Investigating China's Outward FDI in the European Real Estate Industry with a Gravity-Model-Based Benchmark

This paper aims to analyze the factors driving the Chinese real estate capital flows in 17 European cities’ property markets over the period 2007 to 2018. By using data from Real Capital Analytics, an extended gravity equation is modeled. Due to the zero-investment problem, the Heckman model is employed. The empirical results indicate that the Chinese foreign exchange reserves, the Chinese government’s investment policy, capital recipients’ inflation, real-estate transparency, total residing population, as well as the main hypothesis (that variable housing prices provide information about the market components) are statistically significant in affecting the likelihood of China sending real-estate capital to these destinations. Regarding the basic gravity model, which is corrected utilizing the Heckman two-step method, only the Chinese economic size is statistically significant.