What are the derivatives of the properties?
Real estate derivative is a specific type of financial instrument in which the derivative value varies depending on changes in the real estate area. Contracts that cover such derivatives are usually written on the basis of real estate indexs; Well -designed, wide -based indices are vital to these types of financial transactions. These transactions are quite complex, so usually corporations or sophisticated investors are used by derivatives. Examples of real estate derivatives are forward contracts, total yield swaps or bonds with a derivative in the structure of bonds.
attackers and future contracts are the most common transactions using real estate derivatives. In a typical future contract, the investor will make an agreement to pay a certain amount in a specific future time. Another investor then pays a multiple of the agreed real estate index. This multiple is repaired. A simplified way to look at it is that each party relies on a different future funds.
someCommercial investors of real estate use strategies such as swaps. These make payments based on the interest rate index. Real estate derivatives allow investors to be on the real estate market without actually having to buy and sell buildings. For this reason, the term for trading in real estate derivatives is a synthetic property.
If the investor has a property and a loan with fixed payments, deviations in the amount of rent that he can charge means that he may not be able to cover these payments with the amount of income that uses the property. The use of derivatives can help solve this option; The investor can use fluctuation in the value of the building without having to sell it. Rental rates often rise up and down with real estate values, so derivatives can help provide additional income at a time when the rent is low. The difficulty in the threshing is exactly what the derivative is best to use.
In principle, financial transactions with real estate derivatives have two counter -pages that exchange cash based on the value of the agreed index. It is recommended for investors to use only simple derivatives and those that are closely corresponded to physical properties, because investors who invest in complex derivatives risk bankruptcy. However, if they are used carefully, real estate derivatives can help stabilize commercial real estate and help protect against forced sales.
The United Kingdom was a world leader in the use of real estate. The most common index used in the UK for commercial real estate is the Invest of Property Databank. This index is also used in several other countries, including Australia, Germany, Switzerland, France, Italy and Switzerland. It is important that the indices used in derivative transactions are reliable. In the United States, the two most common indexes are the National Real Estate Investment Index Council and the Standa IndexRD and POOR.