The European property derivatives market at June 2009 was pricing a -12.5 per cent total return for the year 2009, or a -19.5 per cent capital fall, assuming a seven per cent income ret
The European property derivatives market at June 2009 was pricing a -12.5 per cent total return for the year 2009, or a -19.5 per cent capital fall, assuming a seven per cent income return, according to GFI Property Derivatives Group.
The trough expected in 2010 would result in a 50 per cent capital fall since peaking in June 2007, at a net initial yield of 8.8 per cent.
At its most negative, the European derivative market was pricing in a capital fall of 60 per cent bottoming in 2013 at a net initial yield of 11 per cent.
In the US, the present commercial market pricing at June 2009 was anticipating property price declines of over 26 per cent for the calendar year of 2009, on top of the 11 per cent drop in value seen in 2008.
The total property value decline through 2010 in the US is forecast to exceed 40 per cent from its peak in 2008. While physical real estate prices may not have reached the lows, there are persuasive reasons to believe that the situation could be different in the real estate swap market, GFI says.
Property is the world’s largest asset class and the last major one to develop a derivatives market. In 2005 GFI formed a joint venture with CBRE to provide the first property derivatives brokerage platform.
GFI provides broking services covering property markets in Europe, the US and the Asia-Pacific region and works with property and real estate specialists in each of these areas to enable effective execution of allocation strategies, short-term hedges, risk transfer and geographical diversification using property derivatives.
