HONG KONG, CHINA - Media
OutReach - 18
September 2018 - Our world is becoming flat, and
moving abroad for better opportunities is increasingly common for people.
However, when people choose to move to another country, will they give up their
own cultural identities and thus assimilate into one single culture in the new
country, or will they remain their own culture traits by congregating together
as a way of finding support in a new land?
The answer is the latter, according to
a study conducted by Prof. Maggie Rong Hu, Assistant Professor of School of Hotel
and Tourism Management and Department of Finance at The Chinese University of
Hong Kong (CUHK) Business School and her collaborator Dr. Adrian D. Lee from
the University of Technology Sydney. The study indicates that Sydney's
newcomers are more likely to choose properties located in neighborhoods that
are more culturally similar to their own culture of origin. They are also
willing to pay a price premium for properties in locations with shorter
And among those newcomers, people from East Asia,
particularly Chinese, are most likely to choose to live in a community, which
is closer to their culture of origin and more willing to pay higher prices for
houses in such neighborhoods.
"In our study, we find that an
individual's cultural background is indeed an important factor on housing
prices," says Prof. Hu.
According to Prof. Hu, globalisation promotes the integration of
societies and has provided millions of people with new opportunities. As a
result, megacities with culturally diverse residents, such as Sydney, London,
Los Angeles and Toronto, are becoming the new norm, yet little is known about
how the interaction between these people and their host country's culture
affects their personal and financial decisions, particularly in housing
As such, their working paper "Melting
Pot or Salad Bowl: Cultural Distance and Housing Investments" examined whether the cultural
background of property investors and cultural differences of the neighborhoods
influence their housing buying decisions, in terms of location and price.
In the paper, the 'melting pot' metaphor describes the fusion of various
religious sects, nationalities, and ethnic groups into one distinct people,
while 'salad bowl' describes different ethnic groups, rather than assimilating,
retain and coexist in their separate identities, just like the different
ingredients in a salad.
"We would like to find out in a city with diverse culture, whether
the 'melting pot' theory dominants or the 'salad bowl' analogy holds true. In
other words, whether the different ingredients are all mixed together to make
one dish or each ingredient also retains its own characteristics in the bowl,"
For the purpose of the study, the researchers targeted Sydney, Australia's
largest and most culturally diverse city, where immigrants have made up a large
component of its population. According to the statistics from 2011 Australian
Bureau of Statistics Census, 57 percent of Sydney urban respondents are
non-Australian or British origins.
The study looked at individual housing transaction data of the Sydney
Metropolitan Area from 2006 to 2013 from Australian Property Monitors, one of
the Australia's leading national suppliers of online property price information
to banks, financial markets, professional real estate agents and consumers. The
dataset includes the transaction price, transaction date, property address,
buyer and seller names, and relevant housing characteristics.
In addition, the researchers also utilised the data in 2006 and 2011
from the Australian Bureau of Statistics Census, namely the demographics of a
suburb, to examine the ethnic composition in Sydney. The data shows that
Sydney's top five ethnicity groups in 2011 are Australian, Chinese, Irish,
Italian and Arabic.
Then, they introduced a term 'culture distance' to gauge the cultural
difference between a housing buyer's culture of origin and the culture of
neighborhood of a property. They calculated the cultural distance by adopting
the six-dimension culture framework introduced by Professor Geert Hofstede,
which is widely used in social science research.
In this framework, a score on the scale of 0 to 100 is assigned to each
country along six dimensions: uncertainty avoidance, individualism, power
distance, masculinity, long-term orientation and indulgence.
For example, Australia and China differ significantly on several
dimensions, particularly on individualism and long-term orientation, according
to Hofstede (2001).
Using a complex mathematical formula, the researchers reveal that the
average cultural distance score over the entire sample is 1.99. Naturally,
Australian investors have the lowest average cultural distance score of 1.35
across all ethnic groups. The average cultural distance score for Chinese
homebuyers is 2.50. The higher the score on the cultural distance measure, the
greater the cultural difference between a buyer and a neighborhood.
So how does cultural distance between the homebuyers and the
neighborhood influence home buying decisions?
