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Taxes and Foreign Real Estate Investment

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Abstract

In recent years studies examining international mixed-asset portfolios have failed to uncover any significant benefits from foreign real estate. These papers have concentrated their focus on foreign exchange rate risk as "the problem" with respect to foreign investments, and therefore they sought solutions from traditional hedging tools such as leverage, options, forward contracts and even currency swaps. This study considers differences among countries in national income tax rates as a plausible explanation for the interest in foreign real estate investment. Hypothetically, it may be possible for investors to move a portion of their wealth to a foreign country and take advantage of lower marginal tax rates. After-tax returns from mixed-asset portfolios consisting of (1) domestic financial assets only, (2) domestic financial assets plus foreign financial assets, and (3) domestic financial assets, foreign financial assets and foreign real estate are evaluated. The findings indicate that there are no significant after-tax benefits for foreign investors from investment in U.S. real estate.

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  • Alan J. Ziobrowski & Harry McAlum & Brigitte J. Ziobrowski, 1996. "Taxes and Foreign Real Estate Investment," Journal of Real Estate Research, American Real Estate Society, vol. 11(2), pages 197-213.
    • Handle: RePEc:jre:issued:v:11:n:2:1996:p:197-213
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    1. Solnik, B H, 1974. "The International Pricing of Risk: An Empirical Investigation of the World Capital Market Structure," Journal of Finance, American Finance Association, vol. 29(2), pages 365-378, May.
    2. David M. Geltner, 1993. "Estimating Market Values from Appraised Values without Assuming an Efficient Market," Journal of Real Estate Research, American Real Estate Society, vol. 8(3), pages 325-346.
    3. Robert N. McCauley & Steven A. Zimmer, 1989. "Explaining international differences in the cost of capital," Quarterly Review, Federal Reserve Bank of New York, vol. 14(Sum), pages 7-28.
    4. Alan J. Ziobrowski & Richard Curcio, 1991. "Diversification Benefits of U.S. Real Estate to Foreign Investors," Journal of Real Estate Research, American Real Estate Society, vol. 6(2), pages 119-142.
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    Cited by:

    1. C.F. Sirmans & Elaine Worzala, 2003. "International Direct Real Estate Investment: A Review of the Literature," Urban Studies, Urban Studies Journal Limited, vol. 40(5-6), pages 1081-1114, May.
    2. Pat Wilson & Ralf Zurbruegg, 2003. "International Diversification of Real Estate Assets - Is it Worth It? Evidence from the Literature," Working Paper Series 126, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    3. John Gallo & Ying Zhang, 2010. "Global Property Market Diversification," The Journal of Real Estate Finance and Economics, Springer, vol. 41(4), pages 458-485, November.
    4. João da Rocha Lima & Cláudio Tavares de Alencar, 2006. "Os Atributos Do Mercado Brasileiro De Empreendimentos De Base Imobiliária Para Captar Recursos De Investidores Estrangeiros," LARES lares_2006_artigo-claudio, Latin American Real Estate Society (LARES).
    5. Ping Cheng & Alan J. Ziobrowski & Royce W. Caines & Brigette J. Ziobrowski, 1999. "Uncertainty and Foreign Real Estate Investment," Journal of Real Estate Research, American Real Estate Society, vol. 18(3), pages 463-480.

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    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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