Renters and investors who are looking for new ways to buy a slice of Australia’s $3.2 trillion market will soon have another option: property derivatives.

A deal signed between RP Data, Rismark and the Australian Securities Exchange will see the creation and development of Australia’s first residential property derivatives market.

The property index derivatives, likely to be launched around the second quarter of next year, will be traded at the ASX, and will use RP Data–Rismark Hedonic Index for measuring house price changes over time.

“A residential property derivatives market has the potential to allow individuals and institutions to cost–effectively access index–linked exposures to the $3.2 trillion residential property asset–class,” said Christopher Joye, Rismark International’s managing director. “Previously the high transaction costs associated with residential property investment have made accessing this asset–class on a diversified basis difficult.”
A property derivative is a financial instrument whose price is dependent upon, or derived from the value of an underlying real estate asset. The key advantage is the lower transaction costs. With traditional property investment, buyers generally have to come up with around $30,000 in cost for an average $500,000 property. Property derivatives also allow investors to increase exposure to the markets at lower costs and the enables those who are non–property investors to gain exposure into the market.

“Property is the last major asset class in Australia without a developed derivatives product, and while this is still a relatively new idea, it is a tool property professionals should not ignore as investors seek ever greater flexibility in relation to property investment,” wrote Luke Hartigan of Jones Lang LaSalle in a report .

Property derivatives markets have flourished around the world with the UK currently having more than GBP 7 billion worth of over–the–counter commercial and residential property derivatives outstanding according to RP Data.


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