Airbnb: The Bad

Rumbie April 16, 2018

 

Joint CEO of Knight Frank Tony Galetti says that he believes that Airbnb has done more negative than positive for the South African property market. “Airbnb has skewed the market as investors made buying decisions, pushing purchase prices up, based on what they thought they could get on Airbnb. The reality is that as every second person is now trying to Airbnb their house or apartment and there is a massive oversupply which has driven nightly prices down” he says. The market is currently slightly confused so to say, as market prices were driven up by high demand for buy to let property investments. However, they are now declining due to oversupply of that same property on the market.

It is however still disrupting and increasing long term rental prices because of the decrease in supply of places available for long term rentals. Cape Town was recorded to have the highest number of Airbnb host listing in South Africa of 17 000. Before the era of Airbnb, the demand for rental accommodation already exceeded the supply, hence the high rentals in Cape town. Now by adding Airbnb to the mix and subtracting even more spaces available for long term rental, this increases the already exorbitant rentals even more. This is definitely bad news for Capetonians and anyone else in the country whose rentals are being increased due to the effect that Airbnb has on the property market.

Another reason which has a lot of investors/landlords reconsidering if the made the right move by entering the Airbnb market is the amount of effort it requires to successfully run an Airbnb accommodation. Unlike in most long-term rentals, with Airbnb the landlords have to maintain the property, take care of all the expenses and make the guests feel welcome. Most guests prefer accommodations where they get to meet the host and where they know that the host is available should they need assistance. That’s a lot of work. The alternative is to employ someone or a management agent, and that requires you to pay them, thus affecting your return on investment and the payback period if you’re paying a bond on the property. “The reality is that Airbnb is quite complex to manage, 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,” says Galetti. A lot of investors hadn’t taken this factor into consideration before jumping into the Airbnb market and are now actually battling with the amount of work needed to run an Airbnb, because let’s face it- most investors are busy people.

Finally, the subject of seasonal vacancies is another issue that dampens the concept of Airbnb. Although the hosts are making double or triple what they could make per month, if the months of no business are longer than those of business the profits may end up being the same as those they would’ve acquired had they had a long-term tenant- except with the latter they would’ve had to do much less work.

Due to these main factors and other smaller ones we asked Tony Galetti what he thinks about the hype around Airbnb and how much longer he thinks it (the hype) will be around. “I think the hype is already dying down,” he says.

We’ve unpacked some of the negatives of running an Airbnb and in the third and final part of our series, find out “the ugly” effects that Airbnb has had on our economy and society.