Airbnb has played a pivotal role in shaping South Africa’s short-term rental market, according to Grant Smee, the Chief Executive Officer (CEO) of Only Realty Property Group.
But how will new government-imposed restrictions impact Airbnb property owners and investors?
According to Airbnb, Cape Town alone welcomed 700,000 guests in 2023, contributing R14.4 billion to the Gross Domestic Product (GDP).
The application supports 42,000 jobs, according to Smee and there are over 23,000 listings in the City of Cape Town alone.
Government regulation
Smee said that with a housing crisis firmly in focus, cities like Barcelona have announced plans to ban Airbnb by 2028, and New York also implemented stricter regulations to limit activity.
The South African government has unveiled intentions to regulate short-term rental platforms, including Airbnb, to strike a balance between tourism, housing, and community interests.
“The South African Department of Tourism is advancing plans to regulate short-term rental platforms like Airbnb,” Smee said.
“The policy, currently in its final stages, proposes setting thresholds on Airbnb listings to better manage the market's impact on housing availability and affordability, particularly in tourist-heavy cities like Cape Town.”
He said that the proposed framework would empower the Minister of Tourism, Patricia de Lille to limit the number of days a property can be rented through platforms like Airbnb.
“This regulatory move aligns with similar global efforts to balance tourism growth with the needs of residents and addresses growing concerns around housing affordability and availability, the impact on traditional hospitality, regulatory and tax concerns, safety and job security.”
What will this mean for short-term letting owners?
Smee notes that the true impact of recent regulations on short-term letting owners and the industry remains unclear, but he predicts that tightening restrictions may eventually dampen demand for buy-to-let properties.
“With a succession of interest rate cuts under way, now is the ideal time for investors to purchase short-term letting properties. However, uncertainty around the new legislation is bound to have an effect on the market,” he explained.
Here are some potential road blocks for potential Airbnb owners, according to Smee:
Income Impact: Stricter limits on the number of rental days per year or restrictions in certain areas would reduce the overall income potential for short-term rental property owners.
“Those who depend on this income as a primary or supplementary source could see a notable financial impact,” he added.
Increased Operational Costs: New regulations may require owners to obtain licenses, comply with zoning laws and adhere to safety and health standards.
“Meeting these requirements may involve added expenses such as application fees, property upgrades, or inspections which would cut into profit margins,” Smee said.
More Competition: If restrictions are implemented to limit the number of rental days, owners may face greater competition during high-demand periods.
“This could lead to higher vacancy rates in off-peak seasons and might affect the pricing structure as more owners compete for guests within the limited available rental periods,” he noted.
Shift to Long-Term Rentals: For some owners, stricter short-term letting restrictions may make long-term rentals more appealing or necessary.
“While long-term leases offer more stable income, they may generate less revenue than short-term rentals, especially in popular tourist areas,” Smee advised.
Property Devaluation: In regions where short-term rentals are a primary driver of property values, restrictions could lead to a decrease in demand, potentially impacting property prices.
There is some good news, though. Smee argued that the imposed restrictions could help to reduce noise, crowding and housing shortages.
“In areas like Cape Town where prices are sky-rocketing, some restrictions may be welcomed by locals as they look to get a foot on the property ladder – particularly with more interest rate cuts forecast,” he said.
“It will certainly be interesting to see how the industry navigates the changes and if it will in fact have the impact that some may anticipate” Smee concluded.
IOL BUSINESS