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From the Games in Rio to gains in real estate: is there an ”Olympic Effect“?

In the Olympic capitals, property prices annually increase by 1% on average over three years, that is, the year of the event, before it and after it. At the same time, the degree of the biggest international sporting event's impact on a particular market depends on how much money the Olympic Games bring in compared to the city's GDP and at what cycle stage the market is. These are the conclusions the international brokerage Tranio.com has made upon analysing the property price dynamics in the ten cities that have hosted the Olympic Games over the last twenty years.

*Three years — the year preceding the Olympics, the year of the event, and the following year — have been chosen as a period of time to assess the "Olympic effect". To exclude the impact of the other factors (e.g. high demand and residential property shortage) the property price growth in the Olympic capitals has been compared to the general nationwide growth, and the result has been adjusted taking into account the average historical difference between the prices in the city and the country.

In general, the Olympic Games have a positive influence on the host's economy: the competitions attract investors, the infrastructure and residential units are constructed, new jobs are created, tourism develops: all this brings extra money into the host city's budget. At the same time, both the internal and the external demands for residential property is increasing. However, the degree of this influence depends upon two factors: the city's economy scale and the market cycle stage.

The "Olympic effect" is more noticeable in the relatively small cities into whose budgets the Olympics bring much money relative to local GDPs. In Sochi, for instance, the residential property prices were growing by 8% per annum on average. The exception is Salt Lake City, whose property market had been suffering for several years in the aftermath of the tornado which destroyed the city centre in 1999. In terms of the big cities, such as London, Beijing and Sydney, the "Olympic effect" is less conspicuous (the prices grew by no more than 1% p.a.), as the profit from the Olympics is small relative to the immense GDPs of these cities.

Another important trend is that the Olympics have a positive impact only on those markets that are at an ascendant stage of the cycle. For example, during the Olympic Games property had been gaining in price in all the cities considered except for Vancouver and Rio de Janeiro. When the demand is falling and the supply is excessive, the Olympics actually undermine prices. This happens because even when the supply is already redundant, the investors continue putting their money into the projects and increase the market disparity in doing so, which leads to a drop in prices. This was exactly what happened in Vancouver, where a decline was observed as a consequence of the 2009 global financial crisis. This also occurred in Rio de Janeiro, the current Olympic capital, where the residential properties became 1.5 times more expensive between 2011 and 2015, after which a bubble burst in the market. At the same time, the active property construction did nothing but aggravate the situation. In contrast, in the other cities of Brazil the prices remained stable or fell less noticeably.

Rio de Janeiro 2016 exemplifies how the "Olympic effect" can hurt the local real estate market when the market is at the wrong cycle stage

The next Winter Olympic Games will take place in 2018 in the South Korean city of Pyeongchang. According to Trading Economics' forecast, until 2020 the property prices in Korea will remain at the same level as in 2016, but thanks to the small size of Pyeongchang (44,000 inhabitants) the "Olympic effect" may lead to a rise in property prices in this city. The next Summer Olympics will be held in 2020 in Tokyo. According to a forecast by the Japan Real Estate Institute, in 2017-2020 the residential property price growth in the Japanese capital will slow down or even shrink to a nullity. In addition, the "Olympic effect" will be less visible in Tokyo due to the investment inflow's likely incomparability with the city's GDP, which is the world's highest.

Yulia Kozhevnikova, Tranio.com