'We'll Always Have Paris': Out-of-Country Buyers in the Housing Market

46 Pages Posted: 6 Oct 2018 Last revised: 1 May 2020

See all articles by Dragana Cvijanovic

Dragana Cvijanovic

Cornell SC Johnson College of Business; Warwick Business School, University of Warwick

Christophe Spaenjers

HEC Paris - Finance Department

Date Written: April 30, 2020

Abstract

Previous research has shown that non-local household investors make sub-optimal asset selection and market timing decisions. However, in real estate markets, heterogeneity in returns can exist even with identical ex ante investment (timing) choices, given that transaction prices are the outcome of a complex search-and-bargaining process. Analyzing notarial data for the Paris housing market, we find that “out-of-country” buyers indeed buy at higher prices and resell at substantially lower prices than local investors, ceteris paribus. Furthermore, our evidence suggests that this pattern is not due to higher search costs and information asymmetries, but instead stems from wealth-related differences in bargaining intensity. Finally, we estimate the causal effect of out-of-country demand shocks on property prices in Paris to be positive but small.

Keywords: foreign home buyers; secondary residences; bargaining; information asymmetries

JEL Classification: R21; R23; R31; D12; G12

Suggested Citation

Cvijanovic, Dragana and Spaenjers, Christophe, 'We'll Always Have Paris': Out-of-Country Buyers in the Housing Market (April 30, 2020). Available at SSRN: https://ssrn.com/abstract=3248902 or http://dx.doi.org/10.2139/ssrn.3248902

Dragana Cvijanovic

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

Warwick Business School, University of Warwick ( email )

Coventry CV4 7AL
United Kingdom

Christophe Spaenjers (Contact Author)

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

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