The Cape of Good Homes: Exchange Rate Depreciations, Foreign Demand and House Prices
48 Pages Posted: 2 Apr 2019
Date Written: March 9, 2019
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: Suggested Citation