The first quarter of the year is the busiest time for holiday home transactions. How is the market looking and should you jump in?
How Airbnb may be the holiday home investor’s friend
The holiday cottage by the seaside or in the bush remains the ideal summer retreat for many of us urban dwellers. The enduring appeal of this pastime supports the army of private owners who supply these dwellings in competition to hotels, motels and hostels.
But holiday home investors now face a changing landscape, namely the emergence of Airbnb, an online firm that empowers users to rent out their home or even individual rooms to others on an ad hoc basis.
It’s early days in Australia for this posterchild of the ‘sharing economy,’ but should Airbnb gain real traction in Australia, every house on every street becomes a potential competitor for holiday home investors. In what is already a tough, low margin industry, the addition to supply enabled by Airbnb would only need to be modest to hurt, both in terms of lost income and, eventually, deteriorating capital values of holiday sector properties.
It’s not a far out proposition. In fact, the large hoteliers in our capital cities already see clear and present danger. For instance, Tourism Accommodation Australia recently claimed that for every 100 rooms listed on Airbnb in Melbourne, 55 hotel industry jobs are lost.
Fortunately, the threat of this so-called disruptive technology isn’t as imminent for regional accommodation providers. Listings on Airbnb to date are dominated by CBD and suburban properties, which cater to travellers who want to see our big cities but without paying top dollar for pricey hotels. And most of the regional Airbnb listings to date are by established accommodation providers using the site as an additional marketing tool.
Moreover, the international experience of Airbnb is that the majority of regular, repeat sharers of accommodation offer a single room whilst they remain in situ, rather than those who offer a vacant property. Sharing with the landlord wouldn’t be attractive to most regional holiday makers.
Indeed, Airbnb could actually solve the timeless and agonising quandary many holiday homes owners face: whether to lease out their holiday home during summer and other peak periods when rents are highest or forgo that income and enjoy the place themselves.
The elegant solution is to lease out the city-based family home on Airbnb during the summer, whilst staying in the holiday home. Asking rents for suburban accommodation on Airbnb are often comparable to or even higher than regional properties in the height of summer, so you may even win financially on the deal! Of course, packing up your own suburban home and making it available to strangers with all the attendant risks is not everyone’s cup of tea, but many holiday home owners would be comfortable and skilled with this aspect, given they already do the same with the regional home.
If many holiday home owners took this approach, it may actually reduce the supply of beachside and bush holiday homes in peak periods, improving the lot of other owners.
For their sake, let’s hope so, because holiday home investments are challenging enough. Being short-let, income is sporadic and unpredictable. Property management costs are high due to the great turnover of guests and the need for regular cleaning, maintenance and renovation. It’s not unusual for managing agent fees to reach up to 20 per cent of rent compared to 8 per cent or so for annual leases. Holiday homes are also the first asset to be sold during an economic downturn, so values can plummet even in a mild recession. Furthermore, there is a long-term trend of Australians taking fewer local holidays and replacing them with overseas travel. And although inbound tourist numbers are increasing as well, overseas visitors are tending to spend more time in the big cities rather than the beach or bush compared to yesteryear.Owning a holiday home is rarely a money-making exercise and indeed can be a bit of a money pit. But if they are savvy, the arrival of Airbnb might be the break holiday home owners need.