IDEAS home Printed from https://ideas.repec.org/a/eme/jpifpp/v26y2008i1p38-58.html
   My bibliography  Save this article

The liquidity of direct real estate in institutional investors' portfolios: The Netherlands

Author

Listed:
  • Aart Hordijk
  • Bert Teuben

Abstract

Purpose - The liquidity of direct real estate has been surrounded by mystery. Research in the USA and in the UK has contributed much to clarify the liquidity issue of direct real estate. In The Netherlands, not much research exists on this issue; however, a major ALM advisory firm in The Netherlands suggests a liquidity factor of 1.5 times the standard deviation of the ROZ/IPD real estate index, leading to a 50 percent higher risk compared to the current ROZ/IPD real estate index risk. This paper aims to investigate this issue. Design/methodology/approach - The paper investigates whether this is a reasonable assumption by approaching the issue from several perspectives. First, the transaction process, the effects of heterogeneity and the size of the property are reviewed. The market risk between the date of the decision to sell the property and the date on which it was actually sold is also reviewed. The last element reviewed is the reallocation risk, in other words missed opportunities that have arisen because it could take longer to sell property than to sell stocks or bonds. Extensive anonymous information from the main institutional investors in The Netherlands is used, as well as interviews with the main brokers in The Netherlands. The survey is placed in an international context by comparing the results as well as the methods to previous surveys in the UK. Findings - As a result suggestions are presented about risk premiums as a protection against the liquidity risks which turn out to be quite low, much lower than the 50 percent increase of the risk premium on top of the ROZ/IPD real estate index's standard deviation of the total return. The results are compared to risk premiums for stocks and bonds at times of high and average returns. Original/value - So far not many surveys have been done on this subject using the bottom up approach. If there were, those have been looked at in the literature review. The unique ROZ/IPD databank allows us to come up with real quantitative results related to the different types of real estate liquidity risks. The paper has identified five of those. The survey is restricted to results in a growing market because of the time frame and it is strongly recommended to repeat it after a depressed market.

Suggested Citation

  • Aart Hordijk & Bert Teuben, 2008. "The liquidity of direct real estate in institutional investors' portfolios: The Netherlands," Journal of Property Investment & Finance, Emerald Group Publishing Limited, vol. 26(1), pages 38-58, February.
    • Handle: RePEc:eme:jpifpp:v:26:y:2008:i:1:p:38-58
    DOI: 10.1108/14635780810845154
    as

    Download full text from publisher

    File URL: https://www.emerald.com/insight/content/doi/10.1108/14635780810845154/full/html?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://www.emerald.com/insight/content/doi/10.1108/14635780810845154/full/pdf?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1108/14635780810845154?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Steven Devaney & David Scofield, 2015. "Liquidity and the drivers of search, due diligence and transaction times for UK commercial real estate investments," Journal of Property Research, Taylor & Francis Journals, vol. 32(4), pages 362-383, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:jpifpp:v:26:y:2008:i:1:p:38-58. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emerald Support (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.