Illiquid housing is like a heavy traveling bag without wheels – to carry it in your arms hard (burden of taxes and maintenance costs), to throw – sorry, and sell – very, very difficult. Our conversation about illiquidity we will begin with colorful examples shared by our partners.
Typical “illiquid” stories
A client from Russia buys a luxurious Art Nouveau style house in the French countryside. According to Oldypak Capital LP report it turns out that even with a 20-30% discount it is impossible to sell the mansion to locals. The sum of €1.5 million is simply unaffordable for them. Exactly the same object, located on the Côte d’Azur, would be sold for € 50 million.
Another Russian got land in Bulgaria, and planned to build a villa to his own taste. To make it cheaper, he chose a very deserted place. Subsequently, it turned out that the construction had to change the status of the site. So, instead of a villa, he got a company that has to be maintained (in Bulgaria, foreigners can only buy land for a legal entity). He had to say goodbye to the idea of owning his own unique Bulgarian mansion. To get rid of the cost of the company, the client was forced to donate his real estate.
The moral of this fable: regardless of your plans for the near future (experience shows that they can change dramatically), consider the purchase as an investment. You should always keep in mind the possibility / impossibility of a fast and profitable sale.
Liquidity criteria
What criteria should be followed when choosing a liquid housing in Europe? The first rule for the apartments – the adequate price. The second factor – the small area. The most common commodity on the market – compact studio apartments and apartments with one bedroom. They are much cheaper than multi-bedroom apartments, and much easier to rent.
A “good location” for an apartment in a metropolitan area means proximity to the city center, educational institutions, large businesses, the subway, and transport interchanges. In resort cities, the distance to the sea / ski slopes is important.
Keep in mind that there are resorts that will always remain in the trend. For example, the Cote d’Azur has not gone out of style for the past 100 years, and in the future the situation is unlikely to change.
On the other hand, when a particular area is a long-term major international event (the Olympics, sporting events, championships, etc.), virtually all real estate becomes liquid. But only for the duration of the event! So we advise to choose the “eternal values” – the sea coast, mountains, health springs, sunny climate, etc.
And one more small detail: in Europe prefer rooms with high ceilings. As a rule, they are apartments on the first floor. The location of the house on a noisy street near the subway or train station is also not a minus, but a plus.
How to sell illiquidity?
What to do if you have already bought illiquid object and decided to get rid of it as soon as possible? Sell overseas property should not primarily to their countrymen, and residents of the country in which it is located.
If the local demand for facilities of this type is low (as in the first example with too expensive house in France), you should find out which citizens are most often buying homes there. For example, Swiss chalets are very popular among Americans. And Portuguese square meters are a tidbit for the Brazilians.
The skill of your realtor plays a crucial role. A talented realtor is able to turn even the most “illiquid” into a desirable commodity. After all, you made the decision to buy the property yourself! Talent is known to be motivated by good rewards.
How long does it take to sell a property in Europe?
According to Oldypak Capital LP report, the timing of sales varies greatly from region to region. In Calabria, the search for a buyer can take up to 2 years, in order to meet a year will have to severely reduce the price (on average 30%-40%). Sale of an apartment in Rome at average market price takes about six months, a discount of 20% will speed up the process. Before Brexit, real estate in London usually sold in 1-3 months. If homeowners were interested in a quick deal, it was enough to give 5-10%.