Cultural Distance Sensitivity
As expected, the study finds that cultural distance is an important determinant
of property investors' location choice and transaction price.
To be specific, housing buyers are more likely to choose properties
located in neighborhoods that are more culturally similar to their own culture
of origin. And they are more willing to pay a higher price for properties in
locations with shorter cultural distance.
In other words, there is a negative relationship between cultural
distance and housing price. The greater the cultural distance between a
homebuyer and a neighborhood, the lower the housing price is in the
According to the study, if the cultural distance between a homebuyer and
the suburb decreased by 1 unit, which is approximately the difference between
the average Australian and average Chinese property buyers' cultural distance
in the sample, housing price rises by 1.1 percent or AUD$7,382.
Asians and Home Culture Preference
What's more interesting, the study reveals that home investors from
different ethnic groups display varying degrees of home culture preference.
"Investors from Asia display a greater degree of home culture
preference, compared with European and Australian buyers. Particularly, Chinese
are most likely to pay higher prices for houses in neighborhoods which are
closer to Chinese culture," Prof. Hu points out.
The study shows that if the cultural distance between an Asian property
investor and the neighborhood decreased by 1 unit, the housing price increase
about 2 to 4 percent, whereas the effect is only about 1.3 percent for Europe
Why is that the case? According to Prof. Hu, people from Asian
countries, such as China, India, Malaysia, The Philippines and Vietnam, are
more recent migrants into Australia, and thus have stronger cultural bonds with
their countries of origin, and may display stronger home culture preference.
However, Europeans came to Australia relatively earlier compared with
Asian immigrants and their cultural difference is relatively smaller, so they
are better adapted to the local Australian society and their ties to their
countries of origin are weaker.
"Cultural distance sensitivity or home culture preference is weaker
for more established ethnic groups than recent migrants," says Prof. Hu.
It is worth noting that China has become one of the top sources of
immigrants to Australia in recent years and there is a huge new wave of Chinese
investment into the Australian property market. Their appetite for the
country's properties grows quickly.
According to The
New York Times, Chinese investment in Australian real estate has increased at least
tenfold since 2010; Chinese investors have purchased up to half the new
apartments in downtown Sydney.
As the study suggests homebuyers are willing to pay a premium for
culture proximity, Prof. Hu believes that it has important policy implications
on social diversity and urban planning.
Recognition of foreign migrant's inherent desire for cultural
preservation is the first step towards a better understanding of foreign
migrants and local communities, according to her.
"Awareness and respect for the housing investment preference of
different ethnic groups would facilitate efficient urban planning," she
"We document the natural occurrence of cultural and racial segregation
through individuals' housing investment decisions in Sydney. And we believe
that a similar phenomenon could be observed in other migrant cities with
diverse culture, such as San Francisco, Toronto or Vancouver," Prof. Hu
Hu, Maggie Rong and Lee, Adrian D., Melting Pot or Salad Bowl: Cultural
Distance and Housing Investments (August 31,
2017). 28th Australasian Finance and Banking Conference.
This article was first published in the China
Business Knowledge (CBK) website by CUHK Business School: https://bit.ly/2p8340a.
About CUHK Business School
Business School comprises two schools -- Accountancy and Hotel and Tourism Management -- and
four departments -- Decision Sciences and Managerial Economics, Finance, Management and Marketing.
Established in Hong Kong in 1963, it is the first business school to offer BBA,
MBA and Executive MBA programmes in the region. Today, the School offers 8 undergraduate programmes and
graduate programmes including MBA, EMBA, Master, MSc, MPhil
the Financial Times Global
2018, CUHK MBA
is ranked 43rd. In FT's
ranking, CUHK EMBA is
ranked 32nd in the world. CUHK Business School has
the largest number of business alumni (35,000+) among
universities/business schools in Hong Kong -- many of whom are key business
leaders. The School currently has about 4,400 undergraduate and
postgraduate students and Professor Kalok Chan is the Dean of CUHK Business
More information is available at www.bschool.cuhk.edu.hk
or by connecting with CUHK Business School
on Facebook: www.facebook.com/cuhkbschool
and LinkedIn: www.linkedin.com/school/3923680/.