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Cross-Border Capital Flows into Real Estate

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  • Andrew E. Baum
  • Franz Fuerst
  • Stanimira Milcheva

Abstract

Cross-border capital flows into real estate are marked by sharp inequalities among countries. Hypothetically, each country should receive capital flows commensurate with the size of its respective economy or, more accurately, the total size of its investible real estate market. In contrast to this hypothesis, the observed capital flows deviate substantially from this 'naive equilibrium' not only in the short run but persistently throughout economic cycles and long-run economic development trajectories. One of the possible explanations for the long-term aberration from expected values are institutional barriers encompassing a broad range of economic, legal and political risks as well as more intangible cultural factors. This study sets out to empirically test for the existence and significance of these barriers by investigating a unique database comprising real estate flow data and a large number of other economic and property market indicators.Following the above observation, we test for deviations of observed capital flows from expected capital flows using a regression framework. Given that cross-border real estate investment activity in each country should be directly proportional to the size of the investible or institutional-grade stock, and observed activity will be different from hypothesised levels, we investigate the determinants of any deviations we find, focussing on economic development, market transparency, rule of law and cultural factors. Based on earlier empirical studies, we expect that excess cross-border capital flows are driven by high GDP per capita, high real estate market transparency and low barriers to market entry. We expect that all countries 'punching above their weight' achieve high scores on all these factors and vice versa.

Suggested Citation

  • Andrew E. Baum & Franz Fuerst & Stanimira Milcheva, 2013. "Cross-Border Capital Flows into Real Estate," ERES eres2013_50, European Real Estate Society (ERES).
  • Handle: RePEc:arz:wpaper:eres2013_50
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    File URL: https://eres.architexturez.net/doc/oai-eres-id-eres2013-50
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    Cited by:

    1. Bienert, Sven & Sebastian, Steffen P. & Just, Tobias, . "Niedrigzinsumfeld und die Auswirkungen auf die Immobilienwirtschaft," Beiträge zur Immobilienwirtschaft, University of Regensburg, Department of Economics, number 8.
    2. Barra McCarthy, 2019. "Real estate fund investment in post-crisis Ireland," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Are post-crisis statistical initiatives completed?, volume 49, Bank for International Settlements.
    3. Steven Devaney & David Scofield & Fangchen Zhang, 2019. "Only the Best? Exploring Cross-Border Investor Preferences in US Gateway Cities," The Journal of Real Estate Finance and Economics, Springer, vol. 59(3), pages 490-513, October.

    More about this item

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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