There may be no Olympic property miracle
There may be no Olympic property miracle - at Moneyweek.co.uk - the best of the week's international financial media.
We are constantly amazed by the ability of London's estate agents to remain convinced house prices can only rise, even as they fall. In their defence, they have for some time been able to ignore the fact that house prices have been falling in London every month by pointing to the annual numbers, which have stayed positive. Not any more. According to the Evening Standard, prices have now fallen for 13 months in a row and over the last year have fallen 2.5%. So what will they say now? Our guess is that they'll dismiss the fall as a blip, soon to be sorted out by a falling interest rate (it won't), and that, while they wait (in vain) for that to happen, they'll amuse themselves talking to journalists about the property-price miracle that is the Olympics.
John Wriglesworth, chief economist of Hometrack, is already at it. Prices in all the affected areas could rocket between 50%-200% over the next seven years, he told The Independent. "You could buy a toilet and it would still double its price." Winkworth's agent in Bow and Stratford, Richard Everitt, obviously agrees: he told The Daily Telegraph that his wife was so overjoyed presumably at the thought of the massive commissions her husband would earn as the price rises kicked in that she cried when she heard the news. Within the first four hours of the announcement, says Everitt, his office received 140 email enquiries usually there are only ten or 15 a day.
The Olympic Park will stretch from Hackney Marshes to Docklands, making it the largest new city-centre space to be developed in Europe for 200 years.On top of the £9m worth of planned improvements, as many as 5,000 new homes, a shopping centre, five million square feet of commercial premises and an athletes' village with 17,300 bedrooms will be built. By 2012, there will be ten train and tube lines and the event is predicted to create at least 34,000 permanent jobs in the next seven years. As 18-year-old student Hasna Begum told The Independent, "the party's come to Stratford. Bring it on!"
But is this really a once-in-a-lifetime property-buying opportunity? We aren't so sure. Karen Robinson in The Sunday Times tells us that the last four hosts Athens, Sydney, Atlanta and Barcelona all saw property prices outperform their national markets in the five years leading up to the games. Barcelona was the most impressive: prices rose 49% more in the city than they did in the rest of Spain. The differential in Sydney was 11%, in Athens 9%, and in Atlanta 6%. But this doesn't automatically mean prices will rise in London's East End too. First, note that all the games mentioned 1996 in Atlanta excepted took place amid ongoing property booms, and right now it seems more likely that the London games will coincide with a property slump. Second, let's not forget, as Barbara Goldsmith of Stratford Properties told Robinson, that prices in east London are hardly starting from a low base anyway. Prices have been climbing way ahead of the national trend at rates of around 40% a year over the past few years. This is thanks not just to the nationwide property bubble, but also to the fact that the planned regeneration of Stratford has been underway for some time now, regardless of the Olympic bid.
Currently under construction is the seven-mile link from the new Stratford International station to St Pancras expected to be fully operational by 2007. The much-hyped Docklands Light Railway to London City Airport should be completed by the end of this year, says Ross Clark in The Daily Telegraph. But given that three-bedroom Victorian houses in Bolton Road, Stratford, were going for £95,000 in 2000, but were selling for £285,000 in the summer of 2004, isn't it fair to say that this regeneration is pretty much priced in already?
There is also unlikely to be any kind of supply squeeze in the Olympic area. There are thousands of new properties on the way. Telford Homes unveiled Icona, a scheme of 249 flats in Stratford, moments from the Olympic Park, as soon as the bid was won, for example, and many more developments will soon follow. The problem here is that most development is being done on former industrial sites untried areas that may or may not become desirable.Who knows? Either way, the area looks set to become a giant building site for several years spitting out an abundance of new homes as it goes.
The fact is that making money in these areas is more about regeneration than the Olympics. In Sydney, Michael Bounds of the University of Western Sydney published a paper on the Games' impact on the property market. His findings? South Sydney, another area undergoing regeneration but far from the Olympic stadium, saw prices rising significantly faster than in the Olympic corridor in the run up to the games. So if you insist on trying to make your fortune out of London's property market, look for areas that will do best out of regeneration. As Clark points out, it means different things for different houses: properties in Hackney Wick will overlook the Olympic Park, others could find themselves next door to a coach park for 400 vehicles. And ifyou do buy, you may be wise to sell before the Olympics, when the real supply glut will set in.