This article about the effect Airbnb has on QLD Caretakers has been supplied by David Leary, Leary & Partners.
The effect of Uber on the taxi industry is well known. It has been completely disruptive to the point where the values of taxi licenses are decimated and class actions have been taken in retaliation. The question is now being asked whether the same effect will occur in the caretaking industry as a result of Airbnb and similar businesses.
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Caretakers derive the majority of their income from two areas of operation. The first is from a contract with the body corporate or owners corporation to provide caretaking services, and the second is from the letting business. Whilst the caretaking income is generally stable, rising annually in accordance with an agreed formula, this is not true for the letting business which frequently provides the majority of the income.
Worrying trends emerging
As a consultant to the caretaking industry, I see some worrying trends emerging as a direct result of the disruptive influence of companies offering short term letting services online. It is not uncommon for unit owners to bypass the on-site manager or caretaker and let their properties directly using Airbnb or similar share services. I know of one large complex where approximately 50% of the available units are managed and let by an independent company using Airbnb to place lettings, competing directly with the on-site manager.
I’m also aware of complexes where individual owners acquire three or four units in the complex and run their own letting business in competition with the on-site manager. This trend is increasing. In response, there are now a number of third-party companies who offer investment unit owners a full letting and cleaning service as an alternative to the on-site manager.
It was recently reported that Dr Schwartz, who is Australia’s largest private hotel operator, is offering to subsidise the cost of renovations for investor owners at the Hilton Surfers Paradise, where he owns the management rights if they cut their ties with Airbnb and return to the letting pool. In another related move, Bank of America financial analysts recently downgraded the stocks of several hotel companies, including Hilton and Hyatt, citing pressure from oversupply and competition from home share services.
Owners no longer bonded to the onsite manager
Traditionally, investment owners in residential complexes were bonded to the on-site manager because he was the principal means through which owners let their property. Occasionally owners would use the services of an outside real estate agent, but for most, this was not the case.
With the advent of online share services, owners do not always see the on-site manager as the principal source for short term letting services. There is now an incentive to aggregate groups of units, either unilaterally or in conjunction with other owners, and offer them to the market using Airbnb. This is the trend that I see occurring, particularly in older complexes.
Older units more at risk
The Accommodation industry has always been price sensitive. The problem has been reaching the market. Whereas apartments in older complexes were once sold off at cheaper prices to people wishing to use them as their permanent residence, they are now increasingly being sold to investors who let them through the likes of Airbnb. This trend will continue.
The complexes that will be most affected are situated in the tourist hubs, including capital cities around Australia. This constitutes a large proportion of the available strata accommodation. Whether the trend is powerful enough to destroy the current caretaker business model remains to be seen. There are government inquiries currently being undertaken with a view to curbing the influence of Airbnb. The question is – will it be enough?
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Read next:
- QLD: The Implications of Airbnb on Subletting and Community Title by-laws
- QLD: Q&A How to Stop Short Term Rentals
David Leary
Managing Director
Leary & Partners Pty Ltd, Quantity Surveyors
P: 1800 808 991
E: enquiries@leary.com.au
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Have a question about the effect Airbnb is having on your scheme or caretakers or something to add to the article? Leave a comment below.
This is a good article and it makes sense to explore effective management via AirBnB rather than using a contractor which is only interested in extending the 25 year Management Rights contract and selling the contract to another ( this roll over will never end). This model never creates a community or harmony within a scheme. If the letting business publishes the unit occupancy each month than it would become obvious which members within the scheme benefit the most.
I support the UOAQ objective to create Harmony and community within CTS schemes in Queensland.
Reducing the $85,000 annual caretaking fee (spread over 50 units) to a self-managed annual cost of $13,220 provides an annual saving of $70K+ ie about $1,4000 off the Admin Fund Levy for every owner for every year. This level of reduction in annual levies is significant and typically is reflected in a substantial increase in the market value of the units. In one move you have reduced the annual revenue leakage AND increased the capital value. How good is that, Jane??
As with many disruptors, short term stays platforms (in class 3 buildings) should give owners a bit more sway when it comes to negotiating fees and charges caretakers/letting agents impose on them.
When Property Occupations Act 2014 deregulated resident letting agents commission rates and removed the requirement for a resident letting agent to live on-site many owners were left with their letting arrangement on ‘take-it-or-leave-it’ basis, having little power of negotiating. Short term stay platforms may provide the owners with access to competition – as usual, with exclusivity comes complacency.
100% agree and it is a proven fact that some schemes can do without ‘onsite’ caretaker managers alltogether and end up much better off. We refused 3 requests for extensions including 2 outrageous demands for new 25 year and 20 year contracts by 3 subsequent caretaker managers and ended up paying out the contract 6 years early (at approximately 1.5 times annual fee).
The $85,000 annual caretaking fee (50 units) has been replaced by a non-contract gardener/handyman and pool technician at an annual cost of $13,220. The service is far superior and we are no longer arguing with an inept ‘onsite’ caretaker manager that refused to live onsite in the caretaker manager’s unit or even be present during usual business hours.
David Leary is writing about yet another way in which unit owners/investors are ‘working around’ a corrupt business model. Some are doing it at the body corporate level ie allowing the long-term contracts to naturally expire and then embarking on short-term contracts with the rental managers. Others are simply by-passing the rental managers, with options which provide a more profitable return on their investment $$s. There is a common denominator here – both ‘work arounds’ avoid long-term contracts which attract large sale prices, and therefore mortgages to service, between the rental managers. If you are not servicing a large mortgage, you can of course afford to charge less for your services as the rental manager.
But the main reason why the current model, based on long-term contracts, will die is that this model is just plain WRONG
airbnb will kill the model of the lazy, self entitled caretaker. the caretaker that is prepared to explore new things and look for ways to make more money for his clients and for himself will find that airbnb offers him a whole new profit stream he didn’t previously had. short term is usually more profitable for the caretaker and now he can do it anywhere.
The shrinking trend of the traditional letting pool available to QLD management rights owners has been ongoing over many years, the emergence of Airbnb is just another nail in the coffin. Long and short term rental owners have, for quite some time now, been transferring the management of their properties over to ‘off-site’ letting agents who frequently offer a superior service at a cheaper price.
In many cases, incoming management rights owners, who often have no previous experience, have failed to build relationships with owners and rather than actively taking care of their properties, have instead reduced their services to simply being ‘rent collectors’.
It is no surprise that savvy unit owners are banding together in ‘big switch’ style and actively seeking out ‘group discounts’ and other incentives such as free cleaning.