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Geography and Realty Prices: Evidence from International Transaction-Level Data

Author

Listed:
  • Miyakawa, Daisuke
  • Shimizu, Chihiro
  • Uesugi, Iichiro

Abstract

In this paper, we examine the role of the international flow of capital in real estate prices by quantifying the relation between investors' geographical locations and the prices they pay for their realty investments. Our data set contains more than 30,000 realty investment transactions in Australia, Canada, France, Hong Kong, Japan, Netherlands, the United Kingdom, and the United States. First, we find that foreign investors pay significantly higher prices than domestic investors do even after taking a wide variety of controls into account. Second, this overpricing becomes smaller as the buyers' exposure to realty investments in the host countries becomes higher. Third, in support of these results, the investment returns of foreign investors are systematically lower than that of domestic investors. This negative excess return becomes smaller as the buyers' exposure to the host countries becomes higher. These results indicate that the overpricing of foreign investors occurs when investors are less informed about the local property market and lessens with the accumulation of investment experience.

Suggested Citation

  • Miyakawa, Daisuke & Shimizu, Chihiro & Uesugi, Iichiro, 2016. "Geography and Realty Prices: Evidence from International Transaction-Level Data," HIT-REFINED Working Paper Series 52, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:remfce:52
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    References listed on IDEAS

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    Cited by:

    1. Badarinza, Cristian & Ramadorai, Tarun & Shimizu, Chihiro, 2022. "Gravity, counterparties, and foreign investment," Journal of Financial Economics, Elsevier, vol. 145(2), pages 132-152.
    2. Mr. Damien Puy & Mr. Anil Ari & Ms. Yu Shi, 2020. "Foreign Demand and Local House Prices: Evidence from the US," IMF Working Papers 2020/043, International Monetary Fund.
    3. Wen-Yi Chen, 2017. "Demographic structure and monetary policy effectiveness: evidence from Taiwan," Quality & Quantity: International Journal of Methodology, Springer, vol. 51(6), pages 2521-2544, November.

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    More about this item

    Keywords

    Realty Price; Transaction Data; Geographical Location; Fixed Effects;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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