GFI Colliers, a joint venture between broker GFI Group and real estate firm Colliers International, has brokered the first long-dated Asian OTC property derivative option in Hong Kong.
The trade, between Goldman Sachs and Lehman Brothers' global real estate group, was based on the University of Hong Kong's Hong Kong Island Residential Price Index, an index created with derivatives in mind.
'This trade is the first long-dated risk transfer through Hong Kong property derivatives and highlights Goldman Sachs commitment to this asset class in the region,' says Guy Saidenberg, managing director and head of Asia exotics trading at Goldman Sachs.
Mark Gabbay, managing director and co-head of Lehman Brothers' global real estate group in Hong Kong, says: 'We're pleased to have executed this tailored option trade which is the first of its kind in the region.
'We view this as a key transaction in our risk management strategy for the real estate asset class that provides a relatively quick and cost efficient way to manage exposure. We look forward to working with other counterparties to further expand the product applications.'
Stephen Moore, head of GFI Colliers in Hong Kong, adds: 'This trade demonstrates the value of property derivatives in managing risk for traditional property investors. This is a significant deal that highlights the versatility of a product in uncertain times in global real estate returns. It is also a testament to the reliability of the Hong Kong University indices and how accurately they reflect market movement.'
Property derivatives are bilateral financial contracts based on direct property indices that allow investors instantaneous access to direct property returns, mimicking the purchase of commercial or residential property.
They are also a risk management tool, hedging the market return of property while maintaining ownership of the asset, a key feature for many portfolio managers. Property derivative options entitle the holder to buy or sell a property derivative contract and hence the property indices at a future date.