Each field of knowledge has its last frontier. For real estate researchers, one important milestone to be reached is synthetic property. In a nutshell, synthetic property means the ability to replicate non listed real estate returns by going long/short tradable indices and other non property-related instruments. Having the ability to replicate non listed real estate returns would open the door to efficient risk management tools for direct property owners. In The Role of Investment Real Estate in Portfolio Management (1970), James Graaskamp, the Wisconsin based pioneer of real estate research and founder of the American Real Estate Society, likened the ability of real estate to withstand a tough economic environment to “the helicopter which in the absence of power and pilot control has the natural glide angle of a falling brick”. What can be done to allow property to glide through adversity? Synthetic replication might be the key, and exchange traded property derivatives would be an important step.

This report is authored by Patrick Lecomte from ESSEC Asia Pacific.