House Hunter: Buy-to-let

'I'm looking for gold with the Olympic Games'

The problem

MICHAEL KOWALAK, FROM LEEDS, WRITES: Will the 2012 Olympic Games provide me with a pension? I want a buy-to-let investment property, which I will keep for the next 20 years or so. It must provide enough rent to cover mortgage and running costs in the short-term, but must appreciate enough to give me a long-term income when I sell in about 2025, the year that I want to retire.

My accountant suggests that buying a flat or small house close to what will be the main east London Olympic area in 2012 will provide exactly that investment, because it will soar in value even if the rest of the housing market remains dull for the next few years. I have about £200,000 to spend. Is this a gold medal idea?

The advice

GRAHAM NORWOOD REPLIES: There is substantial evidence that the Games gives a spur to property prices. Each of the previous four host cities has seen house prices rise well above the national average in the five-year run-up to the Olympics, by an average of 18 per cent.

In Barcelona (1992), city property prices rose 131 per cent in the preceding five years, compared with 83 per cent for Spain as a whole; in Atlanta (1996), the rise was 19 per cent, compared with 13 per cent across the US; in Sydney (2000), it was 50 per cent against 39 per cent for all of Australia; in Athens, the rise was 66 per cent against 47 per cent for Greece.

Will the same thing happen in east London? Probably, according to local agents, but you should act quickly to maximise your returns for four reasons. Firstly, the Olympic effect is kicking in. "On the day of the announcement, there was a massive increase in enquiries," says John Bowles, of property consultancy NAI Fuller Peiser. "Prices have already risen by between 5 and 15 per cent."

Secondly, east London prices are increasing anyway. Although a few areas are very cheap (the average home in Barking and Dagenham costs £169,629 and in Newham £195,806, which are amongst the lowest in the capital, according to the Land Registry), other places have increased significantly in recent years, such as Tower Hamlets, where a typical home costs £267,797 and is not far behind the Greater London average of £293,363.

"Prices are already strong because of past schemes, such as the East London Line extension or smaller projects like the restoration of iconic London facilities, such as the Hackney Empire," says Matthew Leitch, of estate agency Currell.

Thirdly, what capital appreciation does take place may well be greater before the Olympics than after. For example, there was much speculation that the opening of the Jubilee Line extension to Stratford in 1999 would send prices soaring, but most growth took place while it was being built, particularly in the early years.

Fourthly, buy now to take full advantage of an influx of new residents moving to the wider area. Thames Gateway - the vast riverside stretch from the Isle of Dogs, through Newham and Docklands, and into Essex - is designated as Britain's largest regeneration zone, with tens of thousands of new jobs lined up for the next 15 years. Although new homes will be built, too, they will not be completed in time to keep up with the predicted rise in employment.

Option one: One-bed flat in Bow.
Price: From £174,950.
Agent's details: Fabrika is described by the developer Circle 33 Lifespace as "a 21st-century urban community". The development consists of 30 highly contemporary flats and houses just being completed in Bow. The one-bedroom apartments are built over two levels.
Agent: Circle 33, 020 7422 0989.

Option two: Schoolbell Mews in Bow.
Price: £195,000 leasehold.
Agent's details: This one-bed apartment is a stylish conversion from a school and is fairly close to Mile End Underground station and Hackney's Victoria Park. It has an open-plan living room, wooden floors and a west-facing patio, accessible from the living room and bedroom.
Agent: Winkworth 020 8981 6776.

Option three: One-bed flat, Stratford.
Price: £144,995 leasehold.
Agent's details: This flat, a first-floor conversion in a traditional Victorian house close to the City as well as the Games, has one double bedroom, a modernised kitchen and a share of the garden.
Agent: Winkworth, 020 8519 0006.

Fact file

What drives prices in Olympic cities is not the Games or the sports stadia. The latter can prove a liability once the event is over, as Sydney and Athens know. The driving force for the property market is the transport and infrastructure improvements that go hand-in-hand with the Games. For the 1992 Olympics, Barcelona built 10,000 homes, 78 kilometres of new roads, an improved sewage system, and doubled park space and beach-front in the city.

East London should be the same - without the beach. The 500-acre Olympic Park, from Hackney Marshes to the Thames, will include 9,000 homes (for 17,800 athletes and officials, then reallocated with 50 per cent sold on the open market and 50 per cent going to housing associations), canals and new shopping areas. There will be a 45 per cent rise in capacity on the Jubilee line, and a transport hub in Stratford, seven minutes by train from Kings Cross, will be designed to carry 320,000 people per hour.

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