Do Foreign Buyers Pay More Than Domestic Buyers? Evidence from International Transaction-Level Data

In this paper, we examine the role of international capital flows in real estate prices by quantifying the extent foreign buyers overpay for their realty investments as well as the spillover effect of such behavior on property prices domestic buyers pay. Using a unique dataset accounting for about 30,000 realty investment transactions in Australia, Canada, France, Hong Kong, Japan, the Netherlands, the United Kingdom, and the United States, we find the following. First, foreign investors pay significantly higher prices than domestic investors, even after taking a wide variety of controls into account. Second, this paying over the odds becomes smaller the larger the buyers’ exposure to realty investments in the host countries. These results indicate that foreign investors are overcharged when they are less informed about the property market and that the extent to which they are overcharged decreases the more investment experience they have. Third, we did not find any significant spillover effects from overpaying by foreign investors to real estate prices in host countries. This finding is consistent with a group of extant studies employing aggregate-level data to examine the link between international capital flows and real estate prices.