Home The strange case of the London housing competition
August 3, 2019
For a while, we’ve been searching for some particular image or spectacle that adequately captures the sheer horror of the London housing market.
This week, we found it.
A developer, Misuma Limited, is selling a £2.1m house in Kentish Town through a housing competition. To enter, you pay £10, plus a £1 booking fee. You then receive a ticket, which, if you win, entitles you to the house.
The competition, which doubles as a legitimate candidate for the Turner Prize, will run until the end of the year. More details on winmydreamhome.com.
Housing competitions – an alternative and controversial way of selling a property, wherein the business model of the casino is disguised as a charitable endeavour – have kept cropping up over the past few years.
Here’s The Sun last year with a classic of the genre, which cost £25 to enter – equal to the price of about nine happy meals at McDonald’s, as of March 2018, the paper tells us.
They typically involve a question, which is a legal requirement, because otherwise a competition that charges for entry and selects a winner at random is a lottery, which requires a licence. This is the Kentish Town competition’s question:
(Answers in the comments below. From the FAQs: Ultimately, the Gambling Commission and the courts will have the final say on whether the Question complies with the Gambling Act 2005.)
What’s slightly different about winmydreamhome.com is that it’s run by a developer, rather than a random individual who can’t sell their house. Marc Gershon, a director of the company, told us the plan is to “clean up” the housing competition space.
“I think this is the first one that’s being run properly and cleanly and openly and transparently, and not geared to literally stitch people up,” he says.
So what are the odds? The fine print is quite important. If less than 250,000 tickets are sold, then the house is not given away at all; instead, the competition gives away 60 per cent of the prize pool. If more than 250,000 are sold, the house is given away, and stamp duty of £165,6000 is paid. In each case, the business pays 10 per cent of the proceeds to charity.
According to our calculations, the competition makes breaks even while also giving away the house at 252,000 ticket sales. If fewer than 250,000 tickets are sold, the value of the £10 ticket purchase immediately plunges to £6. If, say, 400,000 tickets are sold, £4m of revenue comes in and the developer nets a large profit.
Pretty standard practice for a gambling business. But for those betting, there is a strange dynamic at play, where rational buyers are incentivised to wait until 250,000 tickets have been sold (or are likely to have been sold) before they buy.
Misuma has three other flats in development. If the first competition goes well, they’ll look to also exit those developments through a competition. But what we initially thought was simply a quirky publicity exercise turns out to subtly reflect the rising pressures on small-scale London developers post-Brexit.
“We did see a dip in London prices over the past year and a half, two years,” Marc told us, who kept to his word on the transparency point. “We’re quite open about the fact if we sold the property now, we’d make a small profit . . . as a business that doesn’t make sense to us,” he added. “This is an experiment for us to see if we can get this competition basis working well, if we can maximise our value”.
He says Misuma bought the house for £1.57m in late 2016, and spent £460,000 on renovations. The £2.1m valuation comes from remortgaging with the bank, post-redevelopment.
The developer is taking on considerable PR and advertising costs, so this is quite a risky business move. This risk implies that conventional methods of selling the property look unattractive at the moment.
So, it all ultimately depends on how many people sign up. That’s where the vision comes in – a desperate population of tenants, clutching at the redemptive power of gambling to obtain what Mr Gershon himself describes as an “average house”.
Even if the project fails, you have to admire its extraordinarily subtle capacity to bring together two concepts – gambling, and London housing – that no one would surely ever have associated with each other.
“House buying is not easy now,” Marc says. “If this becomes a method of people being able to come into home ownership . . . for a potentially low cost, a huge amount of the British population like to have a punt at something, whether it’s the horses, the lottery,” he adds.
“This is not an addictive form of gambling”.
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