With the country in a state of lockdown, and our borders patrolled by police and military personnel with more “None shall pass” ferocity than a bouncer at a high end nightclub, it’s no surprise that one of the first industries to topple under the weight of the COVID-19 pandemic has been tourism and travel.
Admittedly, we are still in the relatively early days of this brave new world and won’t know the full extent of fallout from the far reaching and all encompassing, daily changes to our way of life as we’ve long known it, for some time to come.
But one thing is certain, everyone on the planet is feeling the pinch. Not necessarily directly from the virus itself, but certainly from the measures being implemented by governments worldwide to #flattenthecurve and #stopthespread.
The Air BnB Bellyflop
One of the most significant and immediately noticeable impacts the new social isolation, and more specifically travel, restrictions are having across the real estate sector, is within our rental markets.
Given virtually no one is travelling at present, short term holiday accommodation is fast becoming a superfluous luxury that many investors will struggle to maintain as a part of their portfolios.
At the beginning of last year, studies emerged to highlight the impact of a rapidly expanding movement by many landlords to list their properties on popular short term accommodation sites, like Airbnb.
Research suggested that major cities right across the world, including here in Australia, were impacted by the rise of Airbnb as the dominant player in the holiday accommodation market.
To highlight just how quickly the Airbnb ascension occurred, over 80,000 listings on the website were for short term holiday accommodation in London alone at the start of 2019, with over 55 per cent being for entire properties. Not just a room in someone’s house.
Of those listings, it’s estimated that around 50,000 were once long term rentals in the private sector; representing a significant decline in supply for long term tenants.
And it wasn’t just in the UK where, what’s become known as the “Airbnb effect”, was becoming increasingly evident.
Research conducted by the Harvard Business Review found that a 1 per cent increase in Airbnb listings across the United States lead to a 0.018 per cent increase in rents and a 0.026 per cent increase in house prices.
While closer to home in Melbourne, Airbnb listings equated to 2 per cent of rental stock last year, with a concentration of listings around traditionally popular, long term tenant haunts such as Port Phillip Bay and the Mornington Peninsula.
According to data from the University of Queensland, the proportion of Airbnb listings in central Melbourne alone equated to over 3,100 at the beginning of this year. And in Sydney’s popular suburb of Bondi, there were in excess of 1,100 Airbnb properties listed at last count.
Rental Market Mayhem
Now that holiday accommodation offered by the likes of Airbnb has become somewhat superfluous, anecdotal reports from real estate agents are surfacing in greater numbers, as an influx of landlords seek to re-list their properties long term.
Speaking to Business Insider last week, Raine and Horne Bondi’s business development manager Matthew Serrao said he’d listed seven properties in the space of just two days, “and five of those have been for past clients who had gone down the Airbnb route or short term rentals.”
In Melbourne, CEO of Caine Real Estate, Jacob Caine said clients who had previously transitioned their investment properties onto Airbnb, were starting to move back to the traditional rental market.
“There’s a sense of opportunism at the moment,” Caine told Business Insider, “as uncertainty and anxiety see rental applications withdraw from the market if they (tenants) can continue just staying where they are.
“Owners meanwhile are reducing prices because they sense there are more restrictions to come, which will make it even harder to fill vacancies.”
In the same article, realestate.com.au chief economist Nerida Consibee agreed that COVID-19’s impact on property is most evident in the rental market right now.
“Broadly, the changes occurring seem to be impacting the rental market first. We are seeing an increase in rental listings for a variety of reasons including short term rentals being converted to long-term and renters starting to find other forms of accommodation.”
What can you do?
For investors, the key message from us here at Trilogy Finance and indeed, most experts who understand how the many variables and X-factors, such as this pandemic, play out in the property sector is: don’t panic!
What this crisis is highlighting, above all else, is how important it is to have a well conceived property investment strategy and a solid, well-balanced portfolio, that you can use to ride out the rougher seas of global upheaval that invariably arise every now and then.
The best approach, moving forward right now, is to reach out and speak with your trusted advisors; those of us who are at the coalface every day, keeping abreast of the changes as they arise and carefully monitoring the potential impact to our clients.
The other thing we can do at this time, is empower ourselves with insight and observation. We can learn how to become better investors, as we navigate this new, unknown and uncharted territory, together.
The great upheaval and uncertainty we’re all experiencing right now is highlighting how critical it is to have robust, long term strategies in place around our own financial security and stability.
No longer can we simply rely on Stockmarket incumbent super funds as safe havens in which to park a portion of our wages, and forget about it, hoping we have sufficient capital in our “nest egg” on which to retire when we decide we’re ready.
I have no doubt we will see substantial ripple effects flow right through the entire real estate sector as a result of the coronavirus chaos.
But when you consider property is a commodity that’s not only survived plagues, depressions, recessions, and terrorist attacks, but come out thriving on the other side, I for one and am thankful for the solidity of a bricks and mortar asset base right now.