So, is it possible to make money out of property without the boring necessity
of actually buying a house, paying stamp duty or dealing with oleaginous
estate agents? The answer is yes: by betting on the movements of the British
housing market.
Spread betting, as it is known, has proved fabulously lucrative for players
such as Simon Smith, 33, who makes rather a good living by sitting in his
office in Leeds working out what is going to happen to house prices — and
placing his money accordingly.
Smith began for a bit of fun four years ago when property spread betting was
in its infancy, and proved so adept at predicting the swings in the market
that he packed in the day job as an IT systems analyst at Leeds Metropolitan
University. Remember the property crash that never happened (or, at least,
has not happened yet)? Smith bet against the likelihood of a nose dive and
cleaned up.
“I’m surprised more people don’t do it, given how much spread betting takes
place in this country and our national obsession with house prices,” he
says. “But maybe most people have already taken a huge gamble on the market,
with their own house.”
So how does Smith do it? Three or four times a week, he logs on and makes
trades on the basis of where he thinks house prices, in a variety of
markets, will be at a given quarterly date in the future. He sets both an
upper and lower price, thus providing the “spread” for others to bet
against. Cantor Spreadfair, (www.spreadfair.com), the company Smith uses,
takes bets on the average London house price and the average UK house price.
When the given date comes around, the Halifax quarterly house price survey is
used as the official indication of where the market is. Smith gives an
example of how it works. “The current spread that I have posted for the
average London house in September 2007 is £297,500-£300,000,” he says. “Now
if the Halifax index comes out in September and reveals that house prices
have gone up above the £300,000 mark, and if you were betting up, you will
have made money. But if you had been betting up, and the market is still
somewhere below £297,500, then you would have lost.”
His best month? “December 2003. It was a point at which many people were
expecting a crash. However, I thought that the market wouldn’t go down very
much. And bet on it.”
There was indeed no crash. “It’s about understanding the perceptions on the
housing market, against what is likely to happen,” Smith adds. “I have got
it wrong sometimes and lost money.”
Not very often, however. Smith is coy about how much he has made, but it has
been enough to pay off his mortgage. In fact, he has sold off most of his
buy-to-let portfolio, keeping just two properties that he rents out. Is he a
gambling man at heart? Not really. “I’ve always been good at maths. And I
enjoy taking calculated risks.”
Are there many other Simon Smiths out there? Not that many. Andrew Garrood,
co-managing director of Cantor Index, which runs Cantor Spreadfair, says
property spread betting is still a “nascent” industry.
Part of the problem with gambling on house prices like this is that the time
span involved is short; money is made or lost much more rapidly than by
investing in actual bricks and mortar. It is also not for the faint-hearted:
if things go wrong, they can go very wrong indeed, and, unlike with other
more conventional forms of gambling, you can end up losing more than your
initial stake — making the whole thing somewhat akin to financial Russian
roulette.
“Spread betting appeals to people wishing to carry out short-term trading, and
who want to make a quick win from the property market — without the need to
put up capital,” says Justin Urquhart Stewart who runs Seven Investment
Management, a company that provides financial advice to high net-worth
individuals.
“However, because your loss is calculated by the difference between your
estimate and the reality of the prices, you can end up losing a lot more
than your stake if prices move against you. I think spread betting on
property is for professional speculators only.”
But if the market were to take off, could you enter a remarkable world where
abstract betting on house prices was bigger than, and even potentially
affected, the housing market itself? “Yes,” says Rob Thomas, senior policy
advisor at the Council of Mortgage Lenders. “But we are nowhere near that
now.”
There are other ways, of course, to make money in property without forking out
for a building. You can buy shares or invest in real-estate investment
trusts. But if you consider yourself a true property anorak with a healthy
obsession with the movement of the market (and you are pretty good with
numbers), then spread betting might be your golden opportunity.
www.spreadfair.com
How property spread betting works
Say the latest average Greater London house price is £269,000,” says Rob
Thomas of the Council of Mortgage Lenders. “On the Cantor website, the
figure for December 2007 is £298,000. If you bet a point (£1,000) that the
market will go up, it will have to have risen above £298,000 by December for
you to make money. If prices reach £300,000 by then, say, you will get a
cheque for £2,000.”
How about betting down? “You might predict house prices will stay flat at
£269,000. If they do, thus undercutting the predicted estimate of £298,000
by 29 points, you would make £29,000 profit (on a stake of £1,000). But if
the market rises to, say, £310,000 you stand to lose £12,000.”
