The global real estate market is complexly structured and highly competitive. In order to diversify the portfolio and to achieve the highest risk adjusted return, real estate firms invest across national borders. The choice of the most favorable location is of highest importance for the success of the investment. This study analyzes determinants for the location decision in FDI in real estate. Based on Dunning‟s Eclectic Paradigm five determinants have been tested. As Dunning refers to FDI over all industries this study enlarges the scope by real estate specific considerations. Different aspects of direct real estate investment are discussed and added to Dunning's theory. The study shows that mainly economic factors of the local market, the availability of resources, production costs, political conditions as well as cultural aspects influence the choice of a location. More precisely, the infrastructure, the growth of population, the degree of education, the productivity, the country risk and the degree of long-term IV orientation of the host economy are primarily relevant when the decision in favors of a location for FDI in real estate is made. The indicators give a good idea of location decision-making in the real estate industry. However, it follows from the results that firm specific strategic considerations are of high relevance to the investor and influence the decision more than the analyzed determinants. Risks are found to be less important as multinationals have access to global financial markets and can hedge capital and economic risks as well as translation and transaction exposures.
[...] As a result of this study, the model for FDI in real estate can be expressed as follows: RE = a0 + a1 MA + a2 RES + a3 CO + a4 POL + a5 CUL + a6 COM MA (Inflation rate, population growth) RES (Education of workforce) CO (Productivity) POL (Country risk) CUL (Long- term orientation) COM (Company specific strategic considerations) The implication for direct investors in foreign real estate derived from this study is that the indicators named above should be analyzed primarily when a location decision in FDI in real estate is made. [...]
[...] The comparison of those values with actual FDI flows in real estate shows that the calculated potential seems to be influential to location decisions. The Inward FDI Potential Index captures several factors (apart from market size) that are expected to affect a country's attractiveness to foreign investors (UNCTAD, 2008). The analysis shows that this, in fact, is in line with actual decision-making. It can be concluded, that UNCTAD combines interesting determinants in its indicator and, thus, provides an orientation guide for foreign direct investors. [...]
[...] Hypothesis This study attempts to answer the question which factors determine foreign investors‟ location decision for investing in the real estate market. As shown in the literature review several factors influence the output of a real estate investment and therefore need to be taken into consideration when deciding on an investment's location. Based on the previous discussion, the proposed model for FDI in real estate is as follows: RE = f RES, CO, POL, CUL) The dependent variable: RE inflows of FDI in real estate into the host market The influencing factors discussed have been grouped into five areas and demonstrate the independent variables: MA Markets RES Resources CO Production costs POL Political conditions CUL Cultural and linguistic affinities 27 The expected outcome of this study is that decision-makers are influenced by the above mentioned factors when choosing a location for FDI in real estate. [...]
[...] Among other topics the author investigates determinants influencing the choice of locations FDI in real estate is less examined (Gerlowski 1994, Moshirian & Pham 2000, Sirmans & Worzala 2003). In contrast to other investments, real estate investments are founded on highly differentiated, long-lasting buildings spread across various locations with diverse characteristics. In this complex investment market, the real estate sector is dominated by private knowledge, which is expensive to access. Thus, information becomes a key asset. The hypothesis tested in this study is based on Dunning's eclectic theory (1980) which is used as a framework. [...]
[...] (1994) location of Foreign Direct Investment for U.S. Real Estate: An Empirical Analysis‟, Land Economies pp. 286- Goldberg, L. & Johnson, D. (1990) determinants of US banking activity abroad‟, Journal of International Money and Finance pp. 123-137 ScienceDirect [Online]. Available at http://www.sciencedirect.com/ (Accessed: 27 January 2008) Hofstede, G. (1994) „Business Cultures‟, UNESCO Courier pp. 12- 16 EBSCO [Online]. Available at: http://web.ebscohost.com/ (Accessed: 25 February 2008) Hofstede, G. (2008) Geert Hofstede™ Cultural Dimensions. Available at: http://www.geert-hofstede.com/ (Accessed: 18 February 2008) 16. [...]
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