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Temporary rentals: The new rules and why they could no longer be a good business - La Nacion Propiedades
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Alquileres temporarios: las nuevas reglas y por qué podrían dejar de ser un buen negocio
El DNU de Javier Milei impactó en el mundo de los alquileres temporarios; las razones por las cuales algunos propietarios se están pasando al mercado tradicional
www.lanacion.com.ar
March 5, 2024
Javier Milei's DNU impacted the world of temporary rentals; The reasons why some owners are moving to the traditional market
By Maria Josefina Lanzi
Javier Milei's DNU marked a before and after in many markets, including temporary rentals
The rules of the game that existed in the real estate market before Javier Milei 's DNU had led many owners to abandon traditional rentals and move into the temporary market, investing in equipment, but the new scenario is changing the game. The supply of traditional rentals in CABA registered an increase of 96% in the first two months of the year , according to the latest Zonaprop report, while, according to figures from Soledad Balayan, a broker in the sector, the supply of temporary rentals showed a drop: They went from 10,400 at the beginning of January to 9,100 last week.
The new legal scenario, without a regulatory framework and with the possibility of freely agreeing between the parties on the most important terms of the contract (choosing the currency, the duration, the indexation and the frequency of the adjustment they wish), is driving some owners to “come home” and take their properties off the temporary market and publish them again under the traditional rental format . Experts explain who specifically those who are making that decision may be.
Lady Siebenhaar, owner of Nativa Soluciones Inmobiliarias, says that 15% of her client base switched to temporary rentals in recent years, while the rental law was in effect, but “5% of them went back in the month of January to traditional rental, which is quite a lot.” Siebenhaar works with clients with temporary contracts of a minimum duration of three months, which are renewed.
He affirms that those who previously worked traditionally and after the rental law became temporary, “are wanting to return,” but those who were always in the temporary market will remain in that business model. “ I think they return to the traditional, because they are afraid that their properties will not always be occupied” he says.
He points out that his colleagues also observe this phenomenon: “My colleagues are also telling me, that they are coming back.” He says that some had never even dedicated themselves to temporary rentals and had to venture into this model a few years ago, when several clients asked them to: “Surely these real estate agencies also want to return to the traditional one, because they are used to working like this; It is necessary to have a very large structure to manage the temporary ones, since tenants continually come and go, it is a demanding dynamic; "Perhaps it would be better for the real estate agency to have traditional ones."
The supply of temporary rentals fell after Javier Milei's DNU
The reasons for the growth of temporary rentals
Until the last months of 2023, the profitability of temporary workers was much higher than traditional workers. In December, the gross monthly income of a temporary worker was US$731, while that of a traditional rental was US$327, details the Real Estate Monitor study carried out every month by sector specialist Daniel Bryn, taking as source to AIRDNA, a site where information from AirBNB platforms is published . Furthermore, one of the biggest attractions of the business is the possibility of charging in dollars, something that until last December the law did not allow for traditional ones.Until Javier Milei's DNU, there was a risk, in the case of traditional rentals, of having a tenant for three years, tied to a contract with income that was adjusted every six months or a year, which in a context of annual inflation which exceeded 200% , within a few months they were devalued. This led many people to turn to the temporary market that promised incomes above 7% per year in dollars. “ In the last year, there were 60% more temporary rentals than in 2022 ,” says Daniel Bryn, head of Invertire, according to figures recorded as of November 2023.
Darío Rizzo, from Alternativa Propiedades, who also works with short-term rentals (from one month onwards, intended mainly for study, work, health, digital nomads), shares Siebenhaar's view, although in his case he observes that the owners who had moved to the temporary segment, “not out of love but out of horror”, are still waiting : “For now they resist the change, but we will have to see what happens with profitability, given that many of those properties that were destined at the time in the temporary segment they were not prepared to compete in a market with 50% overstock.”
