The Airbnb impact on the South African property market

Over the years Airbnb has grown from a start-up founded in San Francisco into a global brand that now boasts with more than 2 million listings in 34 000 cities around the world - and property investors have taken note of the opportunities that these vacation rentals could offer.

It would be easy to see why many property investors have turned towards buying and investing in properties in popular Airbnb destinations - but is this all that it cracked up to be? 

If you take a look at what a recent survey from London-based Nested revealed then yes, you are definitely getting bang for your buck. 

Nested looked at all closed property sales in 75 cities over the past six months and current market listings for all locations researched, calculating exactly how long it would take you, in months, to recoup the property value of an average three-bedroom property based on average rental and Airbnb costs.

Using the data the survey showed that in Durban, for example, it only took 18 months to recuperate the costs of purchasing the property (the shortest time of all the surveyed cities), Johannesburg took a bit longer with its 33 months and Cape Town landlords saw their investment pay off after 50 months.

6 Bedroom Apartment for sale in La Lucia, Umhlanga 

According to Grant Rea, Rental Specialist at RE/MAX Living the Airbnb market has had definite and measurable effects on the property market.

“The lure of massive returns on Airbnb has resulted in a definite and specific upswing in values of entry level studio, one bed, and two-bed apartments,” Rea says. 

Berry Everitt, CEO of Chas Everitt International Property Group adds: “At last count, there were about 33 000 Airbnb properties registered in South Africa, with about half of those being in Cape Town. In addition to creating the opportunity for homeowners to turn spare rooms, granny flats and garden cottages into income-earning assets, we see Airbnb starting to create additional demand for separate, buy-to-let properties, primarily in very high-demand holiday locations where there is steady custom year round and owners can earn very high daily rates in peak seasons. Apartments in Cape Town’s CBD, on the Atlantic Seaboard and in Umhlanga are examples.

Anecdotally, we understand that some investors are also doing very well on Airbnb with upmarket apartments in Johannesburg business hubs like Sandton and Rosebank, which attract a lot of foreign business travelers and conference-goers on short stays.”

“The Airbnb market certainly has grown and gained strength in the local market which is surprising considering that South African’s are often conservative and suspicious by nature. However, it seems that the large amounts that can be charged for these “holiday rentals” has many a landlord only seeing the benefit to their bank accounts,” adds Lorraine-Marie Dellbridge – Rentals Manager for Lew Geffen Sotheby’s International Realty in the Southern Suburbs, Noordhoek and False Bay

As we previously reported in ‘Airbnb castles on Atlantic Seaboard’ roughly 50% of enquiries in Sea Point are for properties that can be holiday let - this according to Lyonelle Venter, an estate agent from Jawitz Properties who specialises in apartments priced up to R4 million in the area.

Basil Moraitis, Pam Golding Properties area manager for Atlantic Seaboard, says Airbnb may have had a profound impact on the property sector worldwide, but it alone has not been the driving factor behind house price growth on the Atlantic Seaboard, for example. “We are seeing international buyers showing considerable interest in Atlantic Seaboard properties because they afford them a lifestyle comparable to the South of France, or other parts of Europe, at more accessible prices,” he said.  

Possible pitfalls and issues

The return on investment (ROI) rate is obviously favourable but is there more to this than meets the eye? Could it truly be this easy to invest and see returns?

“With supply and demand reaching an intricate tipping point, many landlords having purchased to rent via Airbnb with promises of massive returns have had to face the reality that with a flood of properties available, it meant having to pitch their daily rate lower than anticipated to offer better value,” Rea says. Adding that investors should be cautioned in purchasing on the promise that returns will be more than the average gross yield of around 8% pa.

“Oversupply in a particular area is another potential problem for Airbnb landlords, as it will put a lid on what they can charge, so they will need to make careful purchasing decisions based on realistic income forecasts. But on the other hand, where there is strong demand for Airbnb homes and apartments, there is bound to be property price appreciation – and that is currently a good prospect for home sellers in those areas,” adds Everitt

For Everitt, priced correctly, Airbnb units obviously have the potential to attract customers away from hotels and the more traditional holiday flats or short-term rentals generally available from holiday letting agencies. However, this rental route is definitely not an option for everyone.

