Pressure Mounts for Strict Regulation of Short-Term Accommodation

In reaction to the rising numbers of property investors buying up several apartments for short-term rental, the hotel sector is putting pressure on governments.....

In reaction to the rising numbers of property investors buying up several apartments for short-term rental, the hotel sector is putting pressure on governments at all levels to reform the regulatory framework for short-stays to better protect the interests of guests and property owners going forward.

Hotel industry insiders believe the problem extends beyond the services of Airbnb and other holiday rental websites and is equally attributable to increased property investment in tourist hotspots around the world.

Improved Tourism Figures Globally Attracts International Property Buyers

Many of the more popular countries in Europe for holidaymakers have enjoyed a significant increase in visitor numbers over the last two years. Spain is Europe’s biggest beneficiary of improved economic conditions in the UK, being the most popular holiday destination for British families since the 70s.

Property markets in tourist hotspots such as Marbella in the Costa del Sol have been showing the green shoots of price growth since Q3 2014, as investors snap up holiday rental properties in the world-class resort.

Multiple Holiday Home Owners Considered Commercial Operations

The hotel industry state that more than two or three apartments being rented out for short-stays constitute a commercial enterprise and should be more regulated as a matter of urgency.

Hotels have to follow stringent guidelines such as installing fire doors, providing disability access and holding appropriate insurance for their short-stay rooms but the same guidance doesn’t apply to apartments.

Australian hotel sector representatives Tourism Accommodation Australia (TAA) believes landlords proposing to offer rooms or apartments for short-term rental should meet guidelines relating to health and safety requirements for their guests. They also suggest a requirement for adequate liability insurance and that they pay appropriate taxes and council charges with properties having to comply with building codes and strata management regulations.

Just ‘Sour Grapes'from the Hotel Industry?

Again using Spain as example, international academics ESADE reported that 14 % of tourists in Spain used holiday rentals and spent more than €2.6 billion on short-term accommodation in the country's resorts last year. Their research shows that a staggering nine out of ten people who stayed in a holiday rental in Spain in 2014 said they regularly used this form of accommodation whenever they travel in Spain.

That’s a significant chunk of revenue that would be destined for the coffers of hotel operators if not for the wealth of choice now available to holiday makers from private landlords at lower prices. It’s also a value-laden opportunity for property investors in tourist hotspots around the world, particularly if there are currency advantages to be factored in.

Standards in Short-Term Accommodation Surprisingly High

Two-thirds of the tourists who used holiday rentals in Spain said they signed a contract with the owner of management company and the majority said they were informed of the rules of the house and the homeowners' association as soon as they checked in.

Specific holiday rental websites like Airbnb continue to be the main driver of bookings for this type of accommodation with 98% of short-term guests saying they booked their stay online.

Quasi-Hotel Owners Target of Hotel Sector

Concerns of the TAA are more pertinent to the increasing number of property investors buying apartments in the same block and bundling them together in a makeshift hotel.

TAA acting chief executive Carol Giuseppi said turning apartment blocks into quasi-hotels in this way needs to be regulated to ensure the interests of guests and owners are properly addressed.

"We are not looking at individual apartment rentals or Airbnb-style accommodation but we are concerned when there are many flats bundled together and rented as short-term accommodation which becomes a commercial enterprise," Ms Giuseppi said.

"We want to see a transparency of supply and see if we can get a standard around the legislation. There is a major difference between an individual letting out a room in a house to a fully commercialised operation involving renting out apartments as a business," she added.

Advice to Multiple Property Investors

The TAA are among the growing number of hotel industry bodies recommending the introduction of model legislation agreed by state, territory and Commonwealth governments that requires the registration of premises that are used for commercial short-stay accommodation but are not currently meeting a range of health, safety, tax and regulatory requirements.

In essence, investors looking to make multiple purchases within one building with any intention of operating short-term rentals could face much more red tape, taxation and potential fines if regulations are enforced in the form they are being lobbied by the sector.

However, with most investments being remote to the buyers'country of residence, it’s always wise to ensure a good structure is in place to ensure your investment is responsibly managed. Also, as a key part of your due diligence process it’s vital to consider all the ramifications of multiple investments in whatever country you choose to buy property, particularly as it can impact your margins.

- Friday 24 July 2015

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