REAL ESTATE – Data published last week by IPD showed trading in UK commercial property derivatives totalled £3.57bn (€5.2bn) in 2006 – a 300% increase over the previous two years.
Iain Reid, Protego Real Estate Investors CEO and chairman of the Property Derivatives Forum, said UK trading in property derivatives had grown "exponentially" over the past two years because "the facility they offer is irresistible".
Derivatives in any asset class enable investors to transact quickly and efficiently in a market that does not involve capital. Specifically, real estate derivatives allow investors to buy the market.
"In the real market, investing in real estate takes time. It’s uncertain and costly, and you can’t buy the market – it isn’t like equities," said Reid in an interview with IPE Real Estate.
The Property Derivatives Forum also forecast growth in volumes outside the UK based on increased trading on European indices. "Other markets are behind the UK," said Reid.
"In many countries, indices are newer, less well-established and less authoritative – but there are plenty of markets where the indices are good enough."
He added: "The important thing is that both parties consider it suitable. It’s a commercial issue. It’s better to have the facility than to wait forever for the perfect index."
"[The derivatives phenomenon] will continue in the UK but it will grow everywhere," he said, identifying deals-in-progress in France, Germany and Hong Kong. "There are rustlings in the undergrowth on quite a wide front."
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