Real estate agents: by investing money in real estate, you will avoid risks like those involving KRĀJBANKA, TKB or ABLV and even earn up to 5%
Published: 05.03.2018
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Real estate agents: by investing money in real estate, you will avoid risks like those involving KRĀJBANKA, TKB or ABLV and even earn up to 5% per year
“The situation that has arisen with ABLV Bank, as well as with Trasta Komercbanka, clearly demonstrates that it is worthwhile to invest part of one’s available funds in real estate at any time rather than merely keep it in an account,” say the owners of the elite real estate agency “VIP Real,” Lara Batova and Aleksandrs Cikunovs.
“Some of our clients kept their money in ABLV Bank, and we too are shocked by what is happening. We sincerely sympathize both with the bank itself and its co-owners, as well as with its clients, who are currently unable to pay their employees’ salaries, make tax payments or access their personal funds.”
Liquidity is no longer an indicator of stability
“The fines and series of bank licence cancellations that have become a trend in the financial sector in recent years show that even a bank’s success and liquidity indicators essentially do not guarantee its stability,” Lara and Aleksandrs are convinced. “Businesses and investors, regardless of their field of activity, are now forced to think about alternatives for storing their funds.”
That is precisely why we stress that, despite criticism of its low profitability, purchasing real estate has been and will remain an excellent instrument for safeguarding one’s funds.
Real estate can generate 2–5% per year in any circumstances
If a bank goes bankrupt, the state does not guarantee the preservation of funds in full; it guarantees each client the payment of up to 100,000 euros. However, it is no secret that in the case of ABLV Bank such an amount will be insufficient, since the bank primarily focuses on non-residents and the wealthiest segments of Latvian society, whose account balances exceed 100,000 euros.
If you keep 1 million euros in a bank account, then in the event of the bank’s bankruptcy you may receive the state-guaranteed 100,000 euros, but you may lose 90% of your funds. By contrast, fluctuations in the real estate market, especially in the premium segment, are generally not as large. Even in the event of a major crisis, you may lose a maximum of 20%, and only if you decide to sell the real estate at precisely the most unfavourable moment.”
“Thus, by managing the real estate you have purchased, you can both preserve your money and earn up to 5% per year. Naturally, earning high returns is difficult. Nevertheless, given the current situation in the real estate market, annual income amounting to 2–3% of the value of a residential real estate property is more than realistic,” explains Aleksandrs.
The situation with commercial real estate is somewhat different: in this field, the annual yield is 7–8%, but there are also more risks. Even in this case, however, you have a strong chance of preserving your funds.
“The real estate market in Latvia is organised in such a way that a suitable and advantageous option can be found for any ‘wallet’ when investing capital. You will always be able to sell a property you own and will not lose 90% of your money, as in the aforementioned case,” Lara adds.
“We are not urging you to stop using banking services or to immediately start investing all your savings exclusively in real estate. Banks will always be our intermediaries for transfers and cashless payments, and providers of many financial services, such as lending, as well as the primary financial institutions for storing money. However, when choosing an instrument for storing funds and diversifying risks, we recommend not forgetting to invest money in real estate in Latvia as well,” Lara and Aleksandrs conclude.
Information prepared by Advanced Learning & Communications Agency www.alc.lv in cooperation with the specialists of the real estate agency “VIP Real” www.vipreal.lv
“The situation that has arisen with ABLV Bank, as well as with Trasta Komercbanka, clearly demonstrates that it is worthwhile to invest part of one’s available funds in real estate at any time rather than merely keep it in an account,” say the owners of the elite real estate agency “VIP Real,” Lara Batova and Aleksandrs Cikunovs.
“Some of our clients kept their money in ABLV Bank, and we too are shocked by what is happening. We sincerely sympathize both with the bank itself and its co-owners, as well as with its clients, who are currently unable to pay their employees’ salaries, make tax payments or access their personal funds.”
Liquidity is no longer an indicator of stability
“The fines and series of bank licence cancellations that have become a trend in the financial sector in recent years show that even a bank’s success and liquidity indicators essentially do not guarantee its stability,” Lara and Aleksandrs are convinced. “Businesses and investors, regardless of their field of activity, are now forced to think about alternatives for storing their funds.”
That is precisely why we stress that, despite criticism of its low profitability, purchasing real estate has been and will remain an excellent instrument for safeguarding one’s funds.
Real estate can generate 2–5% per year in any circumstances
If a bank goes bankrupt, the state does not guarantee the preservation of funds in full; it guarantees each client the payment of up to 100,000 euros. However, it is no secret that in the case of ABLV Bank such an amount will be insufficient, since the bank primarily focuses on non-residents and the wealthiest segments of Latvian society, whose account balances exceed 100,000 euros.
If you keep 1 million euros in a bank account, then in the event of the bank’s bankruptcy you may receive the state-guaranteed 100,000 euros, but you may lose 90% of your funds. By contrast, fluctuations in the real estate market, especially in the premium segment, are generally not as large. Even in the event of a major crisis, you may lose a maximum of 20%, and only if you decide to sell the real estate at precisely the most unfavourable moment.”
“Thus, by managing the real estate you have purchased, you can both preserve your money and earn up to 5% per year. Naturally, earning high returns is difficult. Nevertheless, given the current situation in the real estate market, annual income amounting to 2–3% of the value of a residential real estate property is more than realistic,” explains Aleksandrs.
The situation with commercial real estate is somewhat different: in this field, the annual yield is 7–8%, but there are also more risks. Even in this case, however, you have a strong chance of preserving your funds.
“The real estate market in Latvia is organised in such a way that a suitable and advantageous option can be found for any ‘wallet’ when investing capital. You will always be able to sell a property you own and will not lose 90% of your money, as in the aforementioned case,” Lara adds.
“We are not urging you to stop using banking services or to immediately start investing all your savings exclusively in real estate. Banks will always be our intermediaries for transfers and cashless payments, and providers of many financial services, such as lending, as well as the primary financial institutions for storing money. However, when choosing an instrument for storing funds and diversifying risks, we recommend not forgetting to invest money in real estate in Latvia as well,” Lara and Aleksandrs conclude.
Information prepared by Advanced Learning & Communications Agency www.alc.lv in cooperation with the specialists of the real estate agency “VIP Real” www.vipreal.lv
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