Real estate investmentsprinciples and evidence. The cases of Spain and China

Resum

International investment spurs prosperity and economic development in home and recipient countries. Since the 1980s, against the backdrop of the intensified trend towards economic integration, cross-border capital movements have become substantial and diversity that participate by all types of economies (World Bank, 2002). Changes in world politics and technology have led to an explosive growth of international capital flows in recent years, the private market in direct foreign investment has become overwhelmingly larger than current and past official capital flows. Historically, the end of the Cold War and the collapse of the Soviet Union opened opportunities for investment in a large group of countries that needed capital (Feldstein, 1999), no matter inward or outward flows of capital, advanced economies were predominant. The shifting political climate and the improvement of the economic system in many of the developing countries of Latin America and Asia, particularly in China, made them more attractive to foreign investors. They welcome foreign direct investment from the industrial countries by providing a more secure investment environment. Gradually, developing economies have accessed to wealth accumulation, along with the aspiration of integrating with the rest of the world, they start to do outbound investment, ‘Spillover Effect’ appeared. Among them, as the second-biggest economy in the world, China’s outbound investment has developed rapidly in the present years, which lets it have become the major capital source country. Moreover, hit by the European Sovereign Debt Crisis that caused by the 2007-2008 Global Financial Crisis (GFC), vast foreign capital withdrew from many European countries. Subsequently, economic contraction had happened across most European nations, which surged the unemployment rate. Spain was one of the typical cases. To reinvigorating the slumping economy, foreign capital was starved needed in Europe, and many nations lower the investment threshold, which opened new opportunities to foreigners. On the other side, China was not situated in the heartlands of the crisis, therefore, it did not affect hard by the GFC. Based on the World Bank data, in 2008 and 2009, China’s GDP growth rate was 9.7% and 9.4%, respectively. And in the corresponding period, Spain had 0.9% and -3.8% GDP growth. During the post-crisis period, Europe has been becoming a new investment destination for Chinese investors, plenty of Chinese capital inflows in Europe lately. Although much has been written about international capital flows, this dissertation studies global capital movements from the real estate sector perspective with a concentration on China and Spain. Cross-border real estate investments are however driven by market trends (external factors) and the strategies of the investment (internal factors), whereas, their determinants have long debated but far from conclusions (BRICKVEST, 2019). Fuerst et al. (2013) point out that the strong increase in cross-border capital flows can have different drivers. Thus, three individual chapters about real estate investment are designed in this dissertation to understand the mechanism behind international real estate capital flows. Chapters 1 and 3 analyze the determinants of direct real estate capital inflows in Spain and drivers for Chinese outward FDI in the European property market, respectively. For indirect real estate flows of capital study, chapter 2 centers on the risk and returns relationships analysis in the Spanish REITs. The purpose of this study is twofold: 1) to provide theoretical value, i.e. this study complements the field of real estate finance and investment; 2) to provide practical value, the results of the research could provide useful insights to investors. Specifically, chapter 1 studies the international movement of capital to the Spanish real estate sector. As far as is known, chapter 1 is the first to determine the determinants of the entry of foreign real estate capital into Spain. For the study of indirect real estate capital flows, chapter 2 focuses on the analysis of risk-return relationship in the Spanish REITs, as the literature that empirically studies this issue is still scarce and does not focus on the Spanish case, therefore this chapter fills this gap. The results present new perspectives for both academia and industry to understand the dynamic mechanism between Spanish REITs and the Spanish stock market in general. Finally, as a primary source country that sends real estate capital, academic research on drivers for China’s outbound FDI in real estate is also relatively scarce. To fill this gap, chapter 3 seeks to identify the factors that contribute to an understanding of why targeted investment in real estate occurs in European cities from China.