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'We'll Always Have Paris': Out-of-Country Buyers in the Housing Market

Author

Listed:
  • Cvijanovic, Dragana
  • Spaenjers, Christophe

Abstract

This paper studies the investment decisions and price impact of non-resident foreigners in the Paris housing market, employing unique micro-level transaction data over the period 1992–2016. We find that these “out-of-country” buyers generally purchase relatively small but high-quality properties in desirable neighborhoods and in areas with high ratios of compatriots. Ceteris paribus, they pay higher prices, hold for longer, and realize lower capital gains, highlighting the importance of information asymmetries and search costs in residential real estate. Crucially, however, out-of-country buyers’ quality-controlled purchase prices are also positively affected by home-country economic conditions, which suggests that global variation in the willingness-to-pay for real estate affects pricing in hotspots such as Paris. When instrumenting out-of-country demand, we find that it has pushed up prices of ex ante less valuable properties that have nonetheless been exposed to such demand.

Suggested Citation

  • Cvijanovic, Dragana & Spaenjers, Christophe, 2018. "'We'll Always Have Paris': Out-of-Country Buyers in the Housing Market," HEC Research Papers Series 1311, HEC Paris.
    • Handle: RePEc:ebg:heccah:1311
    DOI: 10.2139/ssrn.3248902
    Note: Available at SSRN: https://ssrn.com/abstract=3248902 or http://dx.doi.org/10.2139/ssrn.3248902
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    Cited by:

    1. Jack Favilukis & Stijn Van Nieuwerburgh, 2021. "Out‐of‐Town Home Buyers and City Welfare," Journal of Finance, American Finance Association, vol. 76(5), pages 2577-2638, October.
    2. William N Goetzmann & Christophe Spaenjers & Stijn Van Nieuwerburgh, 2021. "Real and Private-Value Assets [Gendered prices]," The Review of Financial Studies, Society for Financial Studies, vol. 34(8), pages 3497-3526.
    3. Pangallo, Marco & Nadal, Jean-Pierre & Vignes, Annick, 2019. "Residential income segregation: A behavioral model of the housing market," Journal of Economic Behavior & Organization, Elsevier, vol. 159(C), pages 15-35.

    More about this item

    Keywords

    foreign home buyers; secondary residences; search costs; private valuations;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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