Realtors: investing money in real estate can help avoid risks such as those involving KRAJBANKA, TKB or ABLV—and even earn up to 5% annually
Published: 05.03.2018
Add Events
Realtors: investing money in real estate can help avoid risks such as those involving KRAJBANKA, TKB or ABLV—and even earn up to 5% annually.
“The situation involving ABLV Bank and TKB Bank is a vivid illustration of the fact that, at any time, some of one’s money should be invested in real estate rather than merely kept in a bank account,” believe Lara Batova and Aleksandrs Tsykunov, owners of the VIP Real luxury real estate agency.
“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 make salary and tax payments and have no access to their personal funds.
Liquidity is no longer an indicator of stability
The chain of fines and revocations of bank licences that has become a trend in the financial sector in recent years indicates that even a bank’s success and liquidity, in essence, no longer guarantee its stability,” Lara and Aleksandrs believe. “Entrepreneurs and investors are now forced to consider alternative ways of preserving their funds, regardless of their field of activity.
For this very reason, we emphasize that, despite criticism concerning its low returns, purchasing real estate has been and remains an excellent means of preserving one’s funds.
At any time, real estate can generate an annual return of 2–5%
If a bank is declared bankrupt, the state does not guarantee the safety of funds in full, guaranteeing each client a payment of up to 100,000 euros. However, it is no secret that in the case of ABLV Bank, this amount will not be sufficient, since the bank primarily serves non-residents and affluent segments of Latvian society, and account balances exceed 100,000 euros.
If you keep 1 million euros in a bank account, then in the event of bankruptcy you may receive the state-guaranteed payment of 100,000 euros and risk losing 90% of your funds. By contrast, fluctuations in the real estate market, especially in the premium segment, are usually not as significant. Even in the event of a major crisis, you may lose a maximum of 20%—and that only if you decide to sell the property at an unfavorable moment.”
“Thus, by managing the real estate you have acquired, you can both preserve your money and earn up to 5% annually. Of course, it is difficult to earn high returns. However, an annual income of 2–3% of the value of a residential real estate property, given the current situation in the real estate market, is more than realistic,” Aleksandrs explains.
The situation with commercial real estate is somewhat different. In this sector, the annual return is 7–8%, but the risks are also greater. Even in this case, you have a reliable opportunity to preserve most of your funds.
“The real estate market in Latvia is structured in such a way that, regardless of the size of your ‘wallet,’ you can find a profitable investment option. You will always be able to sell the property you own and will not lose 90% of your money, as in the case mentioned above,” Lara notes.
We are not urging you to stop using banking services or to start investing all your savings in real estate from this moment onward. Banks will forever remain our intermediaries for transfers, cashless payments and the provision of many financial services—for example, obtaining loans—as well as the primary financial institution for storing money. However, when choosing an instrument for preserving 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 specialists from the VIP Real real estate agency www.vipreal.lv
“The situation involving ABLV Bank and TKB Bank is a vivid illustration of the fact that, at any time, some of one’s money should be invested in real estate rather than merely kept in a bank account,” believe Lara Batova and Aleksandrs Tsykunov, owners of the VIP Real luxury real estate agency.
“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 make salary and tax payments and have no access to their personal funds.
Liquidity is no longer an indicator of stability
The chain of fines and revocations of bank licences that has become a trend in the financial sector in recent years indicates that even a bank’s success and liquidity, in essence, no longer guarantee its stability,” Lara and Aleksandrs believe. “Entrepreneurs and investors are now forced to consider alternative ways of preserving their funds, regardless of their field of activity.
For this very reason, we emphasize that, despite criticism concerning its low returns, purchasing real estate has been and remains an excellent means of preserving one’s funds.
At any time, real estate can generate an annual return of 2–5%
If a bank is declared bankrupt, the state does not guarantee the safety of funds in full, guaranteeing each client a payment of up to 100,000 euros. However, it is no secret that in the case of ABLV Bank, this amount will not be sufficient, since the bank primarily serves non-residents and affluent segments of Latvian society, and account balances exceed 100,000 euros.
If you keep 1 million euros in a bank account, then in the event of bankruptcy you may receive the state-guaranteed payment of 100,000 euros and risk losing 90% of your funds. By contrast, fluctuations in the real estate market, especially in the premium segment, are usually not as significant. Even in the event of a major crisis, you may lose a maximum of 20%—and that only if you decide to sell the property at an unfavorable moment.”
“Thus, by managing the real estate you have acquired, you can both preserve your money and earn up to 5% annually. Of course, it is difficult to earn high returns. However, an annual income of 2–3% of the value of a residential real estate property, given the current situation in the real estate market, is more than realistic,” Aleksandrs explains.
The situation with commercial real estate is somewhat different. In this sector, the annual return is 7–8%, but the risks are also greater. Even in this case, you have a reliable opportunity to preserve most of your funds.
“The real estate market in Latvia is structured in such a way that, regardless of the size of your ‘wallet,’ you can find a profitable investment option. You will always be able to sell the property you own and will not lose 90% of your money, as in the case mentioned above,” Lara notes.
We are not urging you to stop using banking services or to start investing all your savings in real estate from this moment onward. Banks will forever remain our intermediaries for transfers, cashless payments and the provision of many financial services—for example, obtaining loans—as well as the primary financial institution for storing money. However, when choosing an instrument for preserving 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 specialists from the VIP Real real estate agency www.vipreal.lv
Categories:
Economics;
