- Hospitality and accommodation thrive with booming tourism.
- Short-Term Rental Accommodation sector thriving, fulfilling unique market niches.
- Experts emphasise understanding regulations and engaging good property managers.
It is an excellent time to be in hospitality and accommodation. Tourism is booming, an enduring trend likely to stay. Major events like the FIFA Women’s World Cup, Formula One, and superstar concerts have sent hotel room rates careening through records.
Last month, Taylor Swift’s performance in Sydney saw prices soaring up to 300% compared to the average room rate.
Despite the past year being a slog for most of Australia’s commercial assets, bogged down by the high-interest rate environment and poor market conditions, tourism has weathered the storm and emerged on top.
Airbnb investment properties soar in popularity
Though the aforementioned good news pertains to commercial investments, residential property investors in the Short-Term Rental Accommodation (STRA) sector have also reaped the profits of Australia’s post-COVID-19 tourism surge.
However, STRAs have received flak recently, being blamed for exacerbating the housing crisis.
Critics of the STRA industry argue that STRA providers are irresponsibly using homes that could otherwise be used in the overheated long-term rental market for quick gains.
On the other hand, STRA operators contend that not all STRAs are suitable for conversion into long-term rentals, that people who rent short-term have no interest in the long-term market, and that the focus on STRAs is misplaced and ignoring the root causes of the rental crunch.
Nevertheless, Alice’s Home managing director, Seiko Ma, told The Property Tribune that STRAs are thriving.
“Despite debates about regulating STRAs, the tourism industry in Australia has been flourishing, with large events and the rise of business-leisure travellers.
“While there were rental crises after COVID-19, blaming STRA for these issues overlooks the main reason – increasing mortgages making it difficult for investors to cover their costs, leading to rent increases.”
Seiko Ma, Alice’s Home
Here, Ma refers to the business-leisure, or “bleisure” phenomenon kickstarted by the post-COVID-19 acceptance of remote working — where travellers combine extended vacations with work, spawning unique accommodation needs better served by STRAs and Airbnb rather than traditional hotels.
“STRAs cater to travellers and businesspeople seeking a more homelike experience and a better understanding of the local culture,” Ma said.
Easy Home Rentals managing director, Prak Sangthong, affirms Ma’s sentiment.
“We have an overall accommodation shortage right now, so, it is a very good time to be in the rental market,” he said.
“Clamping down on short-term rentals is a knee-jerk reaction to our accommodation prices.”
Prak Sangthong, Easy Home Rentals
“It’s not going to change anything at all — less than 2% of the rental pool is actually short-term. Even if those 2% come on the market today or tomorrow would make absolutely no difference to the rental prices.”
National asking rents
Sangthong points out that short-term rentals exist in a specific market segment not served by hotels or long-term rentals and that clamping down on STRAs could cause harm.
“There is an argument that we should ban short-term to get them into the long-term market. That is an interesting debate because it would actually do more harm.”
Prak Sangthong, Easy Home Rentals
He explained that there a some circumstances where people urgently need accommodation, and STRAs are the more suitable solution.
This ranges from personally dangerous circumstances to unforeseen situations rendering your home unliveable.
One example Sangthong mentioned included a flooded home.
“You can’t stay there because of health issues: mould and dampness. So, you need time for that to dry to dry out.
“You need accommodation. You have kids attending the local primary school. You’re not going to go to a hotel 20 to 30 kilometres out. You need accommodation that’s close to that. So if an STRA was not available, you would be absolutely stuffed.”
Pros and cons of owning an Airbnb investment property
The Property Tribune asked both managing directors to give us the lowdown on owning an Airbnb, regarding strengths and weaknesses, profitability, and level of effort required.
“Owning an Airbnb investment offers numerous benefits for the owner, allowing them to stay and enjoy the property themselves while also renting it out for extra income,” Ma said.
“Traditional long-term rentals limit owners to either renting out the property or living in it themselves, whereas Airbnb allows for greater flexibility in deciding when to use the property and when to rent it out.
“The flexibility can also be beneficial for property sales, as long-term leases can hinder a potential sale, but Airbnb can solve that issue.”
Seiko Ma, Alice’s Home
“In terms of profitability, Airbnb properties typically yield 10% to 30% more profit than long-term rentals, although this can vary based on location and property conditions.”
“We carefully analyse each new property to determine the best rental plan for our clients, taking into account the property’s specific circumstances.
“We have a client from Sydney who purchased two studio rooms in the centre of the Brisbane CBD. Initially, the property yielded a 3.5% return as a long-term rental. However, after converting it to a short-term rental, their return increased to 11.3% last year.”
