Synthetic real estate – going nowhere fast
For those looking to gain broad exposure to the property market, the attractions of property derivatives are obvious. Instead of having to find physical properties to purchase, the investor simply buys a product whose returns are linked to the performance of an established property index. The cost of buying or selling physical property might be as high as 7% of notional value. The cost of taking the exposure via a property swap is more like 0.5%,
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