Advantages of direct and indirect payday loans
The derivatives market of many other asset classes has matured to at least the same size as the underlying market within a few years. Derivatives could unlock the potential of the commercial property market by removing physical delivery and thereby enabling faster, cheaper and more effective execution of allocation strategies, short-term hedges, risk transfer and geographical diversification. Heterogeneity of the base market make physical delivery impossible for property derivatives, so only cash settlement is practicable and desirable. The use of property derivatives should not be limited to the investment market. Corporate occupiers could use derivatives to manage their property risk through rental swaps in much the same way that a company’s treasury manages financial risk with interest rate swaps. Hedge funds could also become major players in the market. In fact, their early participation may help establish a liquid market more quickly.
In sum, property derivatives unite many of the advantages of direct and indirect real estate investments. Since they follow closely a specified property price or performance index, an investor benefits from the asset class diversification effect without actually buying property directly. At the same time, administration and transaction costs, which indirectly result in every traditional investment vehicle, are saved. However, indirect investment vehicles and property derivatives should not primarily be seen as substitutes but as complements, just as equity derivatives and stocks.
