives. This study aims to find out, because of these rules and policies, investing in the real estate industry in Korea might seem to be complicated but the after effects of these investments looks much brighter in the future.

국면전환모형을 이용한 한미일 주택시장 경기국면에 관한 연구

This paper is to model changes in business regime by using Korea, US and Japan apartment sale price indics with a two-state Markov regime switching model. As a result of the analysis, First, the rate of change in housing sales prices in each country showed a large difference according to the business cycles of housing sales prices, and even in the same regime, it was found that each country showed regional characteristics. Second, the mean growth rate of the expansion and contraction periods was different for each country, and the probability of maintaining the contractions period differed by country, but it was 2.5 times larger than that of the expansions period. Third, it was found that the variance of the error terms in Korea, US, and Japan was greater than the contraction period during the expansion period. It was found that the price volatility of each country was large during the expansion period, while the volatility was low during the contraction period. Therefore, it was estimated that the price volatility of housing as an asset was downward rigid. As the pace of information and communication is accelerating the coupling of the international real estate market, it is necessary to carry out housing policies that can stabilize the housing market by continuously monitoring domestic and foreign real estate business cycles.

Феномен прямых инвестиций, не связанных с “классическими” ТНК

The article is devoted to the review of current scientific research on foreign direct investment (FDI), which is not related to “classical” TNCs. It is shown that a separate study of “born global” firms from TNCs is required mainly because of the need to adjust the theoretical concepts that explain the phenomenon of TNCs. The separate study of FDI of sovereign investment funds and investors in foreign real estate is useful mainly due to the applied tasks of state regulation of such investments. Non-standard FDI can also include investments by pseudo-TNCs, with round-tripping FDI through offshore and similar jurisdictions, as well as FDI by private equity funds. At the same time, pseudo-TNCs and private equity funds can be studied within the framework of the established paradigm of TNCs analysis. Therefore, relatively small amount of publications are devoted to such topics. The majority of publications on non-typical FDI appeared only in the 2000s, which illustrates the blurring of the usual boundaries of FDI. Russian scientists are still focused on studying TNCs. This is partly due to the fact that a new direction has also emerged in such analysis – the study of TNCs from developing and post-socialist countries, which are often difficult to attribute to “classic” Western multinational investors. In this aspect, Russian and generally post-Soviet TNCs turned out to be interesting material for analysis at least in the first 10–15 years of the 21st century. However, the analysis of new FDI players is important for Russia for a number of reasons: 1) creating comfortable conditions for the import of capital to Russia while respecting national interests (FDI of sovereign funds, especially Chinese and Arab); 2) encouraging forms of capital export that contribute to improving the position of Russia in the international division of labor (primarily FDI in modern industries of small “born global” firms); 3) limiting excessive capital exports (FDI of pseudo-TNCs and individuals).

Direct Investment from Russia Abroad: Changes since 2018

The article considers the specifics of Russian foreign direct investment outflows in 2018–the first half of 2020. Three main reasons for the new stagnation of Russian foreign investment expansion are identified: 1) the strengthening of “sanctions war” with the West after the election of Vladimir Putin for the 4th presidential term; 2) the slowdown in the global economy in 2018–2019 against the background of relatively low prices for hydrocarbons and other raw materials exported from Russia; and 3) the crisis caused by the coronavirus pandemic in 2020. These factors resulted in a reduction of both outward foreign direct investment stocks by Russian MNEs (partially due to revaluation of their assets after the collapse of the ruble rate), and a decrease in investments of wealthy Russians in foreign real estate as well as pseudo-foreign investment because of the regular attempts to conduct de-offshorization. Based on a study conducted at INION within the framework of the international program for studying MNEs from emerging markets, a list of leading Russian non-financial MNEs by the end of 2019 is presented. Further prospects of Russian direct investment are shown at the end of the article.

The Uncertainty Index and Foreign Direct Real Estate Investments in Developing Economies

Attainment of standards in a country’s real estate market to meet international investors’ expectations contributes significantly to the real estate sector. However, in developing economies characterized by an environment of uncertainty where stability cannot be achieved, direct investments in real estate can bring returns to foreign investors. This is because economic uncertainty in developing countries raises the exchange rate. An increase in the exchange rate keeps real estate prices in developing countries relatively low. Foreign investors then take advantage of the low prices to invest in real estate in that country. The study aims to research whether the uncertainty in developing countries increases the foreign direct real estate investments. The study examines the relationship between the uncertainties in selected developing economies in Europe and the real estate investments by foreigners in the period 2008–2018. Gengenbach, Urbain, and Westerlund Panel Cointegration test and PDOLS coefficient estimation methods were used in the study. According to the analysis results, a 1% increase in the uncertainty index in the economies examined increases foreign direct investments by 5.731%. Since this study is one of the most detailed studies measuring foreign direct real estate investments under uncertainty conditions in the economy, it contributes to the literature. To sustainably increase foreigners’ direct real estate investments in developing countries, economic and political stability should be prioritized. Facilitating the bureaucratic process, providing tax reductions, making real estate suitable for demand, following the appropriate price policy, and making various environmental regulations will also increase foreigners’ direct real estate investments. Doi: 10.28991/esj-2021-01293 Full Text: PDF

Chinese property developers after the decline in foreign real estate investment in Sydney, Australia

This study investigates how Chinese developers responded to the changing patterns of investment in residential real estate in Sydney since 2010. The analysis also outlines the key lessons for cities around the world with high levels of Chinese foreign buyers and developers, which may experience a similar foreign real estate investment decline as a result of changing dynamics in domestic real estate markets, changes in China, and/or wider changes in the global economy or other key global events. Unlike Chinese individual foreign real estate investors who largely exited the real estate market after 2017, Chinese property developers remained committed to the domestic market in Australia. As such, this analysis is framed by a period of individual foreign capital withdrawal and is focused on foreign developers rather than individual foreign real estate investors. The paper argues that focusing on the actions of foreign developers in a domestic real estate market is important because the organisational structure and business practices of foreign developers can be vastly different to those of domestic developers. The analysis shows that since 2017 Chinese developers responded in two ways to the changing residential real estate market in Sydney: (1) they revised their sales strategies to target different customer groups; and/or (2) they changed their building practices.

