Uncertainty over global financial markets and a predicted downturn in commercial property could be the catalyst for a significant increase in property-derivatives trading in the U.S. and the United Kingdom.
In the U.K., derivatives trading has been growing, with £3.9 billion, or about $7.9 billion, in trades in the first six months of this year matching the total for all of 2006. In contrast, the U.S. market has struggled to take off. While there are no formal data, experts suggest that trades total in the hundreds of millions of dollars rather than billions.
Property-derivative contracts are a means of betting on property performance without the risks of buying property directly. It is more cost-effective than direct property investment, particularly in the U.K., where property purchases incur a 4% stamp duty tax. Derivatives can be used by those looking to diversify their general portfolio as well as by property companies to hedge their exposure to certain sectors of the market.
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