He assures that, in recent years, the rental segment has been convulsed by continuous legislation and, in that context, “ the owners of traditional rentals began to migrate to temporary rentals in search of better income .” This led to an oversupply in the temporary segment of between 45 and 50% last year.” In addition, he points out that many of those properties that were destined for temporary employment were not furnished correctly “because these types of owners did not really want to dedicate themselves to this, and they did so until they could sell the property or until the rental law for tenants changed. traditional”. Rizzo explains that this type of property (temporary) is valid because of how they are equipped and what the apartment is like. “If it is an apartment in a luxury tower, but armed with grout, with the bed left over from grandma, with an outdoor plastic table and chairs, it is not rented,” explains the broker.
New present in the rental market
He adds that, since the entry into force of the DNU, the situation began to change: “Today all new stock is directed to traditional rental. We are receiving many requests for appraisals of empty units that previously furnished them and turned them over to the temporary market and today, instead, the owners prefer to rent them with two-year contracts , with quarterly adjustments, and at prices that even improve profitability compared to the temporary". He assures that the market is experiencing a kind of slump that is making the profitability of a traditional rental today equal to or greater than that of a temporary rental , but this "is not going to last much longer." He adds that the oversupply and low demand that exists today in temporary rentals will be reversed and these, in the long term, will become profitable again, therefore, those well-equipped properties for temporary rentals, he recommends keeping them in that market.
In this sense, Soledad Balayan, director of Maure Propiedades, shares that “ there is an excess of properties equipped for temporary rentals (linked to AirBNB, that is, rentals for a few days), which generates an oversupply that is not being absorbed.” In any case, she does not believe that the recent drop in temporary rentals can explain the increase in permanent offers: “My feeling is that if you have already made the investment and equipped it, you are going to want to continue with temporary rentals. Maybe you'll take the plunge into a longer temporary rental.” In any case, after Milei's DNU, she recorded in her client portfolio that some owners had no problem offering their home for temporary rental for a longer period of time (from six months to a year).
Silvina Ovalles, founder of BA Rent, a venture that is responsible for managing more than 50 properties for temporary rentals from one day to three months (for property owners who cannot or do not want to occupy them) shares Balayan's view and says that in His case did not include any owner who has returned to the traditional one. “It has happened to me that there are owners who are looking to rent for longer terms, for example, for three to six months or up to a year,” she adds.
The profitability in temporary workers was much higher until a few months ago, but with Javier Milei's DNU and the repeal of the rental law, owners consider returning to the traditional market
“Perhaps before the repeal of the rental law, the only alternative to make a sustainable income was temporary. However, the traditional one can be traditional now too. I think there will be a greater supply of traditional rentals. Many people who know the great work involved in doing a temporary job decide not to do it and prefer to return to the traditional one,” Bryn anticipated at the beginning of January.
The results of the Bryn report with data as of February 2024 show that the gross monthly income of a temporary worker in February was US$675, which reflects a decrease compared to December 2023, which recorded a gross monthly income of US$731 In any case, Bryn points out: “ Gross income and profitability decreased a little, but it is still a better business than the traditional one . ” In that sense, the latest report shows that the gross annual income from investing in a temporary rental in February was 7.71%, while that of a traditional one was 4.72%.
The gross annual income of the investment in a temporary rental in February was 7.71%, while that of a traditional one was 4.72% Invest Monitor
Although legally there is no longer a minimum term to establish rental contracts, as was previously established by article 1,199 of the rental law, Enrique Abatti, president of the Chamber of Owners of the Argentine Republic, believes that “ this business model will continue to exist. ”. He explains that the one who has a furnished apartment with one room, or at most two, will remain in that model, because “it is his business and he charges much more than a traditional rental, the only thing that will not have the term maximum of three months.”
He points out that its profitability lies, among other reasons, in the possibility of renting it in dollars and that, although today a traditional rent can also be charged in that currency, "the tenant refuses to pay in dollars, because he prefers in pesos indexed every three months".
The effect of the dollar on temporary workers
The current context of the dollar in our country is a variable that can also influence the temporary employment market. Since they are generally charged in that currency, the flat dollar context benefits traditional rentals, but can harm temporary rentals. “ The traditional one, by increasing the rent in pesos and having a fixed dollar, increased its profitability,” says Bryn.
