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The short-term rental dilemma

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Domestic travel is allowed, some international guests are welcome, and Airbnb is permitted, but many owners of short-term let properties will miss out on the upcoming travel season after switching to the long-term rental market.

During lockdown, many property investors were forced to make the move after suffering losses over the Easter and mid-year holidays and may now be stuck with a long-term lease. On the other hand, they may actually be safer in the residential rental market with guaranteed rental income in times that are still uncertain.

While it is difficult to pinpoint exactly how many holiday lets were moved to long-term rental, Grant Smee, property entrepreneur and managing director of Only Realty, says Cape Town, particularly, has had a large increase in properties coming into the long-term market, both from private individuals who had previously been using Airbnb to advertise their homes as well as companies that managed Airbnb units at scale.

Even though lockdown is over and some international tourists are permitted, he does not see many of these units returning to the short-term market in the near future.

This is owing to a number of factors including:

◆ Uncertainty about the reintroduction of higher lockdown levels.

◆ Commitment to long-term lease agreements – generally six to 12 months.

◆ The restrictive rules around international tourists that will probably limit their influx and keep demand low. The good news for those property owners who are in the short-term market though is that domestic travel levels will “certainly” increase and provide opportunity for short- term lets over the festive season.

 

“I do foresee demand increasing for the more affordable short-term properties, however, luxury short-term letting will see limited demand and be coupled with the need to discount their normal rates.”

Smee believes that the country’s traditional short-term letting strongholds – such as the coastal areas like Cape Town and the KZN north coast – will see the first resurgence. However, this will remain limited and not reach previous volumes achieved.

He adds that owners who are looking to take advantage of any demand that will return to the short-term letting market will need to ensure their property provides “excellent value and a unique offering”, where the location, price, quality and overall experience ensure it stands out from competing units.

“Without this additional input and effort, short-term letting may not meet the owners’ financial needs to justify short term. This could mean that the certainty and security of a long-term let, although providing lower income… may be a better option.”

Bianca Durham, rental partner at Rawson Properties Cape Metro Classic, agrees that long-term lets will be the better option over the coming months, adding that during lockdown, many short-term let property owners started agreeing on semi-short lets of three months to fill apartments.

Brad Wessels, principal of Chas Everitt aManzimtoti, says quite a number of short- term holiday accommodation and Airbnb units along the KZN south coast have been converted to longer-term rental over the past six months and that it is unlikely that those who currently have long-term tenants in place will be able to convert them back to holiday units for the forthcoming season. Most will have at least a 12-month lease in place.

However, he encourages owners who do not yet have tenants “to really consider letting their units on a short-term basis to holidaymakers this year”.

“We are already seeing very strong demand for the December and January season and by letting at the peak-season daily rate instead of on a monthly basis they could recoup a large part of the rental they may have lost this year.

“We also expect short-term letting demand to remain strong in our area over the next six to 12 months because many South Africans will choose to holiday locally rather than travel abroad – even if the international flights do open up again – until the Covid-19 situation is better controlled in Europe, the UK and the US.”

An STR and AirDNA study spanning 15 urban and 12 regional markets around the world found that short-term accommodation rents are approaching pre-pandemic levels.

“We’ve never received as many inquiries from property developers and private investors wanting to know how they can re-equip their unsold residential properties for aparthotel running, as we’re getting now,” says Rael Phillips, co-owner and director of Totalstay, a Cape Town-based aparthotel operator. Aparthotels are serviced apartment complexes which make use of a hotel-type booking system.

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