U.K. property developers and institutional property investors are buying put options on the Halifax House Price Index to protect against a drop in U.K. property prices. Guy Ratcliffe, head of HHPI products at Abbey Financial Markets in London, said it has had a lot of put option enquiries in recent weeks, but noted the premiums on the instruments have put some players off entering the market. The put options can cost in excess of 10% of the notional, he explained.
Some institutional fund managers and sophisticated property investors are getting familiar with property derivatives, but Ratcliffe said pension fund managers, although interested in the asset class, are less comfortable buying property derivatives outright. Abbey is looking at ways of wrapping property index derivatives in a fund form (DW, 11/5), which would be more suitable for pension funds than buying the underlying instruments.
