The Cape of Good Homes: Exchange Rate Depreciations, Foreign Demand and House Prices

48 Pages Posted: 2 Apr 2019

See all articles by Allan Davids

Allan Davids

University of Cape Town (UCT)

Co-Pierre Georg

Deutsche Bundesbank; University of Cape Town (UCT)

Date Written: March 9, 2019

Abstract

We study the discount foreign investors receive buying real estate in an emerging market following large sudden exchange rate depreciations using transaction level data for the city of Cape Town, South Africa. Foreign non-residents purchase properties in more expensive, coastal suburbs, and purchase more expensive properties within these suburbs. While foreign non-residents do not pay higher prices on average, they realize significantly lower capital gains than residents upon resale. Using historically large depreciations as positive shocks to foreign non-resident demand, we find that areas with large pre-existing populations of foreign born citizens experience notable quality-adjusted price increases relative to other geographically close areas in the month following the depreciations. Despite this, we find no evidence that this increase in demand leads to increases in prices for local buyers.

Keywords: foreign housing demand, exchange rates, house prices

JEL Classification: R21, F31, G11

Suggested Citation

Davids, Allan and Georg, Co-Pierre, The Cape of Good Homes: Exchange Rate Depreciations, Foreign Demand and House Prices (March 9, 2019). Available at SSRN: https://ssrn.com/abstract=3349815 or http://dx.doi.org/10.2139/ssrn.3349815

Allan Davids (Contact Author)

University of Cape Town (UCT) ( email )

Private Bag X3
Rondebosch, Western Cape 7701
South Africa

Co-Pierre Georg

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

University of Cape Town (UCT) ( email )

Private Bag X3
Rondebosch, Western Cape 7701
South Africa

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