- March 1, 2008: Vol. 2, Number 3

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Good Times, Better Times

by Bob Thompson and Melita Thomas

In periods of uncertainty, real estate markets often have limited room for manoeuvre. If values are falling, the opportunities to manage changes in the risk profile of portfolios by transactions and policy alone are constrained.

The second half of 2007 saw an unholy combination of weakening economic prospects and dramatically reduced liquidity in European property markets. Price corrections were sudden and savage, and end-of-year valuations were awaited with some trepidation. (We now know why — Ed.)

Portfolio managers look for other ways of ameliorating the impacts of increased volatility, and it should come as no surprise that turnover in the property derivatives market increased significantly last year. As with all asset classes, when underlying assets begin to show uncertainty, derivatives markets become more active. As returns from property become more volatile, derivative instruments are required to hedge positions.

A year ago returns were still

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