The Interaction Between Real Estate And The Summer Olympics: Money, Infrastructure—And Yes, Athletes
The Interaction Between Real Estate And The Summer Olympics: Money, Infrastructure—And Yes, Athletes
From its inception, the Olympics have honored the best of the best in sport from all over the world. But it is also a multi-billion-dollar industry. Bidding for the Olympics, with all its scrapping and competition, could be an Olympic sport in itself. But, as we’ve seen, the outcome of any Games is hard to predict. In 1976, Montreal lost $3.2 billion. But Sochi, with all its critics and stories of decrepit and unfinished housing, made $54 million. So why do people bid for their city to host the Olympics with such fervor? Well, there’s the prestige, of course. But it’s important to remember that every dollar, whether profit or loss, is going into someone’s pocket. Oh, yeah, and the sports. There’s that.
So how does the real estate industry in these well-off cities benefit from the excitement of the games? We here at Agorafy love the Olympics almost as much as we love real estate. And, if there’s news about how the Olympics affects real estate, well, we’re all up in that. So, we did some coverage on the last three Olympics to see how they did and how that compares to the Rio Olympics. In the end, it’s about the best athletes in the world; and the infrastructure. Athens 2004, Beijing 2008, London 2012, and most recently, Rio 2016 have shown to be ideal scenarios for the flourishing of developers and real estate professionals. What about the locals? Let’s take a look at the stories and realities of the Olympics Games.
My Big Fat Greek Olympics: How The 2004 Games Tanked Real Estate
The 2004 Greek Olympics turned out to be like an expensive wedding, designed to impress the guests but which the hosts could not afford. By anyone’s standards, €9 billion is a lot of money, the most ever spent on an Olympics at that point. Shortly after the final gold medals were awarded, Greece sent out warning to European countries that its public debt and deficit figures would be even worse than expected. Greek taxpayers were on the hook for around €7 billion.
There’s no doubt that under normal circumstances, with an economy that hadn’t made a suicide pact with its host nation, all that infrastructure would have been a boon. The high-speed toll motorway, Attiki Odos, did increase land and property values for a while and large-scale developments had been set in place. With public debt totaling €168 billion in 2004, the Olympics alone was not responsible for the country’s economic collapse. After qualifying for entry to the single currency Euro in 2001, the Greek government went the kind of wild spending (and borrowing) rampage that could have been straight out of Alexander The Great’s playbook.
The economic hemorrhage affected domestic and foreign investment. The tourist industry, one of Greece’s strongest resources, suddenly had no money to market itself, losing ground to other cheaper European destinations like Croatia and Turkey. The lack of cash also meant that the hard-fought Olympic sites—like the Olympic park, and locations for weight lifting, table tennis and gymnastics—went unused and fell into disrepair.
For Greek real estate there’s been no good news for years. Housing prices fell 5.1 percent in 2015 meaning that residential properties are now worth 41.5 percent less than in 2008, when the country declared bankruptcy.
Reuters reported that “Apart from their negative effect on personal wealth, falling property prices also affect collateral values on banks’ outstanding real estate loans, a big chunk of which are non-performing. The real estate market has been hit by property taxes to plug budget holes, a tight credit market and a jobless rate around 25 percent.”
However, if there is any good news on the back of Greece’s woeful economy, it’s that Russian investors are now spending heavily in luxury properties which have fallen by 50 percent since 2009. Their goal is finding a safe place to park their money away from Russia’s own uncertain financial state. Unfortunately for Greece, the Russian investment doesn’t reflect any larger trend. With the government increasing real estate taxes to pay off debt, investment from other nations, fearing another complete collapse, has been minimal. Because of these factors, the real estate market today is 95 percent cash. This means most buyers are priced right out of the market. With no rescue copters on the horizon, the recovery for Greek real estate seems a distant possibility.
Smoke, Smog and Mirrors – How the Chinese Government Manufactured Perfection for Beijing 2008
Remember the 2008 Beijing Olympics? There was a lot of worry about the epic level of pollution there. Would the athletes’ performances suffer? Would the athletes themselves suffer? Would they be able to find each other in the stifling smog to pass off the baton? Fear of a smog saturated city, with an invisible sun/apocalyptic nuclear winter kind of look, haunted western TV producers hoping for toned torsos set against pristine blue skies. In the end, the torsos were inevitably toned and the blue skies prevailed. But how? The Chinese authorities moveddozens of pollution causing factories, ordered cars off the road, stopped all construction weeks before the games and, in a move straight out of the playbook of Austrian psychoanalyst Wilhelm Reich, they even sent missiles into the sky to manipulate the weather. If the Chinese authorities were willing take on God to preserve the success of the Games, there was no telling what they were prepared to do to its own people.
