Property index provider IPD, which monitors direct property investment performance in over 20 national markets around the world, has welcomed the first property derivatives trade on the performance of Japanese commercial real estate. As well as being the first property derivatives trade in Japan, it is the first derivatives trade on commercial property in Asia.
The counter-parties involved were international bank Royal Bank of Scotland and the private investment group Grosvenor, who have entered into a total return swap based on IPD's Japan Monthly Indicator, a lead indicator of the market.
This trade marks a continuation in the rapid growth of the global property derivatives market, which started in earnest at the end of 2004. At the end of Q1, 2007, some £7.6 billion of swaps had referenced IPD's UK indices alone.
Trades have also been written on IPD's French, German and Australian index and there are indications that derivatives will be based on a number of our other European indices in the coming months.
Commenting on the trade, Toshiro Nishioka, IPD Japan Managing Director, said, "This is a great step for the Japanese property investment world as well as a flattering endorsement of the work IPD has been doing in Japan over the last five years. I believe that this initiative encourages both investors and fund managers to be more aware of property risk and gives them a tool to help control it."
"Our index in Japan uses exactly the same calculation as our other indices around the world, and utilises raw data made available by the Japanese REITs. The fact that J-REIT properties are appraised twice a year and on a staggered basis has allowed us to update the index series monthly. The regular flow of new information into the market every month should help maintain interest in the market and help with the pricing of the contracts."
IPD Asia Pacific Director Dr Kevin Swaddle added, "We are delighted that the first property derivatives trade in Japan will be based on the IPD Japan Monthly Indicator and that Japan will be the home of the first derivatives trade on commercial property in Asia. It is another vote of confidence in the robustness of the IPD indices, which have now formed the basis of trades in Australia, France, Germany, Japan, and the UK, with several more countries said to be imminent."
"The comparability of the indices is a key factor. It is not hard to see a world in the not too far distant future in which an investor will match trades internationally, going short on a sector in one county and long on another sector in a different country, safe in the knowledge that the indices on which the trades are based mean the same thing in both places. That's very exciting."
In the Asia Pacific region, IPD produces market indices in Australia, New Zealand, Japan and South Korea. It is currently working on indices in Hong Kong and Singapore, where it hopes to conduct feasibility studies shortly.