Monday, January 21

Letting properties abroad reaps good foreign returns

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Investing in such properties overseas will be more lucrative as they will earn in foreign currencies

Buying a property for purposes of letting it out for short-term holiday accommodation, such as Airbnb, is growing in popularity, with investors able to recoup their money faster than they would via traditional buy-to-let methods.

But investing in such properties overseas will be more lucrative as they will earn in foreign currencies. 

Using Airbnb as an example, George Radford, head of Africa at IP Global, says the 2017 Property Return on Investment Index showed it would take more than 13 years to recuperate the value of an average three-bedroom property in Durban via traditional rental methods, and just 18 months using Airbnb.

In Cape Town – one of 13 global cities with Airbnb Plus ranked homes – the average rental is R1 287 per day, with 78% occupancy, yielding an average income of R19 408 per month.

The latest Airbnb data revealed that almost 830 000 guests stayed in South African Airbnb establishments last year, with an average income of more than R24 000 for 17 nights. Cape Town saw the majority of such rentals, at about 350 000, with hosts earning more than R39 000 over an average 27 night period.

But while South African cities might seem like appealing investment options for South African investors, Radford says there are additional benefits to buying a property in key destination cities abroad.

“Although short-term rentals require more active management, the returns are worth it. At the same time, you are earning an income in a foreign currency, which is always a good rand-hedge option.”

According to some figures, he says one could earn up to 5% net yields with short-term rentals compared to the 2% or 3% yields with long-term rentals in the same markets.

The key to short-term rental success lies in picking the best destination cities, he adds, saying that, naturally, any city that attracts a flood of tourists has the potential to deliver good returns.

Radford recommends Berlin (70% occupancy), Lisbon (70% occupancy) and London (71% occupancy) as cities with great short-term rental potential and contemporary developments.

However, it is important to thoroughly research occupancy rates, short-term letting rules and regulations, tax implications of running such a property, and licensing requirements in the destination city an investor is considering.

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