Grant Smee
Only Realty Property Group
CEO
Airbnb continues to drive high levels of short-term letting activity across the globe. Over the past ten years, the popular app has increased its active listings from 550,000 to a whopping 7.7 million. Its 2023 financial report also cited year-on-year growth of 15.9%, raking in $73.25 billion in gross booking values.
While 68% of international respondents in a 2023 Savanta-run survey would still prefer a hotel stay, Grant Smee, CEO of Only Realty Property Group, believes that Airbnb has played a pivotal role in shaping South Africa’s short-term rental market.
“According to the app’s data, Airbnbs in Cape Town alone welcomed 700,000 guests in 2023, contributing R14.4 billion to the GDP and supporting 42,000 jobs,” he says, pointing to 23,000-plus listings in the City of Cape Town alone.
Today, Cape Town has more active Airbnb listings than San Francisco, Amsterdam, Berlin and Sydney, a statistic that Smee believes may indicate a slower adoption rate as some of the world’s major tourist cities continue to introduce tighter short-term letting restrictions.
“With a housing crisis firmly in focus, cities like Barcelona have announced plans to ban Airbnb by 2028, and popular cities like New York also implemented stricter regulations to limit activity.”
Government to Clamp Down on Short-Term Letting
As the local short-term letting craze continues, the South African government has announced plans to regulate Airbnb and other short-term rental platforms. The aim is to balance the needs of tourism, housing, and local communities.
“The South African Department of Tourism is advancing plans to regulate short-term rental platforms like Airbnb,” says Smee. “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.”
The proposed framework would empower the Minister of Tourism 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 local residents and addresses growing concerns around housing affordability and availability, the impact on traditional hospitality, regulatory and tax concerns, safety and job security.”
What Government Restrictions Could Mean for Short-Term Letting Owners
Smee believes that while little is known about the true impact on owners (and the short-term letting industry as a whole), he does speculate that over time, it may start to hamper buy-to-let property demand as restrictions tighten.
“With a succession of interest rate cuts underway, now is the ideal time for investors to purchase short-term letting properties. However, uncertainty around the new legislation is bound to affect the market.”
He unpacks the potential roadblocks as follows:
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.”
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 profit margins.”
More Competition: Smee adds that 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.”
Shift to Long-Term Rentals: For some owners, stricter short-term letting restrictions may make long-term rentals more appealing or necessary. “Long-term leases offer more stable income but may generate less revenue than short-term rentals – especially in popular tourist areas.”
Property Devaluation: Smee speculates that in regions where short-term rentals are a primary driver of property values, restrictions could decrease demand, potentially impacting property prices.
On the plus side, Smee believes that the imposed restrictions could help to reduce noise, crowding, and housing shortages. “In areas like Cape Town where prices are skyrocketing, 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 says.
“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”, he concludes.