Is Rising Residential Land Prices a Consequence of Domestic or Foreign Land Demand? Evidence From Mauritius Island

Some emerging island economies have been fostering foreign direct investments in the real estate market. Given the rise in real estate demand under such contexts, this must have entailed a rise in land demand, and subsequently, land prices could have been affected. This study assesses if the rise in land demand caused by domestic and/or foreign land demand has been influencing residential land prices in Mauritius. To undertake the research, annual data was collected from the year 2000 to 2019 and a structural time series approach was used. It was found that unobserved components, namely the trend level and slope, as well as the cycles were significant in explaining land prices. It was concluded that fluctuations in land prices are significantly explained through latent variables, such as regulations in the land market, fiscal policies concerning mortgage loans, and speculative land buying among others. It was also found that foreign real estate investment (FREI) used as a measure of foreign land demand did not significantly influence land prices. To further probe the factors affecting land prices in Mauritius, domestic demand-side factors were considered and it was found that income, population, unemployment, and real construction costs were significant in explaining land prices.