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Property Derivatives: The Next Big Thing for Private Investors?

Contributing Editor, 26 October 2005

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Property derivatives are likely to become an increasingly attractive investment vehicle for private investors, according to Investec Private...

Property derivatives are likely to become an increasingly attractive investment vehicle for private investors, according to Investec Private Bank, which is currently developing them for the private client market. “The property derivative market could become enormous,” David Drewienka, head of specialised lending at the Investec Private Bank, told WealthBriefing. “Currently the market is very small and confined to institutional investors, but we see huge potential in the private client market.” Mr Drewienka said the property market is huge – probably the largest asset class in the world – but so far only a small derivative market exists for the asset class. “You compare that with the derivative market in coal, which is three-times bigger than the primary market.” A simple property derivative could be structured around on taking an alternative view on two European markets, said Mr Drewienka. “For example, an investor could short the UK property market and go long on the German market, based on a macro view. We will be able to provide products around derivative products like this very soon.” The other advantage of such structures is their tax efficiency – with no stamp duty, or other taxes to be paid, said Mr Drewienka. Mr Drewienka’s specialised lending group, which is one of the biggest in the UK private banking sector, also does investment lending for private individuals, sports and media lending, transactional lending, and, what the bank calls, “special lending opportunities”. Mr Drewienka says the demand for Investec’s various lending options has risen sharply during the last few years. “We have witnessed strong growth and are looking to recruit at least three more staff to the lending operations as soon as we can.” But the South African private banker would not be drawn on the profitability of the operations. “We are the second most profitable part of the private banking business at Investec after the property division. But I’d prefer to wait until our results are released before commenting more on the numbers.”

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