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Capital Markets

Property derivatives: The tipping point

Are things finally starting to move forward in the much-heralded property derivatives market?

July saw the announcement of a new property derivative joint venture between Cushman & Wakefield and BGC Partners together with news that more banks are now providing two-way liquidity in such transactions in order to boost liquidity. Does this mean that the property derivative market’s time has finally come?

Unlike in other nascent derivatives markets, in property derivatives there is a natural base of buyers of protection: the property companies themselves looking to rebalance their portfolios. But until there is a significant correction in property values the number of people looking to actually reduce their exposure to property will remain substantially smaller than those looking to maintain or increase it. “There continues to be a significant volume of money coming into the sector, therefore this is an excellent time to adopt property derivatives as an investment strategy tool,” says Alex Dewey, manager, property derivatives at Cushman & Wakefield. “There are a number of commentators suggesting that the commercial property market is entering a state of uncertainty.”

It is now 18 months since the first public TRS on the UK IPD Index deal was written – a £40 million ($75.8 million) contract for difference between Prudential and British Land arranged by Eurohypo and Deutsche Bank.

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