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Working papers TerRA

Foreign buyers, price dispersion and local buyers eviction in bargaining markets

Sauveur Giannoni, Olivier Beaumais, Caroline Tafani

The presence of foreign buyers in land and housing markets has become a major concern for many regions in the world, sometimes seen as leading to the eviction of local (domestic) buyers from the market. We argue that the existence of the non-local buyer premium is a driving force behind the local buyer eviction phenomenon. To account for this phenomenon, we built a stylized static search and bargaining model with one type of seller and two types of buyers, local and non-local. We show that the market is in general characterized by the coexistence of two different selling prices, a high price paid by non-local buyers and a low price paid by local ones. Yet, if the price premium exceeds a given threshold, which we call the maximum sustainable price dispersion cut-point, no seller will be willing to deal with a local buyer at a low price anymore. To illustrate our theoretical results, we use a data set of more than 4,800 observations on the seaside farmland market of Corsica between 1998-2008. Controlling for land characteristics and potential endogeneity issues, a huge non-local premium of roughly e16 per square meter is found.

Working Paper TerRA n°05