Investors in non-listed real estate see timing and pricing as the most important considerations in relation to liquidity, according to a new study by INREV, the association for the non-listed European real estate sector.
Investors in non-listed real estate see timing and pricing as the most important considerations in relation to liquidity, according to a new study by INREV, the association for the non-listed European real estate sector.
Timing was cited by 77% of respondents while 53% highlighted pricing. But it is the interplay of these two factors that matters most, the Indirect Real Estate Liquidity study found. Investors stated that during periods of economic stress, for example, they would more likely prioritise timing over price making them less price sensitive in their decision making at certain points in the economic and property cycles.
Over one quarter of investors (26%) also identified market size as a significant factor. Generally, investors agreed that growth in any one of the underlying components of market size – fund size, the number of primary fund raises, the size of the primary and secondary investor market pool and the volume of trading on the secondary market – would increase the degree of liquidity in the non-listed real estate market.
So far as secondary market trading is concerned, more than a third of respondents (36%) favoured ‘principal to principal’ transactions though there was some concern that the limited pool of potential purchasers could reduce the chance of sale prices reaching their true market level. Some 34% of respondents also preferred broker-led transactions.
Transparency
Investors viewed increased transparency (31%) and the standardisation of documents (19%) as the two key factors most likely to improve liquidity in the non-listed real estate market in the future. A lack of data from fund managers and sellers inclined investors to reduce prices or walk away from deals. Similarly, a greater consistency across all fund terms and transfer documents was seen as being able to improve the due diligence process.
'This study suggests that investors possess a multi-layered view of liquidity,' said Henri Vuong, INREV’s director of research and market information. 'In some cases it might be seen as a proxy for market efficiency though greater liquidity will erode the property risk premium. Clearly, tactical trading is seen as an efficient way to re-balance portfolios and most investors appear to be seeking to enter or exit the market within a specific timeframe: liquidity matters when it’s most needed.'