“Trends like Airbnb eventually calm and the investors who make greater returns are the ones who approach the short term hospitality element with a ‘hands on approach’ Securing regular and consistent bookings on Airbnb involve:

·         Regular updates of your profile
·         Going the extra mile with guests
·         Personally greeting and checking guests in
·         Offering extra luxuries and amenities like WiFi, DSTV, cleaning and linen changes, breakfast and more
·         Regular reviews and activity mean greater results – Airbnb will favour your listing with extra reviews
·         Regular communications with guest pre and post booking” says Rea and this a sentiment that is shared by Everitt. 

Saying: “dealing with hospitality (short-term) renters is a major shift for landlords who are used to the idea of passively receiving monthly rentals from long-term tenants – and not having to actively manage the presentation, maintenance, and security of their properties all the time as the different occupants come and go. Hospitality occupants generally also want someone to react immediately when problems arise – which is why Airbnb works so well for those with ‘spare space’ in their own homes or at least on their own properties.”

“We’ve already seen several landlords, who initially thought it an amazing idea, come back to us after for help to find a reliable long-term tenant after a very short time on the Airbnb market,” adds Dellbridge

2 Bedroom Apartment for sale in Sandton CBD, Sandton

Pam Golding Properties rental specialist Janine Sullivan is of the view that while some owners are trying to let their homes via Airbnb, they are also realising the amount of work a holiday booking entails, particularly as many owners are away on vacation during these tenancies.  Many are therefore returning to the traditional rental means, and opting instead to use established rental agents to assist with this process.

“We’re starting to notice some issues arising, however. The body corporates of many established sectional title schemes are starting to regulate the use of units in their buildings,” Venter from Jawitz Properties adds. 

It is quite obvious at this point that while you will possibly have a quicker ROI, you will be working harder to maintain the level of occupancy rate to do so. Rea says that investors are faced with some very clear decisions in the buy to let space:

·         Do I accept reasonable returns with more security and almost zero vacancies letting long term?
·         Do I invest the time and energy to run my property on Airbnb with all the associated logistics of the hospitality space?
·         Do I accept vacancies in the low/winter seasons?
·         Do I outsource the management of my Airbnb or daily let property and pay significant fees?

Dellbridge points towards some of the legal issues that you could face, for example, what recourse would a landlord have if “ the tenants for lack of a better word, completely destroy the property, the furniture etc?” Following up on the matter legally would be a logistical nightmare - “many of the visitors would be foreigners and by the time one even gets the attorney on the phone the visitor will be on a plane back to where ever they came from.”

Two landlords from New York recently received the first two illegal Airbnb fines issued by the city. The law under which they were charged fines people who rent out entire apartments for fewer than 30 days. The state’s lawmakers believe those “rentals encourage property managers and owners to construct what essentially amount to hotels in residential buildings,” as reported by The Verge

1 Bedroom Apartment for sale in Sea Point, Cape Town

Another factor to look at is the stock-crunch these types of investment properties are adding to the market - landlords who would have bought the property and listed it as a long-term rental is now trying his luck with Airbnb, which leaves many tenants no other choice but to move along to other areas. 

So is it all doom and gloom when it comes to investing in an Airbnb property? 

While Dellbridge does believe that the Airbnb market in South Africa will eventually slow-down in some areas it will still remain popular in certain areas closer to tourist amenities. Everitt adds that there are great new opportunities arising for specialist managing agents who can adapt to assist apartment owners and buyers to convert to Airbnb or find suitable properties, and then provide the additional services they need to maximise their returns, especially at the upper end of the market. They anticipate that Airbnb apartments will come under increasing regulation (or at least attempts at regulation), and owners are also going to need specialists to help them deal with that and achieve compliance where necessary.

Using Airbnb as a host for the first time? 

“Be aware that exchange rules require Airbnb to have appointed a local forex clearing agent in South Africa. This means documentation will be required from them regarding the nature of the income and declaration to the SA Reserve Bank. This is not outlined in procedures on Airbnb and will pose some challenges when you first get a booking,” Rea concludes.

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