Airbnb shakes up the rental space
I know a guy. Let’s call him Joe.
He owns a small bachelor flat in Cape Town.
His tenant’s lease is up in a few months’ time and he is seriously considering not renewing it — thanks to Airbnb.
After a stint of listing the flat on the accommodation-sharing website while his tenant went travelling, Joe went from making R5 500 a month to about triple that. It has turned his modest little investment into a much more lucrative one.
Joe has crunched his numbers. He let the studio apartment during the busy December season so he knows he probably will not get the prices he has been asking during the rest of the year. Nevertheless, Cape Town is a sought-after destination and, with the relatively limited supply of residential property close to the city centre, Joe is fairly confident that he can earn at least double from Airbnb listings what he can from a long-term tenant.
He does not take visitors for less than seven days and he is aware that there is a “pecking order” for accommodation, with the most sought-after accommodation on the Atlantic seaboard and in the city bowl.
It is also labour intensive. The flat had to be renovated and it has to be “pristinely clean” and well-maintained to garner the good reviews needed to get the Airbnb prices he wants but he believes it is worth it.
“If you are prepared to do the work, you can get two, two-and-a-half times what you can in rent,” he says.
The rise of “sharing economy” technologies such as Uber and Airbnb has meant people can commute and travel in new ways. They have meant new jobs and income streams for many people. But they are also major disrupters of existing markets.
South African cities, like many others, may soon have to come to terms with the effect Airbnb can have on the property market, including how it affects supply and prices.
In recent years, many cities have clamped down on short-term rentals through sites such Airbnb, because they have throttled property supply and driven up prices.
As a means to address the problem, city authorities in places such as Berlin, New York and Reykjavik have taken steps to regulate how hosts let out their properties on Airbnb. For instance, Berlin reportedly does not allow residents to rent out more than 50% of their property, which they must be living in, without a permit from city authorities.
Those in Paris who rent out their property for more than four months in a year must register it as a commercial property.
Nevertheless, the returns on property when Airbnb is used for short-term rentals appear very attractive.
Recent research by the United Kingdom-based online property service, Nested, identified Durban as the city where people who rent out their property on Airbnb can recoup its value the fastest.
Based on an average price of $94 343 for a three-bedroom property, Durbanites can recoup the value in 18 months by renting on Airbnb, according to Nested. This is based on an average monthly rental price through Airbnb of $5 301 compared to the average of $565 in ordinary rentals.
Johannesburg takes fifth place on Nested’s global rankings and Cape Town comes in at 12. Residents can recoup property values in 33 and 50 months respectively.
But the report does come with some significant caveats. It assumes an 80% occupancy rate, or just under 300 days out of 365.
In fact, when taking into account the regulations that some cities apply to Airbnb-listed properties, things look a lot less lucrative. According to Nested, Parisians’ returns on investment are 648 months, or 54 years, roughly 30 years longer than it would take to recoup a property’s value through traditional rentals.
Airbnb was unable to answer detailed questions but it did say the platform “helps grow and diversify tourism in the South Africa, generates new economic activity, spreads benefits to more families and communities and supports local residents who share their homes”.
According to a spokesperson, the typical Airbnb host in South Africa makes $1 700 by sharing their space for 16 nights a year. Research by Airbnb, released in 2015, showed that about 66% of hosts shared space in their primary residence.
The company has launched a compact, which committed it to working with authorities to address each city’s unique policy needs and pay a fair share of hotel and tourist taxes. It was reported early last year that the platform paid more than $1-million in tourism taxes to the Paris city coffers.
But the local formal accommodation sector is getting nervous about the effect Airbnb is having on business.
The Federated Hospitality Association of South Africa is concerned about the growth of host numbers in cities such as Cape Town, where hotels “are starting to see their occupancy levels being affected”, said Fedhasa chief executive Tshifhiwa Tshivhengwa.
He says many hosts are not registered as businesses and, unlike formal establishments, are not registered with the South African Revenue Service to pay any taxes that are due,.
The association has no issues with the availability of more accommodation “as long as they follow the already existing regulations”, he said.
The body has approached the national department of tourism to ensure “that Airbnb follow the already existing rules that governs the industry”.
The city of Cape Town’s Brett Herron, the mayoral committee member for transport and urban development said the city is not aware of any research suggesting that Cape Town is experiencing the same trends seen in other cities around the world.
He said that property owners have to ensure that whatever accommodation they want to list on AirBnB complies with the permitted uses under the city’s zoning regulations.
According to the city’s policies, if a property owner rents out an entire dwelling unit such as a house on a site like AirBnB for short term holiday accommodation, they are required to get additional permission from the city.
But a property owner may rent out up to 3 rooms for bed and breakfast purposes, in a dwelling where a family still live.
According to the city’s guest accommodation policy a dwelling cannot include domestic staff quarters, tourist accommodation or accommodation used as part of a hotel. While the definition of a family can include up to five unrelated people and their dependants.
Apart from the regulating the land use of properties and “possible health aspects” the city generally “does not get involved in the standard or monitoring of services provided at guest accommodation facilities” Herron said.
Besides increasing tourism, Airbnb has also led to the birth of other businesses such as short-term rental management agents, who offer to do all the work for an Airbnb host, for a cut.
AirManaged is one, which has been in operation since 2015, according to director Chregan O’Flynn. For a cut of 18% of the income, airManaged will do everything from managing bookings to cleaning and preparing homes for guests.
The company operates on the Atlantic seaboard and in the city bowl and is managing about 150 properties, according to O’Flynn.
The company’s portfolio is made up predominantly of properties let out by owners while they are away, or they are holiday homes. airManaged does not allow subletting.
Should the city seek to regulate Airbnb more extensively, O’Flynn believes his business would be able to jumps through the regulatory hoops.
But Cape Town is already “a very tourist-centric city”, said O’Flynn, and, of airManaged’s clients, only a handful of properties could be seen as being removed from the long-term rental market. In the case of most of the properties, these would stand empty for most of the year.