“We’ll always have Paris”: Out-of-country buyers in the housing market

This paper studies the investment behavior, performance, and price impact of non-resident foreigners in the Paris housing market. The authors demonstrate that “out-of-country” buyers buy at higher prices and resell at substantially lower prices than local investors. Evidence suggests that this pattern is not due to higher search costs and information asymmetries but instead, stems from wealth-related differences in bargaining intensity. Furthermore, the authors estimate the causal effect of out-of-country demand shocks on property prices in Paris to be positive but small. Out-of-country buyers account for 2.8% of all purchases between 1992 and 2016. Their average purchase price (358.131€) is about one-third higher than the average price paid by French buyers and more than 40% above the average purchase price of resident foreigners. The paper also shows the 20 nationalities that are the most active foreign buyer groups. The largest numbers of purchases by households are from Italy, Great Britain, the United States, Portugal, and China. Israeli buyers have the highest ratio of non-resident purchases (78.4%), followed by Swiss (69.5%) and American (59.8%) buyers. The paper focuses on the price impact of non-French owners on the Paris housing market. As such, real estate ownership through tax havens or by anonymous owners are not analyzed in detail. Nonetheless, it is noted that the top 20 foreign-owner countries include several tax havens like Belgium, Ireland, Lebanon, Switzerland, and the Netherlands.

  Key results

• The out-of-country buyers’ purchase price is about one-third higher than the average price paid by French buyers and more than 40% above the average purchase price of resident foreigners.
• The largest numbers of purchases by foreign buyer nationalities are from Italy, Great Britain, the United States, Portugal, and China.
• The top 20 foreign-owner countries include several tax havens like Belgium, Ireland, Lebanon, Switzerland, and the Netherlands.

  Data Their main data source (micro-level transaction data) is the Base d’Informations Economiques Notariales database managed by Notaires de Paris–Ile-de-France, the notary association of the Paris region. The database of notarial deeds covers approximately 85% of transactions taking place in Paris. The data obtained includes information on all transactions of houses and apartments in Paris between 1992 and 2016, in which either the buyer or seller (or both) was non-French (54,227 observations). The total amount of transactions is 97,135. In addition, the authors used a random 10% sample of all transactions in which both the buyer and seller were French households (42,908 transactions). The database used can be found here.   Methodology To evaluate the impact of foreign ownership on the Paris housing market, the authors apply several statistical methods (e.g., OLS and 2SLS regressions). Factors of potential influence that are being tested are, for example, the role of seller wealth, or the conditional correlations between the inflow of foreigners and prices.   Go to the original article This article was published in Management Science, 67(7), 4120-4138. Go to the journal's website.