London Olympics 2012, boom or despair for property owners?
In the London property market everyone seems to be expecting a boost for rental properties this summer thanks to the Olympic Games. But trying to make some extra income from the expected boom is not perhaps as straightforward as property owners might think.
There is certainly demand for accommodation for the London Olympics. Recent figures show that. For example, many owners on popular holiday rental website HomeAway say that they are fully booked with rents between 70 and 200% higher than normal.
Overall the website reckons that booking enquiries for London properties in July and August have increased by 695% compared to the same period last year.
As the date of the Games looms nearer it expects that London home owners will see an even greater influx of enquiries as tourists from around the world look to finalise their travel plans and there is always a fair number who leave it until the last minute to sort out their accommodation.
The people who are looking for accommodation are doing so from all over the world and for all price ranges from the top end charging £30,000 a week for luxury apartments and houses to £1,000 in the suburbs and £500 for someone just looking for a room in a house.
Indeed, top ten source markets for London booking enquiries for July and August are the United States, the UK, the Netherlands, Germany, Australia, France, Italy, Spain, Canada and Belgium, according to HomeAway research.
Demand is high because renting a property for the Games is cheaper than staying in a hotel where prices have been inflated for the duration and most are already full. ‘Even with these higher rates, rentals still provide unrivalled value for money when compared to local hotels. It is little wonder London homeowners are experiencing record demand,’ said Andy Cockburn, regional director for HomeAway UK.
UK property search website Zoopla has a special section on its website displaying houses and flats available to rent in London as short term lets during the summer specifically geared to Olympic Games visitors.
Zoopla said it has seen an increase of 161% in searches for the term ‘Olympics’ on its website in recent weeks, a trend that is almost certain to grow over the coming months. It also has a wide range of rental prices from a one bedroom flat for £200 per week within walking distance of the Olympic Stadium to a six bedroom house in trendy Notting Hill for £30,000 per week.
‘International demand for short term property lets in London over the summer is set to be fierce. With hotel rooms having been booked out months, and in some cases years, in advance short term property rentals are a great alternative. And many London homeowners looking to escape the capital during the Games are offering up their homes as a way to cash in,’ said Nick Lemming, Zoopla’s business development director.
There are even companies specialising in offering luxury property for the Olympics. An example is Onefinestay which offers visitors high end private homes to stay in during their time in the capital along with a bespoke service, designed to make the life of home owners easier. The company now manages more than half a billion pounds’ worth of real estate in London in fashionable locations and with stylish interiors.
Greg Marsh, the firm’s chief executive officer co-founder, said that a shortage of good hotel rooms has given a massive boost to the short stay rental sector. ‘We are seeing incredible demand for homes in London during the Olympics. With hotel prices commanding a massive premium, we can offer private home owners an opportunity to earn very significant income from their homes, whether they own an interesting one bedroom apartment or a multi-million pound house in a beautiful part of central London,’ he said.
‘We offer an expert service and take care of everything for owners. Olympic visitors get the opportunity to live like a local while enjoying hotel style service in a private home. Our service includes cleaning and concierge style support, as well as insurance and marketing services,’ he explained.
‘We have some great homes with easy access to the Olympics in places like Shoreditch and Islington. However, we are also finding that visitors want to explore and stay in central residential areas such as Kensington, Chelsea and Notting Hill. These are proving as popular as ever, and we are keen to welcome members with homes in these locations too,’ he added.
But for more ordinary property owners the Olympics might not bring in such big bucks as short term rental premiums are not as high as some anticipated, according to research by flat and house chare website Easyroommate. It says that in contrast to some overblown claims, tenant demand for short term lets in Olympic boroughs pushes average weekly rents up just 14%.
It found that the number of properties and bedrooms being offered as short term lets in London’s Olympic boroughs rose 16% higher than the wider London average over the first quarter of the year. The growth was greater in Olympic boroughs than those with no Olympic connection.
For example, the number of short term lets available in London’s Olympic boroughs of Barking and Dagenham, Greenwich, Hackney, Newham, Tower Hamlets and Waltham Forest increased by 35% while non Olympic boroughs only saw a 19% rise in the number of property and bedrooms available.
While this shows home owners across the whole of London are keen to cash in on demand from Olympic tourists looking for a cheaper alternative to hotels, it is those close to the key sites that are most eager to rent out their spare rooms and properties.
Average weekly rents across Olympic boroughs increased in the first three months of 2012 while average rents in non Olympic boroughs fell. Average weekly rents in Olympic boroughs as of the end of March were £143, some 14% higher than in the fourth quarter of 2011. Conversely, average weekly rents in non Olympic boroughs fell 4% over the same period suggesting there is not enough demand to prevent the increase in supply of short term lets having a negative impact on rental prices.
‘As the finishing touches are put on the Olympic venues and London begins the countdown proper to the opening ceremony, it seems the capital’s home owners are making their own preparations. A number of estate agents have made overblown claims of home owners able to command up to 300% rental premiums over the games but the evidence proves this is nonsense,’ said Jonathan Moore, director of Easyroommate.
