In this week’s episode, Dave, Cate and Pete take you through:
- Property price performance and major sporting events. The trio discuss studies conducted on how major sporting events impact property price performance in host cities. The evidence shows that results are not uniform, and largely depend on the coordination and planning of developments and the scale of total investments. In other words, the development of infrastructure built for the purpose of the event and the longevity and repurposed use post the event.
- When can you expect an uplift in prices? The Property Professor shares research conducted on the Sydney Olympics, which revealed that host suburbs experienced substantially higher growth during the bidding and pre-Olympic periods, but not after the Olympics were held in 2000.
- Athlete villages across the world and post-Olympic planning. The trio discuss the athlete villages built for London, Rio, Munich, Turin and Tokyo. Athlete accommodation in these cities has been repurposed with varying degrees of success, from selling to private owners, public and refugee housing and student accommodation. The key to understanding whether these dwellings will be a good investment, will largely depend on the post-event plan, execution and desirability.
- The story of West Heidelberg and Wendouree after the Melbourne 1956 games. West Heidelberg is on the fringes of Melbourne’s affluent eastern suburbs, yet struggles with considerably higher levels of crime and poverty. Post the Olympic Games, the athletes village was converted to public housing, with 2,000 public housing residents living in the Olympic village today. It continues to be a low socio-economic area, similar to Wendouree West in Ballarat which hosted the rowing events.
- Longevity of stadiums. Nations hosting major sporting events are getting creative with their building of infrastructure, in particular, building temporary structures which will be demolished after use. For the Winter Olympics, South Korea built a temporary stadium which was used 4 times and immediately torn down. A stadium built out of shipping containers is being built for the Qatar 2022 World Cup. If you are going to invest, be sure that the infrastructure that lures you in the first place is going to stay on!
- Infrastructure upgrades that drive values. The trio discuss which infrastructure upgrades will provide the best long-term capital growth prospects for host suburbs. Those which improve transport are the best, (eg. road and rail), and will be there for a long time. For our nation’s largest capitals (Melbourne, Sydney and Brisbane), access to public transport is a key driver of capital growth. The key for investment in Brisbane will be the infrastructure upgrades to better connect the Sunshine Coast with the capital city.
- Back to basics – the fundamentals of property investment. Although hosting a major sporting event is an exciting novelty, the tried and trueprinciples of property investment still apply. New developments to house athletes are most likely going to be built on land or locations that typically hasn’t been highly sought-after, which is why there is space available. This lends to properties with low land to asset ratios and brand new dwellings that will depreciate rapidly. At the end of the day, property prices are driven by desirability and competition – how many people want to live there? Which in turn is driven by lifestyle and liveability factors. If those factors will improve, then there will be a flow-on effect on prices. The trio recommend that for long-term growth, buyers should invest in existing locations that will benefit from an infrastructure upgrade, rather than new locations on the fringes of the city.
- High risk of vacancies. Where there is an influx of supply, in the case of athlete villages being sold to private owners post the event, there is a risk of high vacancies. This is more likely to occur for the new properties that are built for athletes, in high density living areas. The trio question the likelihood of the number of people who want to move there matching the number of available houses.
- The Olympics is not the only factor at play. It’s important to remember that the property market has many inputs and outputs which determine value movements. An area could be experiencing gentrification for reasons other than the Olympics and there may just be a correlation between the two, rather than a causation. We know that newly erected dwellings are sold for a premium, often above market value. This could be skewing median values in that area and giving the impression of capital growth, that’s actually not present.
- What does the research show about property price performance as a result of the Olympic games?
- London Olympics
- Properties in host boroughs sold between 2.1% and 3.3% higher
- Properties up to three miles away from the main Olympic stadium sell for 5% higher
- A study on six host cities, from Los Angeles in 1984 to Sydney in 2000, suggests that the impact on the economy and residential property prices is not even. It depends on the planning and the scale of the Olympic investment.
- There is no ‘one size fits all’ economic development strategy and potential outcomes are dependent on a number of factors, including
- the coordination of planning and Olympic related development and
- relative scale of total Olympic Investment
- In other words, the infrastructure.
- The impact on real estate markets varied in impacted suburbs in the host city over time.
- An investigation on the impact of the Sydney Olympics on residential property market found that the markets of host suburbs experienced substantially higher growth during the bidding and pre-Olympic periods but not after the Olympics were held.
- PIPA has conducted research into Sydney’s residential property prices pre and post Olympics and shows that from the time the announcement was made in September 1993 that Sydney was to hold the Olympics to the Olympics being held, Sydney was one of the best performing capital cities. However post Olympics, the rate of growth decreased significantly.