Reports started to surface before the games of poor neighborhoods being razed and others walled off from sight (sound familiar, Rio?). $130 million was spent to “restore” buildings. Human rights activists were up in arms. Protests were quashed. The eyes of the world would be on China. It was their chance to shine and the travails of the impoverished were not going to get in the way.
What the government was able to paper over during the Games, became laid open for all to bear witness to after the games ended. Billion-dollar facilities lay vacant, algae grew in puddles of rainwater, weeds crept through the cracks of the pre-Games poured concrete. Painted white signs were left to rust, resembling deviled eggs with paprika sprinkled on top.
It’s hard to gauge the effect that the Beijing Olympics had on real estate in the city because the financial crisis of 2008 was hitting around the same time. To counter this, on November 9, 2008, China announced a 4 trillion yuan ($586 billion) stimulus package which stirred the housing economy and created another boom in borrowing. Certainly, Beijing, along with other major cities with universities and tech jobs, have done well. Beijing enjoyed a healthy 11.3 percent increase in property prices last year.
By toggling interest rates and borrowing criteria, the Chinese government has been able to bolster real estate in major cities, but elsewhere, where newly constructed apartment buildings lay vacant—a lot of catching up needs to be done.
“We should not neglect the fact that many more cities [are] still in the process of clearing their dwelling stock,” said China Vanke, a Shenzhen-based property developer, in an annual report.
There are 13 million vacant homes in China, according to Reuters. Known as “China’s ghost cities,”there is an abundance of newly built urban areas complete with shopping malls, central squares, stadiums, avant-garde administrative buildings, luxurious condos, and villas—everything except people. In the city of Xi’an last year, a never-used 27-floor high-rise that covered 37,000 square meters was blown up and cleared away because it had been left vacant for too long and deteriorated beyond repair.
As the years pass, one wonders of the fate to befall the facilities of Sochi and Rio. Will the spectacle and awe of these Olympic structures become the ruins of the future?
Nobody Does It Better: Why London 2012 Wins the Gold Medal of Recent Olympics
Back in the day, things were easier. All you needed to have an Olympics was a loincloth and the will to win. And, in the beginning, they often forgot the loincloth.
For better or for worse, putting on an Olympics nowadays is an unfathomably complex affair. Bidding wars and billions in contracts are the hallmark of a modern Olympics. But in spite of all the resources behind them, some Games still go better than others.
For example, many of the things that Athens and Beijing got wrong with their Olympics in 2004 and 2008, London got right in 2012. The main masterstroke by London planners was hosting the Olympics in Stratford, East London. The area was, and still is, economically poor and densely populated and, before the Games, in dire need of infrastructure. Unlike in Greece and China, London’s Olympic venues have not turned into tumbleweed ghost towns once the athletes and enthusiasts cleared out. Now, the facilities are now busy sports centers used by local residents. The aquatics centre, Velopark and Copper Box sports venues are open to the public, as is the Arcelormittal Orbit. Probably the most notable new resident is the Olympic Stadium’s new tenant, Premier League soccer club, West Ham United who have refurbished the stadium to suit their needs. It hasn’t come cheap—£702m, including conversion costs—for the duration of their tenancy. But with a host of other sporting and cultural events likely to be held there, the 54,000 seat venue seems unlikely to turn into a dustbowl.
The Games helped London in other ways too. Around the time of the Olympics and until the Brexit vote, the London property market was on fire. Fueled at the high end by investment bankers, Russian oligarchs, Chinese investors and Middle Eastern oil billionaires, the trickle down meant that all of London’s numbers went up. People needed housing and Stratford, with its proximity to Central London and new rail links, was an area that made perfect sense for new residences. In addition, the expansive Westfield Shopping complex next to the Olympic Stadium became a strong retail draw for new transplants.
