Loans correlated with interest rates
Both professional real estate investors and private homeowners can benefit greatly from a property derivatives market. Today, investors can buy shares of real estate companies, real estate funds, Real Estate Investment Trusts (REITs) or other indirect investment vehicles. In terms of liquidity and divisibility, they are comparable to shares in equity. However, prices of these investments rarely follow property prices but are rather correlated with interest rates
and equity markets. Thus, they do not provide the valuable diversification effect an investor expects from the asset class real estate. Homeowners on the other hand face difficulties to hedge the risk of a sharp price drop of residential house prices. Often, the only admissible strategy is to sell the property. Why is real estate, given its size and economic importance, an asset class without a liquid derivatives market that would make it easier to hedge and invest in real estate?
