Studies reveal positive and negative aspects of Airbnb property investment
Airbnb has become a lucrative source of income for property investors who can often collect more rent from a single holiday booking than they could from a long-term rental tenant in a month.
However, as with any property investment decision, there are risks involved in Airbnb, and these must be weighed up against the positive spin-offs.
In an attempt to expose all sides of the local Airbnb trade, Knight Frank South Africa released a three-part series which looks at the overall impact Airbnb has had on the South African property market, and distinguishes between the good attributes, the bad realities, and the ugly threats it poses.
According to a report by Airbnb, $467million (about R5.96billion) was generated by 5.3 million users of the platform from developing countries between 2016 and 2017.
Airbnb reported that South African hosts had the highest total income among Brics and also among all African countries, earning $1.88m and positively contributing to the country’s gross domestic product.
In addition to Airbnb giving visitors options for accommodation at good value, Tony Galetti, joint chief executive Knight Frank South Africa, says: “Airbnb also works quite well in more remote areas with less accommodation available. It increases tourist capacity and creates income for local landowners and businesses.”
From an investment aspect, UK-based Nested carried out a survey on how long it takes to pay off an investment in a three-bedroom property via hosting on Airbnb across 75 cities across the world.
Galetti says in Durban, Joburg and Cape Town it takes about 18, 33 and 50 months respectively.
“Using the traditional method, most home loans are paid off in 240 to 360 months in South Africa. Landlords are making on average double to triple the amount via Airbnb than they would from one long-term tenant. That’s what all the hype is about – that difference.”
He says these lucrative returns have lured property investors to shift from the long-term rentals model to the short-term rentals model, which has led to an increase in demand for buy-to-let property.
Despite the positives for property investors and homeowners, Galetti believes it has done more negative than positive for the South African property market.
“Airbnb has skewed the market as investors made buying decisions, pushing up purchase prices, based on what they thought they could get on Airbnb. Every second person is now trying to Airbnb their house or apartment. There is a massive oversupply which has driven down nightly prices.”
It is, however, still disrupting and increasing long-term rental prices because of the decrease in supply of places available for long-term rentals.
Furthermore, unlike in most long-term rentals, Airbnb landlords have to maintain the property, take care of all expenses, and make guests feel welcome. Most investors do not have time for that, leading them to employ others to do so.
“Once you have paid a management company, as well as Airbnb their commission, the rentals are turning out to be a lot lower than investors thought.”
Seasonal vacancies is another problem. During longer months of no business, the profits may be the same as a long-term rental agreement, but with more work.
Galetti says there have been horror stories experienced by Airbnb hosts and guests, and although it is not practical for Airbnb, as an intermediary, to inspect hundreds of thousands of people before allowing them to become hosts or guests, one can’t deny the need for more to be done to increase the safety of guests and hosts.
There is also the issue of regulation, he says.
“Airbnb is not regulated. The rules that apply to other registered accommodation providers do not apply to them. This, they argue, is not fair as they are not competing on level ground.”
The skewed rental and sales market has also led to some body corporates taking matters into their own hands.
“There is also a trend now in some apartment complexes to ban Airbnb because this drives up prices and paints an unrealistic picture. Although body corporates are laying down their own laws, there has been no official intervention by any provincial government or by national government.”
France and Iceland have seen the impact the platform has had on their economies and regulated it, and Germany has banned Airbnb in the country altogether.