In this three-part series we shall look at the overall impact that Airbnb has had on the South African property market and distinguish between the good attributes, the bad realities and the ugly threats that it poses.
Airbnb is a platform that facilitates for those with accommodation (known as hosts) to meet those seeking accommodation (known as guests) in a specific area. The hosts charge the guests for staying in their accommodation and Airbnb receives a commission which is usually about 3% of the total transaction fee.
Thus, an immediate positive attribute for homeowners is that this results in them earning extra income off extra rooms they may have in their homes or from other properties they own. They are in control of the prices they charge (to a certain extent) and for how many days they want to open up their homes to guests (to a certain extent). According to a report by Airbnb, USD467m was generated by 5.3 million users of the platform from developing countries between 2016 and 2017. In that same report, Airbnb went on to say that South African hosts had the highest total income amongst BRICS and also amongst all African countries, earning USD1.88m and thus positively contributing to the country’s GDP. One therefore, one cannot easily dismiss the economic impact and revolution that Airbnb has brought.
For guests, checking into an Airbnb will still generally be cheaper than checking into a hotel and so this phenomenon has brought affordability to travel. Prices are competitive since anyone can see what is being charged in the area. Tony Galetti, Joint CEO of Knight Frank South Africa states that “a positive from Airbnb is that it creates more options for visitors to the city at good value, which is good for the economy. I also think Airbnb works quite well in more remote areas with less accommodation available, as it increases tourist capacity and creates income for local landowners and businesses in those areas.”
From an investment aspect, what is all the hype about? Nested, which is a company in the UK, carried out a survey on how long it takes to pay off one’s investment on a 3-bedroom property via hosting on Airbnb across 75 cities across the world. The results showed that in Durban, Johannesburg and Cape Town it takes about 18, 33 and 50 months respectively to make your investment money back. Using the traditional method, most home loans are paid off in about 240-360 months in South Africa. Landlords are making on average double to triple the amount via Airbnb than they would make from having one long-term tenant. That’s what all the hype is about-that difference! These lucrative returns have thus lured a lot of property investors to shift from the long-term rentals model to the short-term rentals model. This has lead to an increase in demand for buy-to-let property as more and more investors are wanting to enter the Airbnb market.
So there definitely have been some positives created by Airbnb as outlined in this article. However, it’s not all rosy. “I think it [Airbnb] has been more negative than positive to be honest,” Galetti states. Find out “the bad” in the next part of our series.