The Sunday Times – Property
The Sunday Times | October 16, 2005
Landlords chase Olympic gold
Buy-to-let investors are racing to invest in east London ahead of 2012. Will this boom last the distance, asks David Budworth
COMPANIES have started cashing in on the excitement surrounding the London Olympics by touting schemes that will invest in buy-to-let property near the site of the 2012 games. But investors shouldn’t expect quick profits.
Property developers and estate agents have been predicting medal-winning performances for housing markets in the Olympic zone ever since London’s successful bid.
Now Property Bourse has launched a fund that aims to raise £4m from wealthy individuals to invest in flats and houses in the Docklands area, just 10 minutes by public transport from Stratford, which will be at the centre of the Olympics.
Robin Christie, managing director of Property Bourse, said: “The Olympics are going to result in substantial investment in infrastructure, such as transport, in east London. That is going to make the area more accessible, popular and fashionable with renters and homeowners, pushing up prices.”
East London will see a big upgrade in facilities as a result of the Olympics. The area will benefit from a 500-acre Olympic Park reaching from Hackney Marshes to the Thames, including a stadium, aquatic centre, several other sporting complexes and a 17,800-person Olympic village.
There are also proposals for a big increase in capacity on the London Underground’s Jubilee line, and plans for the creation of a transport hub in Stratford.
Some landlords believe it is too good an opportunity to miss. Peter Ong, 51, a professional landlord from Hendon, north London, is typical.
His previous buy-to-let purchases have all been in central London, but he has just bought a two-bedroom flat five minutes from Stratford Tube station.
He said: “I felt I couldn’t afford not to buy in view of the Olympic win. The potential rental from the property is not fantastic, but I hope to make big gains from the capital growth.”
But property experts are warning less experienced investors not to be rushed into a purchase.
It is generally accepted that property values will rise faster than the national average as the games approach. Previous Olympics bear this out.
The games were held in Athens last year and between 1999 and 2004 prices rose 63% in the capital compared with 55% for the whole of Greece, according to Halifax.
The areas closest to the action do best because they benefit most from the improved facilities and better transport links. House prices in Homebush Bay, a derelict industrial area redeveloped for the 2000 Sydney Olympics, rose 70% in the five years before the games, compared with 50% growth in Sydney as a whole and 39% for all of Australia.
On this basis the areas that have most to gain include Stratford and West Ham in the borough of Newham; Bow, in Tower Hamlets; and Leyton in Waltham Forest. There are also high hopes for Docklands, Hackney, Bethnal Green and Stepney.
But don’t forget that the games are still nearly seven years away. Jim Ward of Savills, an estate agency, said: “Seven years from now you would expect house prices in the Olympic area to have shown above-average price growth. But over the next few years we expect house prices nationwide to remain subdued and I don’t see properties in these areas bucking the trend.”
Investors hoping to bag a bargain may be disappointed to learn that house prices in some of the areas under the Olympic spotlight have already done well, making large rises in the near future less likely.
Matthew Leitch of Currells, an east London estate agent, said: “In Hackney there have been big price rises over the past two years, even when other parts of the London market have been stagnant. Prices have risen strongly because of other regenerative schemes, such as the extension of the East London underground line through the borough.”
Olympic fever has added to the upward pressure on prices. In September, sellers in Tower Hamlets, which includes Bow, Bethnal Green and Docklands, asked 2.2% more than the previous month, according to Rightmove. Newham, which includes Stratford within its borders, saw a 1.4% rise in asking prices. Across London as a whole prices were down 0.2%.
Lateef Unisa-Begum, 37, had the foresight to purchase a one- bedroom buy-to-let flat in Hackney two years ago.
The career management consultant from Belsize Park in north London said: “The success of the Olympic bid has spurred me on to look for more buy-to-let flats in the area. But, because prices have gone up so much over the past two years, it’s hard to find properties with good rental potential.”
Even though house prices have been rising, rents have not been keeping pace. Graham Gould of Residential Property Investment Management said: “East End properties tend to attract student types rather than the professional sharers who are willing to pay the higher rents in other areas of London.”
A three-bedroom house in Stratford costs about £300,000 on average and rent is about £300 per week. That is a yield — the annual rental income as a percentage of the purchase price — of 5.2%.
In Stockwell in south London, by comparison, where professional sharers are more common, a three-bedroom house costs about £340,000 but the average rent is about £370 per week — a rental yield of 5.7%. So even though the property in Stockwell costs more, you get more for your money.
As the area redevelops, wealthier tenants will undoubtedly start to move in and rents will rise, but perhaps not while parts of east London turn into Britain’s biggest building site.
Lee Grandin of Landlord Mortgages, a buy-to-let broker, said: “East London will go through a transitional period that may cause disruption to the area, and this may have a negative impact when trying to attract tenants to your property. The potential for rental voids could be above average, so landlords need to have surplus cash to cover any shortfalls.”
Overall, while the Olympic zone has great potential it may take some time before the benefits come through.
Gould believes there are better opportunities elsewhere for investors who don’t have the patience to wait. He said: “If you want to buy in an area where properties will become more attractive due to regeneration, I would look around Elephant and Castle in south London. Its redevelopment is likely to occur more quickly and with less disruption. It is also in zone one for public transport, while Stratford is in zone three.”
He recommends parts of the capital that are well established as rental areas and have good transport links, such as Stockwell and Clapham North, in the south of the capital.
Christie of Property Bourse insists you can still make money in east London. Property Bourse’s scheme, the Urban Share Residential Investment Fund, will buy flats and houses with at least three bedrooms in the Docklands area. He said: “The proximity of Canary Wharf, a fast-growing centre of employment, makes it attractive to young professionals.”