Making the difficult move into residential

The residential real estate derivatives market is significantly smaller than the commercial market at an estimated £2 billion since trading began in the 1990s, despite the physical market being six times larger. One of the main reasons for this is the limited exposure of institutional investors to residential property, says Guy Ratcliffe, head of property derivatives at Abbey Financial Markets in London.

Property derivatives: Market at last begins to fulfil its promise

“As investors have no background in residential it can be difficult to make the move into derivatives.”

Nevertheless, there is anecdotal evidence of appetite for residential real estate. “Most life funds have an interest in residential real estate for strategic reasons – it is great for diversification and it tends to match insurers’ liabilities – but it is difficult to get any physical scale and it is expensive to manage,” says Paul McNamara, head of property research at Prudential Property Investment Managers.

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