The meteoric rise of Airbnb – the short-term letting app launched in a San Francisco apartment a mere seven years ago – is, without question, shaking up the entire residential property letting industry. From humble beginnings, the company has, in a startlingly short period of time, become a global behemoth with a market valuation of $25bn – more than three times that of the 50-year-old Hyatt Hotels chain. Initially, the online portal catered almost exclusively to tourists and business travellers seeking short-term rentals; however, of late, Airbnb’s market has experienced a significant surge in the number of local property owners and tenants utilising the online booking service for medium- to longer-term rentals. A further natural by-product of this growing paradigm shift is an increase in the amount of pop-up rental agents who manage only Airbnb properties on a full-time basis.
The statistics outlining the trend are telling: according to Airbnb, there has been a 190% growth in the number of local South African hosts signing up with the site in the past 12 months, bringing our country’s total listings to an impressive 22,000. Remarkably, half of these nationwide listings are in Cape Town alone, placing the Mother City in a noteworthy 21st position on the list of Airbnb cities worldwide. During the same period, 134,000 inbound international guests rented properties through the website, representing an extraordinary 250% growth from the previous year. Lastly, one particularly significant number stands out to reveal the true extent by which the playing field is changing: Between 2015 and 2016 alone, almost 100,000 South Africans used Airbnb domestically.
Naturally, property owners and agents alike will be tempted to jump on this now rampant bandwagon. However, before doing so, it is vital that certain key elements are borne in mind before one elects to adapt one’s residential letting practices to accord with this archetype of technological progress.
Firstly, for those owners considering listing flats which fall within sectional title schemes, it is important to first determine whether their particular scheme allows short-term letting, since many expressly prohibit the practice and, where this is the case, to do so would contravene the body corporate rules. Even where short-term letting is, in fact, allowed, owners must ensure that prospective guests are provided with a copy of the applicable conduct rules, and that they agree to be bound by these rules prior to finalising their booking – since, in the event of non-compliance, it is the owner who will be liable for any breaches, and not the tenant. Conveniently, Airbnb makes provision for hosts to add their own tailor-made “House Rules”, which I would suggest owners utilise by adding a full set of the conduct rules applicable to their scheme at large.
Secondly – and following on from the first point – it is imperative when listing your property on Airbnb to draw up a detailed tenancy agreement which would serve as a short-term lease. This should make provision for deposit and payment terms, cancellation policies, breakages, and how the guest would deal with complaints, inter alia.
As with any ordinary residential property rental, the rights and responsibilities of both parties should be clearly and comprehensively delineated from the outset. Although Airbnb has its own “Host Protection Insurance” – which covers owners against third-party claims of property damage or bodily injuries up to $1m – this is only available in 15 countries at present, excluding South Africa. One would therefore be well advised to consult a specialist in advance, to properly understand the implications of operating without an inbuilt policy, and to gauge how much one ought to ask upfront from a tenant as a deposit, or what kind of added insurance policy would be suitable to ensure adequate liability cover for an owner. In short, care must be taken to ensure that every conceivable scenario is anticipated and addressed.
Thirdly, if you are a tenant who wishes to sub-lease your property, you must first ensure that your lease agreement allows you to do so, or whether you are first required to obtain your landlord’s written authorisation. Should you fail to obtain the requisite permission, or should your lease expressly prohibit sub-letting, by listing your property on Airbnb you would be committing a material breach of your lease, and your landlord would, in such circumstances, be entitled to terminate your lease, which could have disastrous consequences should you, and your Airbnb guest, face eviction.
Lastly, over the past year or two, a plethora of self-titled “Airbnb rental partners” have cropped up offering various services to hosts, such as the preparation and marketing of host listings on third-party platforms (that is, apps or websites such as Airbnb), interacting with potential guests, and managing professional cleanings, etc. This particular kind of agent operates in a similar way to rental agents who procure and manage longer-term lease relationships, only many work exclusively with Airbnb properties.
Just as hosts are now finding an easy way to rent out properties by side-stepping licensing requirements, so too is it inevitable that many of these particular agents will be practicing without any accreditation. Although the Estate Agency Affairs Act dictates that nobody may perform any act as an estate agent without a valid fidelity fund certificate, it is becoming increasingly difficult to define “estate agent” in this evolving landscape, and therefore policing the practice is now near-impossible, which in itself should sound a caution to both property owners and prospective “Airbnb agents”.
While the portal inarguably offers an inexpensive and innovative way for property owners and tenants to host short-term rentals, and to make extra money in the face of a rising demand for holiday accommodation, in popular tourist cities with housing shortages and sharply rising real estate markets – of which Cape Town is a prime example – one can’t ignore the destructive potential of Airbnb.
In truth, the app also facilitates illegal conversions of entire buildings from tenanted flats to de facto hotels; or, from another perspective, the trend is motivating landlords, who would ordinarily be inclined to rent out their properties for longer terms, to choose not to renew leases with long-standing tenants, but rather to charge far higher amounts for the same property on a shorter-term basis. That said, who could blame them? There is clearly a powerful financial incentive for joining the fray since tourists flooding into Cape Town by-and-large seem to prefer renting self-catering sea-facing flats overlooking the promenade, complete with balconies and mountain views, than to, say, pay double the price for a 15m² hotel room without any vista at all.
Even the most cursory glance at the current listings on Airbnb reveals that these “cheaper” offerings are still going for substantially higher monthly rentals than the prevailing market value and, although many listings offer monthly discounts, the overall impact of Airbnb on the rental housing market is irrefutable. In San Francisco – where there have been numerous highly publicised protests against Airbnb in recent times – the media have coined the term “hotelisation” to describe the numbers of seniors, families and low-income tenants who are being pushed out by the trend. Although the Atlantic Seaboard hasn’t quite seen the same level of disruption – at least not specifically attributable to Airbnb – anyone who has recently cast their eye out for a two-bedroom flat along Cape Town’s most sought-after strip will know that there is little to nothing on offer in the realm of “reasonably affordable” longer-term rentals, and what was once seemingly in abundance, has all but dried up.
Who is Marlon Shevelew?
Marlon Shevelew is the director of Marlon Shevelew and Associates Inc., a Cape Town-based law firm specialising in rental property, contractual, consumer and company law. Marlon is the previous author of the TPN Residential Leasepack, the current author of PayProp’s rental documentation and preferred rental property attorney to the Institute of Estate Agents South Africa, the Rental Housing Tribunal Western Cape, presenter of the Advanced Residential Property Law Seminar endorsed by the University of Cape Town and the director of the top rental property law firm in the country, according to several international publications. Marlon also created the unique Rental Retainer Club and RentDoc which offers clients affordable legal fees for rental property-related matters.