Does Real Estate Defy Gravity? An Analysis of Foreign Real Estate Investment Flows

This paper investigates the scale and determinants of foreign investment flows between national real estate markets. Using data for over 100 countries over 2007–2012, the results indicate that, consistent with previous studies for trade, foreign direct and portfolio investment variables such as size and distance have significant effects on foreign real estate investment flows. Large positive size effects are consistent with a combination of scale economies and information externalities producing investment concentration across markets and in conjunction with direct and indirect transaction costs specific to real estate markets. Physical distance coefficients are relatively small compared to the studies of FDI.