Greater transparency and standardizing documents will improve liquidity in the non-listed real estate marketplace, a European Association for Investors in Non-listed Real Estate Vehicles’ (INREV) study said.
Investors picked increased transparency (31 percent) as the factor most likely to improve liquidity as investors were more likely to reduce prices or walk away from deals if fund managers and sellers failed to provide sufficient data.
The standardization of documents (19 percent) ranked second as investors said a greater consistency across all fund terms and transfer documents could help improve the due diligence process, and thus liquidity.
Yet, investors did acknowledge the illiquid nature of real estate and there was consensus that short-term liquidity was more easily accessible through other asset classes, such as bonds.
However, investors expressed a desire to achieve liquidity from real estate with 47 percent saying they want to be able to trade in or out of an indirect position within any 12 month period.
“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,” commented Henri Vuong, INREV’s director of research and market information.
The respondents cited timing and pricing as the most important considerations in relation to liquidity. Timing was cited by 77 percent of investors while 53 percent highlighted pricing.
But, it is the interplay of these two factors that matters most. Investors stated that during periods of economic stress they would more likely prioritize timing over price.
“This study suggests that investors possess a multi-layered view of liquidity. In some cases it might be seen as a proxy for market efficiency though greater liquidity will erode the property risk premium,” added Vuong.