Development of the property credit and taxes

The development of the property derivatives market has so far centered on the UK and the US. However, both interest and transaction volumes are growing throughout Europe and Asia. Market participants expect first trades in Denmark, Ireland, the Netherlands, Spain and Sweden after first trades in Australia, France, Germany, Hong Kong, Japan and Switzerland. As the quality of indices improve, more and more countries will see first trades. Also, thePan-European IPD index creates strong interest from retail investors and from US pension funds. The trend is unlikely to spread to some countries where the data basis, needed to construct a reliable index, is insufficient.

Quickly increasing volumes are also expected due to the interest of insurance companies to hedge their liability risk, which depends heavily on real estate price changes. Liquidity will probably only change if more banks are willing to warehouse risks, i.e. take a risky position.

More mature markets will lead to more standardized derivatives traded on exchanges. However, the OTC market is likely to be the dominant derivative format in the near future.

The property group Grosvenor and ABN Amro traded the first property derivative in Australia, based on the Property Council/IPD Australian Property Index, in May 2007. The trade took the form of a two-year total return swap.