The hype is building as the games approach. China’s showcase to the world, Beijing 2008, is expected to be one of the most spectacular and lavish Olympics ever held. However, for the real estate industry, one key question remains: What will happen to the city after the games are over?
Many have suggested that it is inevitable that Beijing will suffer an economic slowdown at best and a crash at worst following the big event – that the investment required to keep the momentum strong is unsustainable and that all cities crash after But will this hold true for Beijing?
Barcelona or Montreal?
The argument is often positioned as being either the “Barcelona Effect,” as that the city incurred significant cost overruns and debt in 1992 but recovered relatively quickly through increased investment and tourism, or the “Montreal Effect,” after the Canadian city that was plunged into such a financial slump after the 1976 games that it only finished paying off the debt in 2006.
However, Barcelona and Montreal, as well as several other hosts that have spent large amounts and not recouped their investment – including Los Angeles, Sydney and Athens – were all developed cities. No recent Olympic host city has been similar to Beijing – a rapidly expanding and developing city enjoying large amounts of inward investment.
A growing number of economists are now arguing that the same economic “rules” do not apply in Beijing because of the city’s fundamental differences from previous hosts.
The scenarios seen after other games, notably the 2000 Olympics in Sydney and the 2004 Olympics in Athens, will not be repeated in Beijing after 2008. A better case study for Beijing would be the 1988 Olympics held in Seoul, South Korea – the last time the games were held in a developing country. However, even Seoul is not really analogous as China is larger, more populous and faster growing than South Korea in the late 1980s.
The real estate industry is one of the biggest direct beneficiaries of the Olympics’ economic effect. Massive public construction projects such as stadiums, transport networks and environmental improvements act as catalysts for the real estate market. All recent host cities have seen residential property prices in the years preceding the games rise – Barcelona, Sydney and Athens all saw increases of more than 50%, and even Atlanta saw growth in excess of 20%.
However, most of these cities also saw post-Olympic troughs and sliding property values.
While this may be a temporary aberration in Beijing from property buyers speculating on locations prior to the games and pushing up prices, it is not expected to overly affect the long-term health of Beijing’s real estate sector. The simple fact is that no other city – Barcelona, Sydney, Athens or Atlanta – was in a situation where property was outstripping demand prior to the Olympics.
Given Beijing’s ongoing urban redevelopment and clearance program, a substantial amount of housing is required for people relocated from downtown areas to new suburbs. This process is being both accelerated and eased by the Olympics preparations.
There has traditionally been a problem with relocation from downtown to suburban areas, notably the lack of public transport infrastructure connecting the city center and downtown areas to the suburbs. As many of these new suburbs in Beijing are close to Olympic facilities, the municipality is rushing to complete new subway lines that connect the downtown areas to the stadiums and will, after the games, connect downtown to the suburbs.
In this sense, the games in Beijing are a catalyst for development rather than a catalyst for re-development, as was seen in previous cities and now in London. Simply put, in Beijing what had to be done anyway to develop the city and control its growth is happening faster due to the need to be ready for 2008.
Dr Megan Walters is director of research and business analytics for Cushman & Wakefield, Asia Pacific. Cushman & Wakefield is the world’s largest privately held real estate services firm. Founded in 1917, the firm has 201 offices in 55 countries around the globe, and employs more than 12,000 talented professionals.