# A potential type of "derivative bet" on house prices

As far as I’m aware, you can only engage in housing-related derivatives by going to a bookie. You can’t, so far, engage in a derivatives trade that is directly connected to a real-world house price. I thought of the following idea. The goal is to end up with a real feel for market sentiment based on money from people with skin in the game, like you get from real futures markets. Feel free to propose amendments as you please.

Group X has 100 members, each of whom puts in 7K. Their aim is to own the house and make money renting it out long-term. Between 100 of them, they reckon they can do a good job of maintenance and improvement to keep the gaff generating a decent income.

Group X makes a contractual promise to pay the going rate for a house within a specified square footage and number of bedrooms in a given middle-class quadrant of Dublin at a given time in the future. A trusted 3rd party will make the payment after consulting the property price register to obtain the going rate. Say they guarantee they’ll purchase a 4 bed in Harold’s Cross for the going rate in January to June 2017. The group specify a reference price against which the bets will be placed.

They have 700K on the line. If the gaff is under 350K, they’re in profit; if over, they’re in loss. If it’s over 700K, bets are off.

Mike is a housing bull: he wants to profit from the rise in house prices. He believes the going rate will be 400K, so he bets the difference with 350K = 50K.

If he’s right, every member of Group X has to pay €500 to Mike.

Ben is a housing bear: he wants to profit from the rise in house prices. He believes the going rate will be 300K, so he bets the difference with 350K = 50K.

If Ben’s right, Mike and the other bulls have to pay €50K to him (or whatever they have bet) and Ben keeps his stake. Group X pays nothing.

To make it worth while there would have to be a minimum aggregate bull bet: at least €50,000 combined from all the bulls. Their winnings (if the price goes up) would maybe be a capped percentage. The total amount Group X would lose couldn’t go over 350K, so if the total amount of bull bets was over 350K, they’d make no profit.

We have a big gambling culture in this country, it’d be interesting to see how many punters would go for this.

Easier just to bet on AIB shares.