The gentrification of Stratford, though has been contentious. The Olympic Village, which housed athletes during the Games has been converted to long-term residential dwellings. Now renamed East Village, it contains 2,818 units, half of which are market priced homes (mostly for private rent), a quarter are housing association homes or “affordable housing”—and a quarter are for social rent. That makes a 50/50 affordable/market split. The Olympic Park development plans to have five new neighborhoods but unlike the East Village’s 50/50 ratio, theirs was only 31 percent affordable. Why the reduction? Two reasons. There has been a dramatic increase in property prices and the deal for the East Village was struck under the old Labour Government. David Cameron’s Conservative Government has been less enamored with the idea of low-income housing.
But all is not shiny and new in Stratford. It’s still home to some of London’s poorest communities, living in old run-down buildings reminiscent of Dickensian times. Until all the new housing is completed in five or six years, it will be impossible to judge the full ramifications of the Games on Stratford’s economy. But if past Olympics are any measure to go on, London 2012 has been the Usain Bolt of recent events. The others aren’t even close.
Pacified Or Passed By: Did The 2016 Olympics Sink or Save Rio?
Rio’s winning bid to host the 2016 Olympic Games was kind of like going to Las Vegas for a bachelor party, getting drunk and deciding to get a face tattoo. What seemed like a great idea at the time seems a bit less so later when you have to explain that choice to grandma.
When Rio’s host bid was accepted seven years ago, the country was enjoying the kind of economic boom never witnessed before. The World Cup two years ago, and the Olympics were meant to be resplendent jewels in Brazil’s economic crown, their entrée to feast at the table of the global elite. But when the country plunged in deep, dark recession and with rising crime, unpaid teachers and pollution, paying for an Olympic Games seemed like a foolish prank that couldn’t be backed out of.
To put it in context, every city that’s hosted an Olympics over the last three decades has lost money. The question they all had to ask themselves was ‘is the prestige of hosting the games worth the cost?’ Clearly, as the detractors before events in Rio showed, many thought not.
It’s impossible not to get caught up in the emotion of the Olympics when they start. But, you can never really know how successful the Games have been until a few years after the event. While the money made or lost is one of the metrics used to determine success, one of the most important measures is how the Olympic structures are utilized after the Games are over. In other words, was all that money put to a use that actually benefits the city? That’s said, there are some immediately tangible benefits from Rio.
- Transportation has improved dramatically. New express buses, a subway line and light rail have slashed commute times and improved infrastructure with officials claiming that 63 percent of residents now have access to transportation, up from 18 percent.
- There are new libraries, health clinics and 400 schools in impoverished neighborhoods.
- The old port Porto Maravilhas has been revitalized from a no go area to the rebranded Boulevard Olimpico—a hip meeting place.
- Very importantly, though the Games cost $12 billion, much of the investment to build the Olympic Village, the golf course and to renovate the port came from private funding.
- 75,000 units of affordable housing have been constructed.
But, it’s not all good news. Some of the downsides, are in fact, related to the upsides. Under the heading of “You can’t please everyone,” detractors would point to the following:
- By using non-governmental funds for much of the construction and development costs, there have been sweet deals for real estate developers.
- The promise to clean up Rio’s polluted bay went unfilled.
- While 75,000 new affordable housing units were built, equally as many were destroyed to clear out “unsightly areas”. If the displaced inhabitants were rehoused in modern facilities, then it could be seen as a net positive. But that process may have displaced thousands of people. Currently, there is no easily available data as to how that worked out.
- Barra da Tijuca, an upscale area was chosen as the site of the Olympic Village over poorer communities that desperately needed new housing.
- The golf course required filling in protected wetlands and will only serve the wealthy.
The bench mark for a great utilization of Olympic facilities has to be London. Staging the games in the poor neighborhood of Stratford did wonders for the local community, housing and infrastructure. By choosing more affluent neighborhoods in Rio, the problems of many of the favelas still persist. After hosting so many magical moments over the last few weeks it would be a tragedy if the 12 pristine structures built for Rio 2016 went the way of Athens and Beijing and became venues for tumbleweed and algae to run riot. Only time will tell.
The Olympics are a big business. And, wherever there is big business, there is real estate. The Games create huge opportunities for development, improvement of infrastructure and the chance to create both affordable housing and amenities to benefit everyone. But do the hosting cities take advantage of these chances or are they blinded by gold.
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