What drives foreign real estate investment? A country-level panel analysis

Over the last few decades, there has been a consistent upward trend in global real estate investment, driven by global economic reforms and the emergence of an integrated global financial market. Previous studies have identified diversification benefits and the possibility of obtaining higher returns on investments as rationales for international real estate investment. However, there is still a paucity of literature examining the macroeconomic and institutional determinants of foreign real estate investment. In this paper, we use panel data models to determine the impacts of a range of those factors, such as infrastructure development, financial development, exchange rate risks, and interest rate on foreign real estate investment. The linkages between international volatility, institutional governance development, property regulations, and foreign real estate investment are also considered. Drawing on information on real estate sector transaction activities over 2003-2021 from the S&P Capital IQ Pro database and employing a range of econometric methods, the analysis finds robust economic growth, a strong domestic financial system, higher transparency of global real estate and a strong governance regime boost higher foreign capital flows into real estate sectors. However, different dimensions of governance appear to have varying levels of influence. These results are robust to a number of alternative specifications and common estimation biases.