- 1991 to 1993 is when the bidding was held
- 1991 to 93 – Sydney property prices only went up 2.8%
- 1993-2000 – Melbourne and Sydney were the best performing capital cities
- 2000-2004 – the best performer was Brisbane, they over doubled in this period, Adelaide 85%, Sydney 64%, Melbourne 64.1%
- Athlete villages – post Olympic planning
- Olympic villages – $12B 2012 London games, East Village converted to 3000 new homes, today 2-bedroom flats on sale for upwards of $1M pounds
- If you are thinking of capitalising on the growth of the Olympic games, where will you target in Brisbane?
- Olympic villages are typically newly constructed and how will they be repurposed?
- Rio Games – luxury condos fell vacant in following years
- 1972 Munich Games is now the site of Munich’s second largest University student housing development
- Turin Olympic village from 2006 winter games was mean to be transformed into residential area but left empty from 2016 – and more than 1,000 African migrants and refugees moved into the structure.
- Tokyo Olympics apartments will be renovated for use as residential apartments after the games.
- After Melbourne 1956 games in West Heidelberg – it is a low socio-economic area.
- West Heidelberg struggles with some of the nation’s highest levels of crime and poverty.
- Rents are usually higher in these types of areas.
- Wendouree West in Ballarat has some common issues with West Heidelberg.
- New developments, greenfield estates, probably being built on land or a location that hasn’t been highly sought-after. Low land to asset ratio and will depreciate pretty quickly.
- Infrastructure upgrades
- South Korea – Winter Olympics – built 35,000 seat stadium which was used 4 times and immediately torn down. $101M
- Montreal – 1976 – cost $43M a year just to maintain
- Qatar 2022 World Cup – building stadium out of shipping containers and they will dismantle it
- Brazil, Athens – Other countries that have built stadiums which now languish in disrepair and not being used anymore.
- Waverley Park was converted, AAMI stadium in West Lakes now converted to residential.
- If you’re going to invest, you want to make sure that what-ever infrastructure is being built, is going to stay on.
- Road and Rail is the best, that will be there for a very long time.
- Reconsider venues on the periphery
- This is normally what we look at – Melbourne, Sydney, Brisbane – public transport is very important.
- Are they going to better connect the sunshine coast to Brisbane with train or light rail? Gold coast is well connected, but not so much the sunshine coast.
- At the end of the day, property prices are driven by desirability – how many people want to live in that area? Which in turn is driven by liveability – and if that is going to improve, there will be a flow on effect.
- Go towards existing locations that will get an upgrade, rather than new locations.
- Vacancy rates
- When there are higher vacancy rates, rents drop
- This is something you need to consider before you jump on the bandwagon with the price increase. This is more likely to occur for the newer properties that are built for athletes – assess density and number of dwellings and amenity – asking yourself how desirable is this pocket vs something established which is not necessarily in an Olympic flavoured village.
- Higher supply – is the likelihood of the number of people who want to move to that suburb, going to match the number of available houses?
- Population paradox – for suburbs you want lower population growth – land scarcity.
- The Olympics are not solely responsible
- There are other factors at play which determine price growth.
- An area may be on the road to gentrification anyway, and it could just be a correlation rather than a causation.
- Were the first sales higher than the median value and how did they distort the house growth in that period of time? Eg: newly erected dwellings are sold at a premium.
Cate Bakos – The Property Buyer’s Golden nugget: I want to talk about the di hard sports fans who are so excited about the Olympics coming to Australia, that they want to invest in the short-term and get a place of their own and be right in the mix. When people do something like that, they’ll be working to a budget and then offload it. If it’s an affordability measure, they might be going for low priced established apartments, so it may pay to research what those people are going for. Because if there is a mass exodus of those owners, it could create an opportunity for someone looking to purchase.
Peter Koulizos – The Property Professor’s Golden nugget: if you’re looking to buy in Brisbane around Woolloongabba include Fairfield and Annerley, West End, Highgate Hill, Yeronga. Get some plans that show you where the flooding has happened in the house, so you don’t buy in a flood zone.
- Rise of the regions. The growth experienced over the last 12 months in our regional cities has taken the nation by storm. But is this driven by an escape from the cities or the prospect of buying bigger homes? There is certainly a correlation between larger housing/land and regional moves, particularly for those regional cities which are within commuting distance to the capital.
- The experiment in New Zealand. Over the last few months we’ve seen our friends in New Zealand abolish negative gearing, introduce macro prudential measures on loan to value ratios and more recently, there are talks of giving the RBNZ more power to restrict lending based on debt to income Quarterly value growth has more than halved since April as a result of these measures, rising 4.3% in the three months ending in July, down from 8.9% in the previous quarter. The New Zealand market is a good barometer for where Australia is heading, with unemployment down to 4.0% in NZ and inflation hitting 3.3%. Interest rates are almost certainly going to rise next month. We continue to watch the story unfold in New Zealand with keen interest.