Cash-settled payday loan contracts are available
After the launch of futures and options on regional home prices, CME announced a partnership with the commercial real estate index provider Global Real Analytics (GRA) on 6 September 2006. They listed future and option contracts based on the S&P/GRA Commercial Real Estate Indices (CREX) on 29 October 2007.
The S&P/GRA CREX indices capture underlying real estate dynamics by tracking transaction-based price changes in diverse property sectors and geographic regions. GRA has a 20-year history of capturing data and sees the new indices as a natural extension, suited for the use of publicly traded futures contracts.
Ten quarterly cash-settled contracts are available: a national composite index, five regional indices (Desert Mountain West, Mid-Atlantic South, Northeast, Midwest and Pacific West) and four national property type indices (retail, office, apartment and warehouse properties).
CME expects the users of the new property contracts to be different from those trading in housing derivatives. If someone hedges against house-price declines in an area, he or she develops or buys a house there. The commercial contracts, on the other hand, are designed for larger investors who hold commercial properties in their portfolios, such as pension funds and REITs.
To hedge real estate or home price declines, individuals can purchase put options based on a particular index. If prices fall, investors will naturally see the value of their real estate holdings decline, but they offset the losses with gains in the put options. The CME hopes that there will be enough speculators in the market to take the other side of the transactions.
Payday loans as a new solution to invest
GFI and Colliers claim they are working with the National University of Singapore to create residential indices for Singapore’s housing market. The main issue is that there are fewcountries that have an adequate amount of transparency to develop credible and robust indices on which to trade.
The first property derivatives in Switzerland were launched by the Zuercher Kantonalbank (ZKB) in February 2006. The bank issued two structured products that were offered to institutional as well as retail investors as a new solution to invest into the asset class of real estate.
One of the products was capital-protected while the other was structured as a discount certificate. The products could be subscribed in small denominations and the bank guaranteed a daily secondary market. The two products were based on the “ZuercherWohneigentumsindex (ZWEX),” which tracks owner-occupied house prices in the Zurich greater area. The index is calculated and published quarterly and is based on transaction prices. The bank says that demand exceeded expectations, especially for the product with capital protection.
In September 2007, the first swap on commercial property was transacted. ZKB and ABN Amro traded the IPD Switzerland All Property TR Index against Swiss LIBOR plus an undisclosed spread.
Basis for two-year total tax return
Starting in November 2006, Colliers International and interdealer broker GFI formed a joint venture, GFI Colliers, that offers brokerage services for derivative contracts on the Hong Kong University–Hong Kong Residential Price Index (HKU–HRPI). The index, complied by the University of Hong Kong, is based on transaction figures from the Land Registry. Hong Kong has long attracted attention in the global property world due to the volatility of its real estate prices. The HKU–HRPI was offered at 650 basis points over HIBOR or a total of roughly 10.5 %. ABN Amro and Sun Hung Kai Financial announced in February 2007 that they had traded a property swap based on Hong Kong’s residential market. The inaugural transaction in Asia, at less than HK$ 100 million (US$ 13 million), was traded as a one-year price return swap. As buyer of the derivative, ABN Amro gained exposure to the city’s housing market by receiving the annual change in the index. By September 2007, five global banks have received licenses to trade Hong Kong residential property derivatives.
The first Italian property derivative transaction, based on the IPD Italian Property Index, was carried out between Grosvenor and BNP Paribas in October 2007. ICAP acted as a broker for the trade that took the form of a two-year swap.
Further, Grosvenor and Royal Bank of Scotland have traded the first Japanese property derivative in July 2007. The monthly IPD Japan Property Index was used as the basis for the two-year total return swap. It was the first derivatives trade on commercial property in Asia, following the launch of a residential property derivatives market in Hong Kong. IPD uses data provided by Japanese real estate investment trusts (J-REITs) to calculate the index.
