Final answer:
A country's capital account surplus due to foreign investment can lead to increased property prices, negatively affecting domestic buyers. Foreign investment in real estate increases competition and demand, driving prices up. While capital inflow can benefit the economy, improper use can lead to economic issues.
Step-by-step explanation:
When a country's capital account is operating at a sizable surplus, it often signifies active foreign investment. While this can be beneficial for the economy in certain ways, it can have a negative impact on domestic property buyers as a consequence of this financial dynamic. One negative outcome can be the increased price of property due to the spillover effect of such investment. This is because foreign investors typically invest in domestic real estate and other fixed assets, which can drive up prices due to increased competition and demand that outstrips supply.
Moreover, when a trade deficit rises, it correlates with a greater inflow of foreign capital, which can lead to certain economic scenarios mentioned previously, such as reduced private savings, increased government borrowing, or higher domestic investment. However, if these inflows of capital don't lead to increased productivity through wise investment, economies may face difficulties.
Therefore, a capital account surplus may not always be beneficial, particularly for domestic buyers who might face higher property prices as a result of increased foreign investment.