Holiday homes encroaching on hotels but headwinds loom

Holiday homes are set to increase from a fifth to a quarter of the holiday accommodation market in the next few years, as open borders and changing tastes lure more holidaymakers to private accommodation options and away from hotels.

Vacation rentals data released recently by Statista showed that in Australia, short-term private rentals represented 20.1 per cent of all accommodation bookings, with forecasts it would hit 24.3 per cent by 2026.

With international and state border closures, the last two years have forced Australians to get creative with their holiday planning and destination choices.

Many Australians leveraged their newfound freedom of working from home to explore buying their own holiday home, in locations that not only gave them more room to move, but a more laid-back lifestyle.

As a result, demand for regional housing increased significantly, with the most popular regional markets seeing house values rise more than 30 per cent over the last twelve months.

With international and state borders now open, many are wondering what the impact will be on the holiday home market throughout Australia.

Tim Lawless, Head of Research at CoreLogic, said there were some headwinds looming for the holiday home property market.

“It is likely regional markets, especially those with a lifestyle appeal, will continue to benefit from higher demand as remote working policies are more normalised and demand for holiday homes remains strong amid continued international border restrictions.

“However, as interest rates have bottomed out, and affordability constraints extend to regional markets, these housing markets may also move into a downswing phase over the course of 2022.”

East coast a tourist lure

Travellers have had have their say on where the best destinations in the South pacific are to unwind, with the Trip Advisor 2022 Travellers’ Choice Awards for the South Pacific including six Australian east coast destinations among the top ten.

The Gold Coast took out the highest spot, coming in fourth, followed by Hobart (fifth), Sydney (sixth), Port Douglas (seventh), Cairns (eighth) and Melbourne (ninth).

The pandemic has reshaped what travellers are looking for in accommodation. A tiny hotel room in a sky rise building is no longer necessarily hitting the mark, with space and scenery taking the top place for travellers.

Darren Karshagen, Director of ANZ Vacation Rentals at Expedia Group, believes the increasing preference for holiday home accommodation over hotels is here to stay.

“Australia is a long way away from most countries, which is why historically travellers from our top three inbound markets - the United States, Japan, and the United Kingdom - typically take longer trips than domestic travellers and stay an average of three nights per location - which is only set to increase.

“There is and will be for some time, a greater emphasis on minimising encounters or shared spaces with other travellers.

“We expect to see a return of longer trips, lasting weeks at a time, which has a natural benefit on the spend and income for short-term rental owners.

“That desire for extended breaks, combined with the newfound flexibility of remote working, presents great opportunities for hosts who are seeking solid lengths of stay from holidaymakers,” he said.

He added that 56 per cent of those who can still enjoy remote working arrangements will partake in business leisure while holidaying.

Annie Mitchell, Luxury Accommodation Manager at LJ Hooker Port Douglas, said privacy and unshared facilities were an attraction for holiday homes over hotels.

“A lot of holiday homes are being occupied by their owners trying to get out of the big cities because of Covid.

“The holiday homes that are being rented out are being snatched up by families who like staying in this type of accommodation for more privacy,” she told Australian Property Investor Magazine.

Rental or short-stay?

The returns for short-term accommodation are generally higher compared to long term traditional rentals but at the risk of letting the property to strangers. 

As well as the far more labour-intensive management associated with constantly changing tenants, there are more charges and expenses.

Many property managers charge between 8-12 per cent of the monthly rent for long-term rentals, but short-term rental management can range from 25-40 per cent or more of the gross income. That excludes other costs, such as cleaning or yard maintenance.

Real estate experts still argue that purchasing a holiday home is a wise investment, or for the wealthy, an attractive option as a secondary home.

Darcy Smith, Sales Specialist at DJ Smith Property in Cairns, said the city’s access to an international border allowed owners and visitors to travel to and from anywhere in Asia with ease.

“There’s an array of services available that enable your home to be managed in the short-term holiday rental market while you’re not using the home, or if you can set your holiday dates in a regular time of the year, we find tenants to permanently rent for the other 11 months of the year.”

Mr Smith said those looking to buy a holiday home may want to consider an apartment due to the reduced maintenance required during an absence.

Annie Mitchell, Luxury Accommodation Manager at LJ Hooker Port Douglas, shared the same sentiment.

“So many people are trying to travel up here for holidays, so it’s beneficial to be buying an investment property at the moment and a holiday home for your own use.” 

Like other industry experts, Ms Mitchell sees the holiday home market continuing to grow in not only Port Douglas in 2022, but across many regional locations in Australia.

“I think it will continue going up now that the international borders have opened, and we have already started to receive bookings from guests from New Zealand and Europe.

“We are expecting a strong domestic travel market in 2022, with an increasingly international clientele as we move through this year.”