IPD indices cover the commercial real estate market
IPD indices cover the commercial real estate market. On the side of residential property derivatives, contracts on the Halifax House Price Indices (HPIs) have been around since 1999 (see property indices). City Index Financial Markets and IG Index, two Londonbased spread betting firms, offer bets on UK average house prices on the nearest two quarters.
The bets are based on the Halifax House Price Survey. Goldman Sachs introduced call and put warrants and certificates on the Halifax All Houses, All Buyers and Standardized Average House price indices in 2004. The contracts of this first series expired in June 2006. Unlike the commercial property derivatives market, the residential property derivatives market started not as a brokered market in which counterparties would transact matched deals but was intermediated by a risk-taking institution. By 2007, over GB£ 2 billion of derivative trades based on the Halifax HPI have been executed.
Santander Global Banking & Markets claims to be the number one provider of residential property derivatives in the UK, with over GB£ 1.5 billion traded by 2007.4 The bank deals over-the-counter contracts as well as structured products such as capital guaranteed residential property bonds and warehouses the corresponding risk according to Andrew Fenlon, Head of Property Derivatives at Santander Global Banking & Markets. In conjunction with property agent Knight Frank, it developed a residential property plan, linked to the HPI and targeted at retail clients. Although the main interest and volume of property derivatives is in the commercial sector, i.e. on the IPD indices, several interdealer brokers also intermediate contracts on the HPI. Users of HPI derivatives mainly include mortgage banks and hedge funds.