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Paper eres2008_210:
REAL ESTATE ILLIQUIDITY – IS IT BAD OR IS IT GOOD?

id eres2008_210
authors Morawski, Jaroslaw
year 2008
title REAL ESTATE ILLIQUIDITY – IS IT BAD OR IS IT GOOD?
source Book of Abstracts: 15th Annual European Real Estate Society Conference in Kraków, Poland
summary Poor liquidity is often considered to be one of the main drawbacks of direct real estate investments. In the following paper I argue that it does not necessarily need to be so. A search model is used to study the dynamics of the sale process for a property investment. An investor willing to sell an illiquid property is assumed to review randomly arriving purchase offers and to decide about accepting or rejecting them. The outcome of the liquidation is a function of the applied search strategy, which is defined in terms of a reservation price. By optimizing the strategy, a well informed investor should be able to achieve expected sale receipts that are higher than the average valuation of the property among market participants. This is equivalent to selling above the market price that would result if the property was perfectly liquid. There is, however, a trade-off between higher expected sale proceeds and the uncertainty about achieving them. Thus, illiqu idity might be advantageous for some investors possessing superior information about the current market situation and ready to accept (liquidity) risk.
series ERES:conference
email jaroslaw.morawski@ivg.de
discussion No discussions. Post discussion ...
ratings
session B1
last changed 2008/11/26 14:05
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