Gold rush

The design of the Olympic Village, which will accommodate athletes during the Games and provide housing afterwards

Property investors become excited when they hear of large-scale sporting events such as the World Cup or the Olympics landing on their doorstep. They anticipate that the whole region will be regenerated and property prices will rise at the same time, making it an ideal location in which to invest. But are their assumptions true?

Last year, when the football World Cup came to South Africa, prices were widely expected to spiral upwards. The timing looked just right: house prices in the republic had dropped over the previous year and the World Cup was expected to boost the economy. To help things along the South African government poured about £2bn into infrastructure improvements, including a new airport at Durban. Shopping centres and entertainment complexes sprung up in ghettos such as Soweto. In Cape Town, the rough area around the port was transformed, with marinas for luxury yachts and homes for local celebrities. But despite all this activity, property prices remained unaffected.

“The World Cup had absolutely no impact on house prices in South Africa,” says Lanice Steward of Anne Porter/Knight Frank in Cape Town, who points out that the Knight Frank house price index shows prices peaking before the World Cup, then dipping when it finished.

Andrew Smith at Chesterton Humberts agrees: “Great weather, improved roads, and being on the same time-line as Europe attracts new business people to South Africa. But football is irrelevant.”

A 2010 report from the Sauder School of Business at the University of British Columbia produced similar conclusions when its authors examined the effect of recent Olympic Games on house prices. “Governments flag up price appreciation in Olympic cities and assume that this is down to the Games, yet that is not necessarily true,” says Tsur Somerville, lead author and the university’s professor in real estate finance. “We compared cities in the same country, with the same economic structures – some with the Olympics being held and some without – and found there is not an economic argument that justifies hosting an Olympic Games.”

Somerville gives several reasons why hosting an Olympics may not benefit a country. Investment costs are paid from government funds, so if one area receives extra funding for holding an Olympics, it inevitably means another suffers. Also, funding is likely to be focused on the period of the Games. The government may be unable to spend extravagant sums on maintaining the regeneration of an Olympic site once its Games are over.

What does this mean for London, host of the 2012 Olympics? The transformation of Stratford in London’s East End involves the creation of Stratford City, the largest retail-led, mixed-use regeneration project ever undertaken in the UK, and the Olympic Park, the largest recreational park built in Europe in the past 150 years. In terms of housing, the Olympic Village, built to accommodate the athletes, is to be converted into 2,818 flats and houses, and a further 8,000 new homes are scheduled to be built in five new neighbourhoods around the park over the next decade.

Given this transformation of Stratford, the assumption is that an investment in property there could not fail. Yet that, according to Marcus Dixon, director of Savills residential research, is far from certain. “There is a risk that developers will flood the market with new apartments,” he says. “That will reduce prices.”

There are other dangers too. It is hoped that the area will attract young couples with children who will receive their secondary education at a new academy school focusing on English and the arts. Yet who is to say that this school will work? Upwardly mobile parents may move further out to the suburbs if the Stratford academy does not come up to the mark.

Admittedly, Stratford has several advantages that are not shared by other Olympic cities. Having excellent links to the Continent via the Eurostar terminal, and to Canary Wharf and the City via the Docklands Light Railway, is an enormous asset for the area.

Yet this does not necessarily mean an escalation in property prices. For one thing, the properties in the Olympic Village look unexceptional. Sixty-three new blocks, dressed in bright-coloured cladding, are typical of the towers found in any London overspill suburb. About half of these flats will be affordable; the prices of those being sold on the open market have yet to be decided. In nearby niche private housing schemes, prices start at around £185,000 for a one-bedroom studio and go up to £750,000 for a three-bedroom home in Victoria Park, one Underground stop away. All the sales talk is about the area becoming a new Canary Wharf but that sounds optimistic. Stratford is one of London’s grittier areas and has long been a neglected corner of the capital, associated with bad architecture and a high crime rate. The upwardly mobile middle-classes are likely to be nervous about moving into such an area, regardless of its glitzy new sports facilities and travel links. The recent riots in London will only to add to these fears.

Weymouth, in Dorset, where the sailing events will take place

Ironically, the place that many tip to benefit most from the London Olympics is not in the capital. Weymouth in Dorset, a somewhat faded Victorian seaside resort, is to host the Olympic sailing events and the early signs are that it could become an upmarket sailing resort with booming property prices to match. Although the average house price in the town was £200,000 last year – 44 per cent below neighbouring Swanage and 66 per cent below Lyme Regis – the economic tide could be turning in Weymouth’s favour. House prices are already 10.5 per cent higher than they were a year ago, according to the Land Registry. Estate agents report a marked increase in the number of second-home buyers moving to the town. Only six of the 32 units at Admiral’s Quarter, a new energy-efficient block which came on to the market in September 2010, remain unsold.

It would be heart-warming if dear old Weymouth, with its donkeys and deckchairs, were to be the main property beneficiary of the 2012 Olympics.

Admiral’s Quarter, tel: +44 (0)1305 250 427, www.admiralsquarter.co.uk

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Buying guide

Pros

● Proximity to the City.

● Access to parks and green spaces.

● Price appreciation as new developments “bed in”.

Cons

● Oversupply of new homes.

● Fear of crime.

● Suspicion of an area in a state of upheaval.