Initial trading at spread betting company City Index’s UK house price service indicates that residential prices in some parts of London could fall by 4-8% next year.
City Index claims that the service can be used to predict housing market trends up to six months ahead.
Customers can bet on the level of average house prices in Kensington & Chelsea, Hammersmith & Fulham and Islington which traditionally tend to foreshadow price trends across the UK.
City Index has suggested that the service could be used to hedge residential prices as well as speculating over their future direction.
However, Martin Allen, head of European equity research at Morgan Stanley said: “Given the fact that the maximum term of the contracts is currently only nine months, we believe the contracts are likely to be of limited use in hedging movement in residential prices.”
“In our view, a period of up to two to three years would be required for hedging purposes, but we see little likelihood of such contracts being provided.
“Contract periods of such length are likely to result in unacceptable counter-party risks as far as City Index is concerned.
“In addition, the high value of what is effectively a very long dated option, may well mean that terms would not be attractive enough for investors.”
EGi News 01/11/01
