One London real estate agent has issued a warning to property owners who are expecting to reap the benefits of increased rental returns during this year’s Olympic Games, which run from July 27 until August 12.
Lucy Morton, Senior Partner and Head of Lettings at prime central London estate agency W A Ellis, said, “We are now receiving enquiries in their droves about lettings over the Olympics, but interestingly 90 percent of these enquiries are coming from landlords. At the moment there is very limited demand from tenants.”
The Olympics has been used as a sales tool throughout Southeast Asia to tempt buyers to invest in London property. Andrew Batt, Regional Group Editor of PropertyGuru, said, “I’ve attended a couple of presentations myself where the ‘Olympic Effect’ was a major selling point, and with suggestions that rental rates of up to 500 percent of normal rates could be realistically achieved. I hope any buyers who opted to buy London property because of the Olympics do not end up disappointed and out of pocket.”
Morton added, “In my opinion, it is the hoteliers who will benefit from increased occupancy and rates and not the majority of landlords. In fact, I offer a word of caution to investor landlords who are considering losing their long term, blue chip tenants for this short term gain. Looking at the pros first, the clear advantage is that the average increase is 400 percent of the long term rental value, but this may vary depending on the property and location. The major drawback is the void period running up to the let, and more importantly following the let. If long term investors jump on the Olympic bandwagon and launch their properties back on to the market in September, there is a strong risk that there will be a sudden surge in supply of properties available without the demand.”
She added that her company is already noticing a reduction in demand levels. “I believe that the lettings market plateaued in October 2011, and in some areas is now marginally dropping. The reason for this change in market conditions is that the City is not employing its normal influx of expats, and it is these tenants who underpin the lettings market. With the economic outlook looking bleak, this situation is not going to improve, and therefore the market will not be able to cope with this extra supply which could drive rents down.”
There are also legal issues that some buyers of London property may not be aware of. Morton said, “Anyone wanting to let during the Olympics will need to apply for planning permission to let their property for less than 90 days. Without it they are breaking the law and could be fined up to £20,000 (S$39,440). The future sale of the property could also be affected as any enforcement notice will be registered as a legal charge and this may deter future buyers. A short let may also invalidate some insurance policies.”
The cost of chasing short term gain could also leave some landlords out of pocket. “The final major risk is wear and tear. Landlords can’t be sure that the tenant will treat their property as their home during this short period. No deposit will cover the replacement value of furniture and fixtures and fittings, let alone any replacement of carpets or redecorations,” said Morton.
In conclusion, she offers the following suggestion. “My advice to long term investors is to ignore the hype and temptation, unless the current tenancy is actually coming to an end in July, or unless you are a homeowner who wants to avoid the Olympic gridlock in London and flee to calmer and possibly warmer climates.”
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