Asymmetric political attention across foreign and domestic private equity real estate investors

ABSTRACT Private equity real estate (PERE) markets suffer from information inefficiency. In this study, we examine if Google Trends could help in partially mitigating the inefficiency issues. Using monthly PERE investment activities in India between 2005 and 2017, and controlling for macroeconomic variables, we show that relevant search trends are significantly associated with future investment activities. Compared to domestic investors, foreign investors are subject to information asymmetry and their investment activity is particularly sensitive to political search trends in the target country. We detect a mutually causal association between investment activity and political searches. Although significant, the effect of political Google Trends on investment activity is short-lived and fades within two months.

International Real Estate Review

Financial globalization has enabled investors to allocate some of their portfolio assets to foreign countries and alternative assets. This environment has also created an increase in investment in international real estate especially in the emerging markets. In this study, we investigate whether foreign real estate investors outperform domestic investors after controlling for property specific characteristics. Using property level transaction data of Korea from 2003 to 2016, we also examine the characteristics of commercial real estate investment associated with the probability of an acquirer being a foreign investor versus a domestic investor. The binary and multinomial probability models are used to test our research hypothesis and the structural equation model is applied to find the determinants of the internal rate of return. The result reveals foreign investors perform better than domestic investors in a holding period analysis. Furthermore, the findings support that foreign direct and indirect real estate investments are statistically significant to the age of the building, corporate bond and exchange rates, growth domestic product growth, and the equity market movement in the domestic market.

Analysing the relationship between foreign real estate investment and tourism development

ABSTRACT The primary aim of this research is to analyse the effect of Foreign Real Estate Investment (FREI) on tourist development using a panel dataset of 33 countries over the time period 2000–2016. Given the potential dynamic and endogenous relationship in the FREI-Tourism development nexus, this paper employs a Panel Vector Error Correction Model (PVECM) and a comparative analysis is further conducted by segregating the sample into sub-samples of developed and developing countries. The empirical results indicate that FREI is positively significant, although to varying extent, in explaining tourist growth. There is also evidence of reverse causality, as tourism is observed to also affect FREI in a positive and significant way, at least in the long run. This study is believed to contribute to the debate by bringing additional evidences in the developing countries context while also analysing the link between tourism development and FREI in a comparative setting of developed countries and developing countries.

Прямые инвестиции из России за рубеж: изменения с 2018 года

The article considers the specifics of Russian foreign direct investment outflows in 2018 – the first half of 2020. Three main reasons for the new stagnation of Russian foreign investment expansion are identified: 1) the strengthening of “sanctions war” with the West after the election of Vladimir Putin for the 4th presidential term; 2) the slowdown in the global economy in 2018-2019 against the background of relatively low prices for hydrocarbons and other raw materials exported from Russia; and 3) the crisis caused by the coronavirus pandemic in 2020. These factors resulted in a reduction of both outward foreign direct investment stocks by Russian MNEs (partially due to revaluation of their assets after the collapse of the ruble rate), and a decrease in investments of wealthy Russians in foreign real estate as well as pseudo-foreign investment because of the regular attempts to conduct de-offshorization. Based on a study conducted at INION within the framework of the international program for studying MNEs from emerging markets, a list of leading Russian non-financial MNEs by the end of 2019 is presented. Further prospects of Russian direct investment are shown at the end of the article.

Direct Investment from Russia Abroad: Changes since 2018

The article considers the specifics of Russian foreign direct investment outflows in 2018 - the first half of 2020. Three main reasons for the new stagnation of Russian foreign investment expansion are identified: 1) the strengthening of sanctions war with the West after the election of Vladimir Putin for the 4th presidential term;2) the slowdown in the global economy in 2018-2019 against the background of relatively low prices for hydrocarbons and other raw materials exported from Russia;and 3) the crisis caused by the coronavirus pandemic in 2020. These factors resulted in a reduction of both outward foreign direct investment stocks by Russian MNEs (partially due to revaluation of their assets after the collapse of the ruble rate), and a decrease in investments of wealthy Russians in foreign real estate as well as pseudo-foreign investment because of the regular attempts to conduct de-offshorization. Based on a study conducted at INION within the framework of the international program for studying MNEs from emerging markets, a list of leading Russian non-financial MNEs by the end of 2019 is presented. Further prospects of Russian direct investment are shown at the end of the article. © 2021 Ltd Integration: Education and Science. All rights reserved.

Local Effects of Global Capital Flows: A China Shock in the U.S. Housing Market

We show that foreign real estate capital inflows have positive real effects and adverse distributional consequences. Using transaction-level data, we document (i) a China shock in the U.S. housing market characterized by surging foreign Chinese housing purchases after 2008; and (ii) home bias in these purchases, as they concentrate in neighborhoods historically populated by ethnic Chinese. Exploiting their temporal and spatial variation, we find that these capital inflows raise local house prices and employment, with the employment effect transmitted through a housing net worth channel. At the same time, they crowd out low-income residents and widen economic inequality across neighborhoods.