Foreign investors’ influence on the real estate market capitalization rate – evidence from a small open economy

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Abstract

This article adds to the scarce literature on the influence of international investment flows on local real estate values. We hypothesize that a greater foreign-investor presence in a real estate market results in a lower capitalization rate and examine whether this holds true in the Helsinki CBD office market in Finland. This market provides an interesting case study by being part of a small open economy, in which the presence of foreign investors has substantially varied over time. The Dynamic OLS estimations using data for the period 1990–2015 provide support for the hypothesis. The baseline results show a highly statistically significant negative impact of foreign-investor participation on the capitalization rate, the point estimates indicating that a 10% point growth in the share of foreign buyers of the total transaction volume decreases the cap rate by approximately 30 basis points.
Original languageEnglish
Pages (from-to)3141-3155
Number of pages15
JournalAPPLIED ECONOMICS
Volume49
Issue number32
Early online date20 Nov 2016
DOIs
Publication statusPublished - 2017
MoE publication typeA1 Journal article-refereed

Keywords

  • Real estate investment
  • capitalization rate
  • foreign investment
  • dynamic ordinary least squares

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