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

Aart Hordijk (Delft University of Technology, Real Estate Council of the Netherlands (ROZ) and ROZ/IPD Property Index, The Hague, The Netherlands)
Bert Teuben (ROZ/IPD Property Index, The Hague, The Netherlands)

Journal of Property Investment & Finance

ISSN: 1463-578X

Publication date: 8 February 2008



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.


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.


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.


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.



Hordijk, A. and Teuben, B. (2008), "The liquidity of direct real estate in institutional investors' portfolios: The Netherlands", Journal of Property Investment & Finance, Vol. 26 No. 1, pp. 38-58.

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