Advisor, Research Department at the IMF
2015 Global Real Estate Summit in Washington DC
July 8, 2015
Good afternoon. I am grateful to Professor Ko Wang of Johns Hopkins University for putting together this plenary session. And I welcome the many real estate associations—including the Global Chinese Real Estate Congress—that have come together to make this a truly unique event.
My remarks will focus on one aspect of the globalization of real estate markets, namely the role of foreign investors. We see frequent discussions of this in the media. For example, here is a recent column by Zoe Williams of The Guardian (Slide 2).
- She complains that UK house prices—in London but also elsewhere—are “far beyond what people can afford” and that this is partly because houses are “going straight to mainly Asian investors”.
- She worries that “when anybody from anywhere can buy a flat in your city, sooner or later the people who live and work in it won’t be able to afford to” and proposes the simple solution that the UK “ban the ownership of housing by foreign non-residents”.
What do we know about the role that foreign investors are playing in real estate markets? Anecdotally, there is indeed an increased role of foreign investors. It appears to be driven by three factors.
- First, there has been an immense increase in wealth, particularly in emerging market economies.
- Second, interest rates area at historical lows around much of the world, prompting a search for yield among other investments.
- Third, in a few cases, increased geo-political risks are leading to safe haven flows to particular property markets. For instance, some research shows that has house price increases in London are correlated with increased political risk, which the authors argue drives capital inflows into real estate markets.