In that sense, Rizzo assures that the ironed dollar “is definitely affecting him.” He points out that owners today are not wanting to set contracts in dollars beyond 6 months, because “they fear that the dollar will fall too far behind inflation.” He assures that it must be taken into account that, unlike a traditional rental in which the owner only pays the real estate tax of the unit, in temporary rentals he is responsible for all expenses, including consumption. “For this reason, in a scenario of a flat dollar and such high inflation, owners fear that they will be greatly affected by increases in expenses and a rent that does not move ,” adds Rizzo.
“Last year and the year before was a very good year for the temporary one, far surpassing the traditional one; Now the traditional one has recovered a little and that is healthy too, so that there are properties for rent for ordinary tenants and not tourists,” says Bryn.
The B side of the temps
There are several reasons that could lead to “a return home” and to bet again on the traditional business, especially because of the work and dedication that temporary units require. “They have maintenance costs, expenses, services, wifi, ABL, among other services. That is to say , fixed costs are generated, which, even if it is unoccupied and the electricity is not used, you have to pay a minimum,” explains Victoria, property manager , who has been working in the sector for more than 20 years, offering temporary rentals from a few days up to three months (although in some cases they reach six).
In addition, owners usually hire a property manager , who is in charge of managing all the issues that the temporary rental requires. “Generally the host, the person who manages the temporary accommodation, charges 10% to 20%, depending on the function he or she performs in managing it (showing the apartment, replacing what was broken or taking care of resolving the repairs). To this we must add the maintenance expenses, which is usually another 10 to 15% more than the department's gross billing. Ultimately, costs can reach 30% of income ,” Bryn quantifies.
The maintenance of temporary rentals directly impacts the profitability of the business
In that sense, Ovalles details that “there is a first big cost of a temporary one, which is the investment to equip it, which will depend on the size of the unit, the age of the building, the area, the taste of the owner, among other factors.”
In addition, it ensures that other elements that generate expenses must be taken into account, among which can be listed:
1. Direct cost of the unit (ordinary expenses) : ABL (real estate tax on lighting, sweeping and cleaning), expenses, consumption of services (water, electricity, gas).
2. Cost of marketing or remuneration to channels/platforms : from 3% (Airbnb) to 15% (Booking), on the gross rental income (accommodation + any additional).
3. Fees for those who manage the property ( property managers): it is suggested to calculate 18% of the gross rental income (there are other forms of remuneration for the same service).
4. Washing linens , after each stay. It refers to taking into account the value of the valet or washing and ironing service (for which it states that a minimum of two of them must be calculated, for each rental).
5. Finally, it is necessary to calculate the cost of cleaning after each stay . It is suggested to estimate 2 to 4 hours per apartment, depending on the size and dirt.
Ovalles assures that the expenses she handles (fees, linen washing and cleaning), without taking into account the payments handled directly by the owner (the first two on the list) have an impact of approximately 30% on the gross income received by owner. “In the best case the impact is 22% and, in the worst case, it can have an impact of 35%. This is influenced by the possibility that it has not been rented enough, that there have been more washes than usual, because a room was always completely occupied, among others).
The occupation, another big problem
The occupancy of temporary rentals is not fixed throughout the year, but varies according to seasonality . However, to achieve profitability from temporary rentals, “historically, you would have to have 70% occupancy. The issue is that now expenses go up all the time, and it should be a little more,” Victoria added.
“There are times when occupancy is higher, generally it is the first five months of the year, and after that period it decreases a little,” says Bryn and details that the average occupancy per year in the city of Buenos Aires usually varies. between 65% and 70%.
The average occupancy rate for temporary workers has decreased greatly in recent times.
The oversupply of properties published for this purpose that exists today (as Balayán detailed previously) has an impact on the occupancy level and impacts values . As Rizzo assured, today there is a greater supply of properties for temporary rental than demand, but “many properties that were temporarily rented are going to begin to be converted to traditional rentals, and temporary rentals are going to start to rise again.”
In that sense, Bryn explains that temporary rentals for tourism purposes are at 60% occupancy . “That is to say that there are 12 days a month, on average, that it is unoccupied . We went from December 2022, which was 75% occupancy, to December 2023, which is 60%. “That is related to the amount of supply,” he concludes.
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