The growth of interest in property derivatives should not be a surprise, say Andrew Petersen and Gordon Peery
It is an interesting time for property and the markets in which participants buy, sell and finance property around the world.
A property down cycle began in 2008, however, the property finance story is not one of complete doom and gloom. Throughout 2008, tremendous growth of a relatively new derivative instrument has been witnessed, that enables investors and portfolio managers to gain immediate exposure to property or hedge property risk without buying or selling property. Property derivatives have been launched in the past, debuting on the London Futures and Options Exchange in the early 1990s. But due to a combination of bad timing and scandal over false trades (designed to create the impression of higher activity) their launch crashed. Despite this initial failure and despite the ongoing credit crunch biting, proponents of the property derivative market are optimistic, buoyed by a period of record trades in the property derivatives market (currently a trillion dollar market) as dealers, institutional investors, portfolio managers, pensions, hedge
