Real Estate Relevance
Due diligence and lease management aside, increased information symmetry could reduce the need for local expertise, cut costs and speed up the transaction process. Real estate professionals will spend less time on paperwork, releasing them to concentrate on advisory services, allowing clients to leverage their expert knowledge.
Investor’s home-bias and property risk perception may be reduced. The potential investor pool could deepen, smaller market participants could up their game.
Then again, buoyed liquidity and increased volatility of the real estate asset class could be the result. If real estate behaves more like the liquid asset classes, like equities and bonds, its ability to add diversity to a portfolio will ebb. Market behaviour and valuations may shift.
Is there an appetite for direct real estate to be more liquid? Property transactions can take months to complete due to the deal sizes and marketing periods. Transaction timing and price can become uncertain as a deal conclusion draws out. Investors may have to put up with a discount on the valuation by the time moneys flow.
A more liquid market place can reduce that risk and benefit the increasing preference for short-term performance measurements for investors. Upward pressures on the yield for large properties could also be eased.
On the other hand, its illiquid nature creates a safe haven. In a market panic, direct property cannot be sold at the touch of a button like equities or bonds, providing time for the investor to reflect on the decision to sell after the initial urge to rush for the exit has passed. Conversely in the late cycle of a bull run, the slower transaction time provides more opportunity for a reality check on high prices.
Furthermore, debt financing through new forms of mortgage backed securities using direct-to-market platforms based on Artificial Intelligence and blockchains could prevent a repeat of price anomalies as seen in the Global Financial Crisis. Asset backed securities would become more accessible to investors.