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U.K. house prices fail to see Olympic Games boost

ReutersA flag on the back of a river boat flutters above Tower Bridge after the 'Olympic Rings'are lowered into position for display from the walkways in central London.

LONDON (MarketWatch) -- The multibillion pound regeneration of London's East End, home to the 2012 Olympic and Paralympic Games, is unlikely to yield a house-price boom analysts say, but landlords stand to make long-term income streams from the area's new developments.

A key element of London's successful bid for the 2012 Games was the promise of transformation in east London, formerly an industrial outpost of the capital, now home to the Olympic stadia and other major investments for the Games. See also: London 2012: a massive catering operation

As part of the project, the London Organizing Committee of the Olympic and Paralympic Games, or LOCOG, promised thousands of new homes for sale and rent, which many expected would lift prices in the area.

However, with about a month to go until the opening ceremony, house prices in the neighborhood are showing little improvement.

Land Registry data for April show house prices across London rose 5.1% versus April 2011, but in the east London borough of Newham, home to the Olympic Park, prices moved up just 2%.

"If you look at data from the Land Registry, prices have not boomed in any way -- they have followed the regional pattern really," said Liam Bailey, head of residential research for property company Knight Frank.

"The only market that has had a boom really in last few years is the prime central London market, Kensington and Chelsea, on the back of foreign money because it is seen as a haven for nervous investors," Bailey added.

Prices in Kensington and Chelsea have jumped 11.6% in the last year.

Buy versus rent

Rental prices have performed better than house prices, according to a rental index conducted by leasing company HomeLet. London rental prices in April were up 7.1% on the prior year, with those in east London (an area which includes and extends beyond Newham) outpacing the rest of the capital, rising 8.6%. HomeLet dubs this the "Olympic Impact."

Bailey, however, is skeptical about the existence of such an effect and offers an alternative explanation. "London has a growing population and east London is a growing area as it is affordable compared with the rest of [the capital]," he said. "The Olympics doesn't really have any impact in terms of demand, the infrastructure is the main legacy."

Some of the infrastructure improvements are already complete, including parts of the 6.5 billion pound ($10 billion) investment in London's transport system, as well as private ventures like the £1.5 billion Stratford City Westfield Shopping Centre. However, many more, such as housing projects, are still taking shape.

Until those developments conclude, it's too soon to look for an Olympic housing boom, said Yolande Barnes, director of residential research at real-estate firm Savills.

"You absolutely wouldn't expect to have seen one yet," Barnes said. "If you look at this as a regeneration project, regeneration projects only make a difference when they are finished not before they have taken place."

Barnes does expect to see an improvement in house prices and rental rates in the months following the Games, once the Olympic Park and Athletes village become open to the public. However, the improvement will likely be steady owing to the type of housing that will become available.

The LOCOG have promised that half of the properties that will come on the market in the Olympic boroughs will be affordable housing.

"There are prospects for rental growth in the longer term as it's where more ordinary Londoners are going to live. [Buyers] will increasingly be investors looking for high quality income streams," Barnes said.

Buying up such low capital properties would be a wise long-term opportunity for investors, analysts say, because the number of renters is due to grow significantly in London, as mortgages remain difficult to obtain amid the economic downturn.

Qatari Diar, owned by the Qatari ruling family, spent £557 million buying the Olympic Village with U.K.-firm Delancey Estates with this in mind, Barnes added.

However, some homeowners and landlords aren't waiting for the end of the Games to make money from renting their properties.

Numerous rental companies have reported a surge in the number of advertisements placed on their websites and a record number of inquiries about properties available for short-term lets during the Olympic period.

Gumtree.com, a U.K.-run site for classified ads, told MarketWatch that the site has seen 2,321 ads posted for Olympic rentals between January and May and almost 10,500 replies to such posts.

"As the Olympics draw nearer Gumtree.com is seeing more and more Londoners offering up their properties or spare rooms for rent during this once-in-a-lifetime event," said Gumtree spokesman Hamish Stone. "If you're planning to get out of London during the Games, now is the time to make some cash and put that spare room to good use during this busy period." See also London 2012 slide show; focus on food

Another rental agency, HomeAway.co.uk, said landlords making bookings through their site have achieved rents between 70% and 200% higher than standard rates.

According to a BBC report, some landlords believe the opportunity to be so lucrative that they have asked existing tenants to leave to free up their properties for the few weeks during the games.

Still, much like the housing boom, many say the moneymaking potential of short-term rentals has been overstated, especially because so many properties are coming on to the market.

Joanne Doniger runs AccommodateLondon.com, which has let many properties to many members of the press and other workers coming to London for the Games.

"There have been reports of astronomical rents and it's a lot of hype," Doniger said. "I know that most companies with people working at the Olympics do not have great big budgets for luxury mansions and anyway, it's up to the guest because there is such a huge selection -- it's a buyers' market."

Indeed, a quick search on Gumtree.com reveals a glut of Olympic rentals still available, with new properties being added on a daily basis.

Even if landlords can achieve higher-than-normal rates for their properties during the Games, it will be simply a "short-term phenomenon" not worth turning out existing long-term tenants for, says Michael Banks, a director at online rental firm Upad.co.uk.

This short-term boost is likely to benefit other areas of London just as much as the Olympic boroughs. Rental companies say properties in central and west London have been equally popular as those local to the Olympic sites, with many visitors hunting out home stays closer to the city's other major attractions. See also: MarketWatch Olympics page

For Banks, despite the regeneration efforts, east London will never match the appeal of other London neighborhoods purely because of the existence of Olympic stadia.

"There could be some long-term impact on the rental market in east London based on the investment in infrastructure, like the Westfield [Shopping] Centre, but it has nothing to do with 'brand Olympics'," Banks said. "If you look at other sporting stadia in London, like Wembley, the stadium does not increase the value in an area, it depresses it .... no one will pay extra to live there because the Olympics was there three years ago."