‘Demand for rooms and properties in Olympic boroughs is already beginning to push up average rents and the closer we get to the Olympic flame being lit the more demand we expect to see and the higher we anticipate rents to rise. However, the sorts of premiums some have claimed to be possible haven’t yet materialized and still look very wide of the mark,’ he added.
Of the ten boroughs across London which have seen the highest rise in average short term rental prices over the last quarter, four are Olympic boroughs. In Waltham Forest average weekly rents have risen 54%, Newham has seen rents grow 24%, in Hackney average prices are up 7% and in Greenwich weekly rental rates are 5% higher than the last quarter of 2011.
In Tower Hamlets rents have remained flat quarter on quarter, while Barking and Dagenham is the only Olympic borough to see average rents fall, down 10%. This may be due it being the Olympic borough with the highest growth in the number of rental properties available over the quarter, up 68%, leaving supply out weighing demand for the moment.
‘It’s clear that demand for accommodation near the Olympic venues is high. This is reflected in rising average rental prices in these areas while prices are falling in others, particularly London’s prime locations. Average weekly rents in Kensington and Chelsea and Westminster are down 28% and 19% respectively over the last quarter, a large fly in the ointment for those trying to talk-up the possible rental premiums across London as a whole,’ explained Moore.
‘We may well see average short term rents across London rising as we get closer to the Games, however, for the moment, it is those with the Olympics on their doorstep who are seeing the benefits of renting out their property or spare room,’ he added.
For professional landlords it is perhaps a different story. They mostly have long term tenants and the vast majority are focusing on keeping good tenants in place amid uncertainty over the job market and the wider economy, according to property consultants Cluttons.
Average rent increases of just 2 to 5% are being agreed at renewal, broadly in line with inflation, with some landlords agreeing to waive inflationary increases in order to retain quality tenants.
Tenants too are sitting tight, keen to renew contracts ahead of the Olympic Games, amid concern over a shortage of accommodation during the Games and a possible hike in prices.
‘There is some nervousness in the market from both landlords and tenants, with both parties keen to make compromises in order to renew contracts and avoid returning to the market,’ said Lynn Hilton, partner for residential lettings at Cluttons.
‘It is still unclear the extent to which landlords will benefit from high value, short term lets over the Olympic period, but at the moment those who have good quality tenants in place are looking at the bigger picture and focusing on securing ongoing Shorthold Tenancy Agreements, thus reducing the risk of void periods,’ she explained.
Then there is the legal side to short term lets. This is quite complicated and a property owner thinking that they can just move in with family for a few weeks and rent out their home could be in for a shock when it comes to the paperwork. A short term rent still have to comply with the rules in terms of electrical fittings, gas safety certificates, deposits and inventory checks.
Properties also have to comply with fire regulations which mean that fire risk assessment needs to be carried out. Owners also need permission from their lender if they have a mortgage.
They will also need to speak to their local planning department, as London boroughs have different rules regarding letting for 90 days or less. In Westminster, Kensington and Chelsea, Camden and Tower Hamlets, owners must submit a planning application at a cost of £335 but others, such as Southwark, which usually demand permission for short lets have announced that they will turn a blind eye during the Olympics.
There is also the issue of tax. If you rent out a property it is regarded as income. Taxpayers must declare any cash they make on a self assessment tax form. This has to be submitted to Revenue and Customs along with the tax owed by the end of January each year and tax is paid on the income at your highest rate.
Non taxpayers can earn up to £6,035 a year before they need to pay any tax. The only exception is where you let a room, multiple rooms, or a floor in your home, but not the whole house.
However, under the Government's Rent a Room Scheme, if you let a furnished room in your house and allow the guest or tenant to use other shared rooms such as the kitchen and bathroom, you can earn up to £4,250 tax free. It does not have to be the same tenant or guest staying each night. You can take advantage of Rent a Room whether you are the home owner or are renting your home.
Any income above the £4,250 threshold is taxable, or instead landlords can choose to pay tax on all of their income but make deductions for any expenses incurred.
And insurers will need to be notified. It is the duty of policyholders to tell their insurer of any plans they have to let a room or their property. ‘We would offer cover, provided the customer tells us the dates the home will be rented,’ said Rebecca Holmes of insurance giant Aviva. But not everything will be covered. ‘Loss or damage caused by theft, malicious or accidental damage by the temporary occupants, whether they are long term lodgers or paying guests, will not be covered during their stay,’ she explained.
In the case of Aviva, the other major perils such as fire, storm damage and escape of water, would be covered as normal, as would theft and malicious damage if caused by anyone other than the tenant. This kind of cover applies whether you let just one room in the home and you are still present or you let out the whole property or swap houses with family or friends.
Bearing all this in mind makes you realise that renting out your property for the Olympics isn’t going to be a walk in the park. But for those in the right location with the right property and willing to make sure they have all the paperwork in place, or paying a letting agent to do it, the Olympics good be pretty good business. Indeed, there are apparently thousands of people planning to spend the Olympics away from home just because they hate the idea of all the crowds and aren’t that keen on sport anyway. For them it might well be a great break and a little earner.