A main characteristic of the property market is illiquidity, arising from heterogeneity and the lack of transparency. Property prices are thus rarely observed and cannot be looked up daily on a screen. The construction and establishment of an appropriate index is a first necessary step to establish a derivatives market.

The UK was able to embrace derivatives well before the rest of the world, mainly due to the availability of relevant property indices. The London-based private firm Investment Property Databank (IPD) originally focused on building its UK index. Most other countries failed in the past to define good indices.

IPD now collects information on property market performance across a variety of countries and its indices are considered to be the leading benchmarks. By the end of 2007, IPD UK collected portfolio records capturing 12234 properties with a market value of GB£ 183769 billion. It benchmarks property unit trusts and publicly traded instruments, but also takes direct investment portfolio data sent by pension funds, and benchmarks performance against data sent by peers. It publishes individual country indices for 15 European and 6 non-European countries as well as a pan-European and a global index. Many practitioners hope to see an IPD-led global benchmarking index emerge. This is likely to happen as more and more banks enter the property derivatives market and start trading contracts on the IPD indices. So far, however, the UK is fairly unique in terms of the IPD index, which benchmarks the asset class of property as a whole as well as different property sectors.