Transparency, Integration, and the Cost of International Real Estate Investments

Abstract

This paper compares the performance of international property companies with the performance of property companies that focus on their local market, using data for the period from 1996 through 2007. The results show that international property companies under perform portfolios of local property companies in the early years of this period, even when controlled for geographical allocation differences. This under performance is driven by the political environment, the level of economic integration, and the real estate market's transparency of the target countries. The internationals' under performance disappears in the later years of the sample period and so does the significance of the aforementioned factors in explaining performance differences among international companies. The interpretation is that the increasing transparency of the global real estate industry has leveled the playing field for foreign property investors.

Keywords: political risk, real estate, diversification, transparency