Lloyds Banking Group

Owners hope to strike gold after Olympics

PUBLISHED : Wednesday, 18 August, 2010, 12:00am
UPDATED : Wednesday, 18 August, 2010, 12:00am

Do world-class sporting events really inflate property values in the host city, or is it just real estate hype? The record says they do.

Certainly, owners of properties in London, hard hit by the market slowdown, will be hoping for the best, with the Olympic Games scheduled for 2012.

Indeed, some may be banking on it. During the height of the downturn in 2008, one reader of a property advice column cited Beijing, previous host of the world's most prestigious sporting event, where prices reportedly rose by up to 40 per cent. Surely, the London Olympics would have a beneficial effect on his flat's value?

With the Games now less than two years away, latest research by Lloyds TSB indicates a mixed bag. The research measured house-price performance in 14 districts near the Olympic Park since the city was awarded the Games in July 2005. It found gains of 69 and 53 per cent respectively in Homerton and Shoreditch, significantly above the Greater London average of 36 per cent.

However, in Stratford, home of the Olympic Stadium, there was only a 3 per cent increase in average prices - slower than any of the other Olympic districts.

Suren Thiru, a housing economist at Lloyds, believes the sharp rises are partly due to the regeneration taking place in certain areas, sparking increased interest from homebuyers and investors.

He believes the market may rally further. 'Looking forward, property prices across east London are likely to receive a boost from the legacy of improved infrastructure and transport links left by the 2012 London Olympic and Paralympic Games.'

Marcus Dixon, an associate director at Savills Research, says: 'The Olympics will boost London's profile. The fact that all eyes will be on London, most specifically east London, will undoubtedly bring new people into the area. We also expect the economy will have improved sufficiently by 2012 for us to see a return to more sustained house price growth, which can only be helped by Olympics awareness.

'The real value created by the Games will be in the regeneration of areas of east London. The challenge for these areas, in particular, will be in maintaining the momentum and interest created during the Olympics, and making sure that post 2012, the area remains a desirable residential location ... as the conversion of the athletes' accommodation, as well as a number of surrounding residential developments, will mean a large amount of new housing will be built in the area.'

Many owners are buoyed by positive early signs, Dixon says.

While expecting the London market to slow in terms of market activity and price growth over the next few months, he says investors who have bought within the Olympic zone seem to be holding onto their property until the Games end.

'Strong rental demand is already in place, particularly from those working on the construction of the Olympic site. This has meant strong yields for many investors in the area, which certainly does not encourage the sale of rental properties at this time in the market,' he says.

Naomi Heaton, CEO of London Central Portfolio, cites the analogy between London's exclusive West End and the 'deprived East End', where the Olympic stadium is being built.

'As the international focus intensifies on central London in the run-up to the Olympics, it is likely that buying demand will increase. In a market in which only about 100 units are changing hands a week, it is likely that demand will significantly outstrip supply,' Heaton says.

On the other hand, Heaton says the weak domestic economy and threat of increasing unemployment is likely to have a negative impact on house prices in the poorer areas of the East End. 'Indeed, house prices have been very depressed in the area around the Olympic stadium, increasing only 10 per cent since winning the Olympic bid in 2005,' she says.

'This compares with growth in prices in central London of 55 per cent.'

Overall, though, she believes history shows that the investment in London will endure.

'As far back as 2004, Halifax [a subsidiary of Lloyds Banking Group] claimed that the regenerative effects from hosting an Olympic Games generally had a positive impact on house prices. Looking at the four host cities between 1992 and 2004, its research showed prices rose 19 per cent more than the national average over the five-year period in the run-up to the Olympic Games. Five years before the Manchester Commonwealth Games in 2002, house prices in central Manchester were 23 per cent below the northwestern region. At the end of the Games year, they were 2.5 per cent higher.

'When the 2012 Games are over, the winners will be the smart investors who have recognised the added value of [central London].'