Is this the end of the short term rental?
For those who have missed it, the last few months have challenged the norm throughout New Zealand. We now queue to get into supermarkets. Our restaurant experiences are different and for most of us, it’s been an opportunity to get used to spending more time at home, as well as learning how to work from home. The global pandemic that has caused all of these changes is no secret, but the true severity of the impact on the country still remains to be seen. What we do know of course, is that we can expect the impact to be felt, at least some capacity, in the property market. Though only time will tell, it does get the mind boggling as to what could happen next. After all, investing in property is always a slight gamble, and the best investors are the ones who can get ahead of market trends and adapt their plans quickly when challenges are laid out in front of them. Luckily, we’ve gone to the crystal ball and played out a few different scenarios. The most likely? A change in the role of short-term accommodation.
The reality for Airbnb owners in the capital is unfortunately, a relatively bleak one. With four entire weeks of the year spent through lockdown, and then further weeks of arguably prime time letting, including Easter weekend, Queen’s Birthday weekend and school holidays going astray thanks to the impact of the lockdown, bookings, and consequently income have no doubt all but dried up. This will create a huge strain on the owners of this type of short-term accommodation. While income may have stopped, the mortgage payments, insurance payments and cost of owning and operating an Airbnb have remained. This will no doubt mean that a number of operators of these Airbnb’s will regrettably be forced out of the short-term market and into a more long-term option, needing some stability when it comes to income. If this is in fact true and more of these properties make it to the longer term rental market, we will see a sudden influx of listings. Given that this period, moving into winter, is already renowned amongst investors as one of the more difficult times to lease property, with February to February leases the mainstay of the Wellington market, we could start to see that property is even more difficult to let, as tenants are offered the benefit of choice with more homes on the market.
Needless to say, longer lease times make for a number of concerned investors. Yet there is no need to fret just yet. There will of course still be a market for shorter term stays within Wellington. Having government, major banks and many private businesses based here calls for a large number of overnight stays from people coming to do business in Wellington. As the country slowly but surely returns to normal, these stays will resume allowing at least some support of short-term accommodation in the capital until such time that we return to business as usual. In the interim, we could potentially see a number of expats returning to New Zealand, seeing it as a safer option than the USA or Europe, who will be eyeing up the opportunity to stay in an Airbnb while they search to buy.
However, the most likely scenario is that there will not quite be enough business to go around. Investors may find themselves with a lower income level than they are usually accustomed to, which could require them to sell, either through necessity or because the investment returns are no longer worth the effort of managing the investment property worthwhile. The Reserve Banks’ announcement to lift the LVR restrictions, could present some interesting opportunities for investors with an established portfolio or homeowners who could capitalise on established equity in their existing properties. With banks able to increase lending to these investors, and with cash cheaper to borrow than ever thanks to a record low Official Cash Rate, now might be the time to start getting your ducks in a row to capitalise on opportunities which may come to the market. If investors with short-term accommodation decide to exit the rental market as the outlay of effort outweighs the potential returns, a wealth of beautifully appointed homes which would make ideal investment properties may enter the sales market to bolster your portfolio.
If you are looking to buy an investment property, or if you want to know more about what to look out for when buying investment properties to add to your portfolio, our property managers are more than happy to have a conversation with you anytime to find out how they can best advise you. Being attached to a high-performing sales team, Tommy’s Property Management have access to a wealth of properties which may suit your next real estate move. To find out more about what we can do for you, or to discuss moving your short-term rental to longer term management, feel free to give us an obligation free call anytime on 04 381 8604.