District councils in Budapest will have the authority from now on to regulate the number of the utilizable days regarding short-term renting. The districts probably have different impressions about the topic so it is hard to predict the possible outcomes. Public discourse and the discussions of the experts indicate that the mostly affected districts could maximize the number of utilizable days in 120 which would definitely have a great impact on the market’s functioning. Owners trying to switch to a hybrid model is predicted by many; operating an airbnb for 120 days and trying to target other segments of the market in the remaining period. It raises the question: is hybrid renting a realistic concept? Can it compete with the benefits that short-term renting offers? Let’s find out.
To answer the question, we must take a look at the differences between the forms of renting first; comparing their advantages and disadvantages. Benefits of mid and long-term renting would be the relatively simple taxation, the diverse perks that the different locations can offer, the energy saving operation and the lower risk regarding the return. As disadvantages one could mention the greater amortization, the balanced but more moderate profit, the burden of finding the right tenant, the yield loss in the time between two tenants and the regulations which don’t offer the same security to the owners as the tenants. Short-term renting offers a greater yield along with lesser amortization, the absence of the frustration of searching for tenants and the safety net provided by the third party sites; although occasionally – and usually in regard to properties operated illegally – it may be accompanied by dissatisfied residents, complicated taxation and great energy demand (of course these can be solved easily by trusting a group of experts with managing your property).
The benefits of short-term renting are unquestionably attractive to the owners so they will probably try to utilize their property this way for as much time as they can. The remaining period (app. 8 months) could be more interesting for the audience of the mid-term segment; in long-term renting the parties usually look for signing a contract for at least 1 year so they might be less interested in such a period. However, mid-term renting is a narrower and more special market and it is harder to attract the attention of it’s participants. Guest workers looking for housing for 1-2 months, people coming for health treatments, Hungarians living abroad coming home for a visit, property sellers waiting for their new homes to be ready to move in and university students are the actors of this segment. It is clear that the differences between the participants here are a lot bigger than in other aspects of the market; and so fulfilling their needs are more complicated as well. Not to mention that because the targeted segment is so narrow it is obvious that finding the suitable tenant is really hard too.
The biggest preparation is by all means required for being able to utilize as most of the 8 month period as possible. This is way more difficult in case of mid-term renting than in any other model. A good way could be renting out the property for short-term in the summer season then for a longer term in the fall and the spring. However, students are a price sensitive group of the market; on the contrary, short-term renting offers the highest achievable yield so it’s hard to imagine the different needs to be aligned with one another. In addition, longer rental status brings a higher amortization, a cost that the owner either builds into the rent (which would already require serious compromises to begin with) or it accounts for a loss of yield which would probably be big enough to make the investment uneconomical since the property is not utilized in the most suitable form already. Although the properties in central locations shouldn’t necessarily compete for price sensitive actors but it seems clear that the Hungarian national market can’t provide an alternative as profitable as the airbnbs filled with welthier Western tourists.
Other participants of the mid-term segment may not be as price sensitive but they are lesser in number so it would take some very optimistic investors to build their business models depending solely on them; it is almost undeniable that the app. ten thousand airbnb apartments in Budapest would have to compete on such a level with each other to target these participants that it would surely make a large deficit in the investments.
An investment’s economical success is also very much dependant on the taxation. There is a significant tax burden on the short-term renting businesses at the moment which can be redeemed with flat-rate taxation but it must be payed for a full year. Would some kind of a double taxation come along with hybrid renting? If yes, that would definitely make short-term renting virtually impossible since the burden would be too big not even the higher return could make up for it; not to mention that the 120 days would not be enough to make the investment economical (let alone especially profitable!).
Is hybrid renting a realistic concept? Maybe for a few, but it surely requires a lot more care and expertise. It would be crucial for the national market’s participants to be able to compete against the benefits provided by the international actors of short-term renting. The targeted market segment seems to narrow and the lower possible return would only be profitable for some. It is unlikely that crowds of property owners will switch to this model and a regulation like this would bring changes that only a few could adapt to.
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