Sangthong agrees that the main benefit of short-term rentals is flexibility. Not dealing with long-term tenants means that the accommodation provider is free from the standard rules and regulations applicable to traditional rentals.
If dealing with errant tenants, owning a long-term rental can quickly become a teeth-grinding nightmare, with spats over payment or property damage escalating into lengthy and expensive court battles.
He concurs that STRAs are more lucrative as well.
“The second benefit is that the cash flow and the rental payment received are often superior to the long-term rental, generally between 30% to 50% more.”
Prak Sangthong, Easy Home Rentals
Data from the Real Estate Institute of Western Australia (REIWA) suggests the same.
In the March quarter of last year, the gross annual income of two-bedroom dwellings in the private rental market in Perth was $25,800. It takes only 132 days of hosting to reach the same amount.
Importantly, Sangthong stresses that STRA refers to more than just Airbnb rentals.
“Often, we use Airbnb as a bracket term for short-term rentals. But for us, short-term is more than Airbnb. We have government departments renting a house from us for two to three months. We have mining companies and contractors, and they’ll come here.”
Prak Sangthong, Easy Home Rentals
“Because quite often, say, you’re a managing director of a company. They’re coming here to work. Their furniture and everything are coming on a ship from England. You don’t know whether it’s going to be here in four weeks, eight weeks, or twelve weeks. You still need a home, and a hotel is not really a viable option.
“Having a home with all the amenities is a much better option. And you wouldn’t have that flexibility with agents wanting six or twelve months. It’s not just for people who need Airbnb only, it’s for people that need accommodation.”
For Australians struggling through the cost-of-living crisis, the income afforded to owner-occupants renting out rooms can be a game changer.
Sangthong recounted one client’s story, where the client’s husband had passed on.
“She was going through a nasty period where she had no income. The estate was being finalised, indeed, it took two years before it was finalised. She rented out two of her rooms on a short-term basis, and that gave her the income to survive.”
“By sharing her home, she provided accommodation to people who needed it. But it also gave her the income to pay her bills until their estate was finalised.”
Prak Sangthong, Easy Home Rentals
“In terms of buying a property for short-term rental, it’s a very lucrative field to pick, and I’ve got no doubts they will do very well in the future. But you have to be in an area that allows you to do short-term, or you need to get permission from the Shire to ensure that it’s short-term compliant.”
Expert tips for prospective STRA owners
Above all, investors must know council rules and regulations before entering the STRA business.
“Before investing, it’s important to check council rules and body corporate bylaws to ensure the property allows for Airbnb use to yield higher returns than those limited to long-term rentals,” Ma said.
“It is also important to choose properties near attractions to provide a unique experience for guests who may not be able to afford a property but would love to stay and explore the area.”
Sangthong’s top tip is to engage the services of a property manager who understands the STRA market.
“It’s a different beast compared to long term, so you need someone that understands the STRA market.”
Prak Sangthong, Easy Home Rentals
“You can do it yourself, but just bear in mind that if you do, it is 24/7. It’s like having hotels on wheels. You need to be available 24/7 because things do go wrong. And unless you have a team around you that can actually do that — the cleaning, the guest communication, and troubleshooting, it is a lot more hands-on and a lot more intensive than long-term rental.”
“Running an Airbnb property is akin to running a hotel, as owners must consider nightly rates, cleaning fees, platform and management fees, maintenance, and potential marketing expenses.
“While Airbnb can offer high returns, owners need to understand potential costs.”
Seiko Ma, Alice’s Home
Sangthong emphasises that STRAs are not home. Therefore, they should be fitted accordingly.
“You need to fit the home appropriately. It’s a house you’re renting for someone to stay in the short term. It’s not designed to be a home for you to live in. It’s basically a gap filler. Don’t get it cluttered, and not too visually in your face. It’s should have a neutral tone. Just make it comfortable for people to stay in.”
Slightly higher risk, slightly higher reward
Entering the STRA market may be an attractive proposition, but it is not without caveats. Unlike traditional rentals with year-long tenancies, STRAs have inherent unpredictability regarding the occupancy of short-term rentals.
“I would advise people that it is a slightly higher-risk and slightly higher-reward investment. If people are chasing a steady return, like $400 a week, this may not be the path for them. But if they are willing to tolerate some variability in their income levels, then this is a much better investment proposition,” Sangthong explained.
“Unless you’re willing to accept some variation in your income, don’t do this.”
