Short- term rentals
In it for the long game15th Apr 2020
Buying a second property as an investment and/or a holiday home has always been tempting – and even more so over the last few years; the demand has increased, and the marketing and management of short-term rentals have become easier with online portals such as Airbnb, SafariNow and SA-Venues. But is it still viable?
You do not have to be an expert in property, investment or travel to know that, right now, the short-term letting industry is dead in the water. But, does that mean that all is lost, or is this still a viable strategy for the future?
A great opportunity
The short-term rental market is not restricted to clever investors with money to spare to buy second homes. Some savvy millennials have bought great little apartments in fabulous positions, and then continued to live in rented, shared accommodation, or even with Mom and Dad, while paying their bond with short-term rentals. But, like many things in life, timing is critical, and the time to invest in a short-term rental property was a few years ago.
One low-key investor I know who bought a small apartment off plan in 1998, and has never lived in it, paid it off in seven years through short-term rentals with a local listing portal, and has been quietly reaping the benefits ever since.
And I have a friend who bought a small apartment in 2014 on a 100% bond for which the repayments were about the same as the rent on the lovely two-bed, sea-view garden apartment where she was living. She did a bit of renovation, and then immediately put it on Airbnb and SA-Venues for short-term rental, which more than covered the bond. She sold it two-and-a-half years later for exactly double what she’d paid, and put the profit into a nicer short-term let apartment, while still living in rented accommodation. It all worked, she says, because the rental for long-term leased property is so much lower than the returns for short-term lets. It’s all about timing, so, while there is no hope of cashing in on short-term rental for the foreseeable future, this may be a good time to buy, if you can wait a while before getting a return.
To Airbnb or not to Airbnb
Many people consider short-term rental and Airbnb to be synonymous, but Airbnb did not invent short-term rental, and they didn’t even perfect it. They did, however, popularise it. In South Africa, online short-term rental portals like SA-Venues and SafariNow have been going since last century. And where they differ from Airbnb is that they have, from the very beginning, implemented strict standards for listings. Through this self-regulation, the more established short-term listing portals have, for decades, worked with, rather than around, the established tourism industry – enhancing it, rather than disrupting it. But that cosy relationship came under threat when Airbnb turned up on the South African scene. Unlike the existing local portals, which practise quite stringent vetting, Airbnb was – initially, anyhow – almost defined by its rebellious, anti-establishment, disruptive nature.
Of course, Airbnb had to grow up a bit, and it’s no longer possible to Airbnb your bedroom in a rented flat, while you sleep on the lounge floor, but it will take them a while to shake off that image, and – it seems – the damage is done. It was in response to Airbnb’s free-for-all attitude that the Federated Hospitality Association of South Africa (Fedhasa), SA Tourism and the Tourism Business Council of South Africa (TBCSA) lobbied for regulation, which resulted in the publication of the draft Tourism Amendment Bill in April 2019. If signed into law, the bill will subject individual short-term renters to the same regulations as hotels, and empowers the minister of tourism to define ‘threshholds’ on various aspects of non-hotel short-term rental, such as the number of nights units may be rented; to demarcate zones in which short-term rentals may and may not be implemented by individuals; and even to put a cap on how much income individuals may earn from Airbnb and other accommodation sites.
So, is there a future in short-term lets?
The short answer is: ‘Nobody knows.’ The viability of buying an investment property for short-term letting has been moot ever since April last year, when the draft bill was published, but now – with the future of the whole tourism industry in question – it’s completely up in the air.
Of course, if you have funds available to invest, and you like the odds, you may well find some bargains. And, if you already have an investment rental property, you should probably sit on it, and weather the storm.