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

53 Pages Posted: 6 Oct 2018 Last revised: 25 Oct 2018

See all articles by Dragana Cvijanovic

Dragana Cvijanovic

University of North Carolina Kenan-Flagler Business School

Christophe Spaenjers

HEC Paris - Finance Department

Date Written: October 3, 2018

Abstract

This paper studies the investment decisions and price impact of non-resident foreigners in the Paris housing market, employing unique micro-level transaction data over the period 1992–2016. We find that these “out-of-country” buyers generally purchase relatively small but high-quality properties in desirable neighborhoods and in areas with high ratios of compatriots. Ceteris paribus, they pay higher prices, hold for longer, and realize lower capital gains, highlighting the importance of information asymmetries and search costs in residential real estate. Crucially, however, out-of-country buyers’ quality-controlled purchase prices are also positively affected by home-country economic conditions, which suggests that global variation in the willingness-to-pay for real estate affects pricing in hotspots such as Paris. When instrumenting out-of-country demand, we find that it has pushed up prices of ex ante less valuable properties that have nonetheless been exposed to such demand.

Keywords: foreign home buyers; secondary residences; search costs; private valuations

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 (October 3, 2018). Kenan Institute of Private Enterprise Research Paper No. 18-25; HEC Paris Research Paper No. FIN-2018-1311. Available at SSRN: https://ssrn.com/abstract=3248902 or http://dx.doi.org/10.2139/ssrn.3248902

Dragana Cvijanovic

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

Christophe Spaenjers (Contact Author)

HEC Paris - Finance Department ( email )

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

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