Some Airbnb hosts and other owners of short-term lets in New Zealand are trying to switch their properties to long-term rentals as their usual occupiers – tourists and domestic holiday-makers – have disappeared, OneRoof has found.
The outlook for short-term letting in New Zealand is grim as the country comes to terms with a ban on international arrivals and an enforced lockdown. One economist in Queenstown says there will undoubtedly be people who end up facing mortgagee sales.
Owners of short-term rentals across New Zealand are part of a global downturn in the industry, with owner forums set up around the world to discuss how to get through the coronavirus fall-out.
Hopes for summer recovery
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A bach-owner in Auckland, who rents out accommodation north of the city, told OneRoof that Easter, usually a busy time, is going to be quiet and this will affect crucial income.
“Also, things slow down for the winter so it may be the last income many people will see until next Christmas.”
The owner said she hoped Auckland Council would reconsider its controversial bed tax and give people some relief in the way of a rates rebate because of the low occupancy.
There would also be a big knock-on effect through to the people who earn a living cleaning rooms, and others such as those who rent out linen.
“Without the income owners received before this, some will undoubtedly put their places on the market but not sell.”
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Bachcare sent an email to members outlining that guests with stays booked during the lock-down were being contacted to tell them to “stay home, to stay safe and to not travel… this will mean that you do will not receive income for these stays.”
Airbnb advice to members is that private rooms and shared accommodation cannot operate as only hosts providing accommodation in a whole property are considered an essential business.
Kiwis may get back on the road
Zaina Razzaq from Bachcare says while she can’t give specific numbers, the organisation is navigating its way through a new world of high cancellations and trickling demand.
“As it stands, the outlook for 2020 looks less promising than initial projections but it’s too early to make a judgement as there’s no telling how this event will impact travel patterns, both domestically and internationally.
“The one thing I can say is, if the current impact of COVID-19 struck New Zealand just two months earlier in the summer season we’d be in a much more challenging position given the sheer volume of bookings that would be impacted at that time of year.
“With some reduced capacity in international travel we are expecting more Kiwis to remain in New Zealand to explore their own backyard as the pandemic's impact begins to lessen."
She highlighted reports from abroad that show in the United States, for example, some regions are benefiting from downstream impacts of the situation, especially off-the-beaten-path and drive-to destinations, and also reports from Asia where revenue is said to be bouncing back after a grim performance in January and February.
Navigate the Tenancies Act
Bindi Norwell, the chief executive of REINZ, says property managers around the country have talked of Airbnb and Bookabach owners looking to rent out their properties for longer term rentals now the international marked has slowed significantly.
“Many of the properties will be offered furnished, which will be good news for those starting out in the market.
“There are two key factors owners will need to take into account: that they are likely to receive lower rent levels in the domestic long-term market than they have been receiving from the international Airbnb short-term market, especially if we see a flood of new rental properties come to the markets, but secondly that their properties comply with the Residential Tenancies Act by way of insulation and compliance with the Healthy Homes standards.”
A senior source in the industry, who did not want to be identified, said there has been an increase in enquiries from landlords who self-manage rental properties or who are managed by “cowboy companies asking us about managing them due to vacancy and lack of communication from their property manager during this time.”
Population shifts likely
Benje Patterson, a Queenstown-based economist, says the coronavirus impacts will be profound on the short-term rental market in Queenstown and other tourist hotspots around the country.
“A lot of the newer subdivisions that have sprung up over recent times, such as in Shotover Country and Hanly Farm (in Queenstown), it’s become very common for people to put [rental] units attached to their main dwelling as a way to top up the mortgage, and there’s such a large supply of these.
“With the sudden stoppage essentially with tourism in Queenstown that’s meant many of these people, they can’t earn an income from it.”
Patterson said it had been incredible to see in the month before the lock-down a sharp number of people pulling their units from Airbnb and offering them longer term instead at heavily discounted rents, but even here they may struggle.
“There’s no demand in the short term lets through Airbnb and Bookabach so people pull it and they put it into the normal rentals there – which actually has a curtailing of demand because many people have begun to lose jobs and begun to leave town so there’s already weakened demand so those rents for units have decreased quite a bit.”
There will be a flow on into property prices, particularly for home and incomes in these markets, Patterson says.
“What we’ve seen is the price differential between a three and four bedroom home and a three and four bedroom home plus unit has expanded over recent years simply because of the high yields that people could get from short term lets.
“I expect that wedge between the two is going to narrow quite significantly and that part of the real estate market will be arguably one of the most affected, at least in terms of the brick and mortar-type builds in the Queenstown market. That will be simply because not getting such a high yield, you can’t pay as much of a premium for those properties.”
Vulnerable sector
Dropping rents will be good for some people who have been struggling to find rental properties in these heated tourism markets – if people stay in the area.
“If someone can stick around within a market like Queenstown or Rotorua or Mackenzie District they will find some better deals. Not only can they get their hands on them but they can afford them on their wages.”
The problem is, areas which rely the most heavily on tourism, “the single most vulnerable sector in New Zealand”, will see jobs being lost and people leaving anyway.
Parts of New Zealand, particularly in the provincial South Island and parts of the North Island where the economy is based mainly on sheep, beef and dairy, would see their local economies fare okay and likely retain their populations.
“But some of these tourism hotspots with overheated property markets and fewer job prospects, they’re going to see a lot of migration out.
“I’m not just meaning international travellers returning home, I’m meaning New Zealanders that have moved to these places who no longer have the opportunities there.”
Without a doubt there would be mortgagee sales, although so far we are not seeing them, Patterson says.
The unprecedented financial support from the Government was helping and the banks, too, though there was only so long they could protect people.
But, also, because the property market hasn’t been able to transact during the lock down there is nothing to see, yet.
Mortgage help
Investors in the tourism market are in an even more vulnerable situation because unlike people who have another job or who might be able to get in a lodger, their whole income relies on rentals, Patterson says.
“It’s investors actually that I would worry a bit more about and particularly in more speculative type properties or ones that have historically been more volatile, such as the apartment market.
“I think that’s one that’s going to also have quite serious declines in the Queenstown market.”
John Bolton, the CEO of Squirrel mortgage company, agrees short-term rentals have been “hammered” by no tourists.
“People are trying to rent them out as normal rentals but obviously not through the current lock down.
“Many will apply for mortgage repayment deferrals given the lack of income.
“I know a number of people that have chosen to be ‘locked-down’ at their bach so these are getting a lot of use at the moment although WIFI is an issue for some.”
Bolton says there could be medium-term pain, especially in tourism destinations.
“Many of the owners will be business people so will have cash flow issues in other parts of their lives at the same time, as well as a lack of rental income.
“Leasehold apartments in Auckland will be particularly tough as the ground rents are high.
“It looked good when the rents were also high but they not only have to deal with no rent but also high lease costs.”
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