Macroeconomic Policy-Induced Wealth Effects on Chinese Foreign Housing Investments
50 Pages Posted: 12 Jun 2020 Last revised: 2 Jan 2021
Date Written: May 11, 2020
Abstract
The unpegging of China’s currency in 2005 creates positive wealth effects that trigger Chinese foreign buyers’ responses in the intensive margin to pay 3.42% more in housing prices relative to other foreign buyers. We find evidence of a higher propensity to purchase housing units with more visible features among Chinese foreign buyers after the policy shock relative to other foreign buyers. Chinee foreign buyers pay 11.0% premiums for high-floor units, 7.25% premiums for large units and 4.61% for luxury (more expensive) units after experiencing positive income shocks. We find that conspicuous consumption motives are augmented in high-income neighborhoods and neighborhoods with strong enclaves and social networks comprising residents from China. We show that conspicuous consumption motives are more significant for Chinese foreign buyers who are owner occupiers than for those who are investors. The results survive a slew of robustness and falsification tests, and we cannot reject the finding of wealth-induced conspicuous consumption by Chinese foreign buyers in Singapore’s private housing market.
Keywords: Wealth Effect, Conspicuous Consumption, Foreign Buyers, Housing Transaction, Exchange Rate Regime
JEL Classification: D31, F21, R30, F31
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