Modelling Foreign Real Estate Investment:
The Spanish Case
Published online: 4 December 2008
Springer Science + Business Media, LLC 2008
Abstract Foreign real estate investment in Spain has grown considerably during the
last decade, representing around 40% of total foreign direct investment inflows. This
trend has exerted an important macroeconomic effect maintaining a long lasting
housing bubble and contributing significantly to finance the rising current account
deficit. Foreign real estate investment in Spain is mostly of a housing acquisition
type and therefore the analysis of its determinants requires a specific approach. In
this sense, neither a pure foreign direct investment nor a portfolio theoretical model
might be useful. So we propose a modelling of foreign real estate investment for
Spain from the point of view of a demand for tourism services and from a financial
focus. Using time series data from 1990 to 2007 the hypothesis arising from our
foreign real estate investment modelling reveals the consistency of this approach.
There seem to be relevant determinants from the demand side and from the financial
dimension. Indeed, Gross Domestic Product per capita, expected capital gains, travel
costs, tourism agglomeration and housing prices are all relevant factors explaining
Foreign real estate investment. We consider that this case study may also be applied
to other countries sharing similar foreign real estate investment type flows.
Keywords Foreign real estate investment
Housing investment bubble
Foreign direct investment
The last decade has witnessed a strong growth in construction activity in general and
in particular in housing investment in Spain.
It is a matter of fact that the housing
J Real Estate Finan Econ (2010) 41:354–367
Added Value in Construction activity has grown above GDP increase reaching an Annual Average
Growth of Almost 10%.
C. Rodríguez (*)
University of the Basque Country, Avda. Lehendakari Aguirre, 83, 48015 Bilbao, Spain