Does Real Estate Transparency Matter for Foreign Real Estate Investments?

Abstract

The purpose of this paper is to examine the impact of real estate transparency (RET) on foreign real estate investments (FREI). Most of the previous studies have argued that the free flow of information and the fair and consistent application of local property laws could attract greater amounts of FREI. Using observations from 32 countries covering 2004, 2006, 2008 and 2010 and applying fixed-effect and the generalized method of moments (GMM) techniques, our empirical results reveal that RET is not a major determinant of FREI. However, we find that the effect of RET on FREI is dependent on its interaction with the level of income implying that the higher the level of income in the host country, the higher the effect of RET on FREI. Finally, the results show that foreign direct investment (FDI) in other sector, market size and property prices are important determinants of FREI.

The Asymmetric Effect of Institutional Quality on Chinese Outward Real Estate Investment

“…In this study, interest rate has been used as a proxy for financing or borrowing costs. The empirical evidence in the literature has also suggested that the increase of interest rate will lead to higher borrowing costs, which in turn might hinder foreign investment, although the significant levels vary different studies (He et al, 2009;Rodriguez & Bustillo, 2010;Farzanegan & Fereidouni, 2014;Hui & Chan, 2014). Therefore, this study expects that there is a negative link between financing costs in the host countries and the flow of FDI in real estate.…”

“…It is hypothesised that GDP has a positive effect on FDIRE in response to large economies commonly have larger investment opportunities; thereby these economies are preferred. This is also known as the market-seeking FDI hypothesis (Buckley et al, 2007;He et al, 2009;Rodriguez & Bustillo, 2010;Farzanegan & Fereidouni, 2014;Hui & Chan, 2014). We therefore conjecture that host countries' GDP has positive impact on China's outward FDIRE.…”

“…Firstly, property prices of a host country are considered. Previous real estate studies found that heightening property prices 7 would attract foreign capital flow into real estate (Zhu et al, 2006;He et al, 2009;Farzanegan & Fereidouni, 2014;Hui & Chan, 2014). Nevertheless, a long-term co-integration study of Rodriguez and Bustillo (2010) found a negative link between expectations of heightening property prices and foreign investment in the Spanish property market.…”

“…Importantly, these factors consist of certain property specific explanatory variables, including housing prices, GDP per capita, travel costs and expected gains in capital, as well as tourism agglomeration. More recently, Farzanegan and Fereidouni (2014) suggested that FDIRE is affected by GDP per capita, FDI in other sectors and property prices. Surprisingly, they found that real estate transparency itself is not a critical factor, whilst it only affects foreign inward real estate investment in richer markets.…”

“…In other words, the index not only captures real estate aspects, but also the broader aspects. Importantly, the index has been widely used by real estate studies in gauging the institutional quality of a country (Farzanegan & Fereidouni, 2014;Newell, 2016). Therefore, we employed this index in measuring the institutional quality of a country.…”