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

53 Pages Posted: 6 Oct 2018 Last revised: 17 Dec 2019

See all articles by Dragana Cvijanovic

Dragana Cvijanovic

Warwick Business School, University of Warwick

Christophe Spaenjers

HEC Paris - Finance Department

Date Written: December 17, 2019

Abstract

Previous research has shown that non-local household investors make sub-optimal asset selection and market timing decisions. In real estate markets, heterogeneity in investment performance can exist even when controlling for these factors, given that prices are the outcome of a complex search-and-bargaining process. Employing unique micro-level transaction 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 result is not due to search costs and information asymmetries, but instead stems from wealth-related variation 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; information asymmetries; bargaining

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 (December 17, 2019). Available at SSRN: https://ssrn.com/abstract=3248902 or http://dx.doi.org/10.2139/ssrn.3248902

Dragana Cvijanovic

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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