Global property derivatives dropped to their lowest quarterly level in five years in the fourth quarter of 2010, as confidence was affected by a tighter regulatory regime and economic uncertainty across Europe, a survey revealed.
A total of £192 million (S$390 million) in trades was observed from October to December 2010, lower than £731 million in the previous quarter, said Investment Property Databank (IPD), the global index compiler that monitors derivative trading on its products.
The volume of derivatives traded hit its lowest level since Q4 2005, said IPD.
Property derivatives allow market participants, including property companies or banks to hedge or adjust exposure to the asset class more cheaply and efficiently than simply buying or selling buildings.
“Participants in derivatives transactions are taking longer to return to the market even as underlying property markets have improved,” said Kate Pedersen, Derivatives Client Manager at IPD.
“A continuing uncertain economic outlook and regulatory regime is affecting market confidence,” she added.
The IPD data also showed that global derivative trading volumes over 2010 hit its lowest level in five years at £1.8 billion.
There were no German or French derivatives traded last year, which meant that the limited activity was centred in the UK.
“Pricing was attractive in Q3, where we saw much greater trade volumes but moved out in Q4, compared to the wider investable property market but this is now creating selling opportunities,” Ms Pedersen said.
“It must be said that, even given the fluctuations in recent volumes, this does not reduce the importance of derivatives to property investors over the long term and interest remains strong.”