Cross-border real estate investment: a different animal? Comparative evidence from bilateral flow data

Despite its growing importance and potential financial stability implications, cross border CRE investment unlike other types of capital flows has seen little research, a gap this paper tries to fill. Leveraging on a unique private dataset of bilateral CRE transactions covering 894 country pairs available from 2007q1 to 2018q4, matched with recently available bilateral Balance of Payment flows dataset, it provides a comparative analysis of the covariates of bilateral CRE flows versus traditional flows. First, higher relative GDP growth in the host economy is a stronger covariate of CRE flows than other flows. In contrast, CRE flows are not associated with interest rates and the differential between source and host country, unlike portfolio flows, nor with host country institutional variables, unlike banking flows. Second, CRE flows appear to comove as much with the global financial cycle as portfolio and banking flows. Third, among gravity factors, contiguity and distance are core covariates of CRE flows, unlike colonial relationship or common language. The paper finally finds that tightening of macroprudential policy and liberalisation of capital controls on outflows in the source countries are associated with higher outward CRE flows, while host country policies are found insignificant.