Breathing in AirBnB
The property industry is buzzing. Not since the advent of online property listings has there been such excitement for something such as this. It all started from Airbnb, a company founded by a bunch of people who simply wanted to rent out their loft to make ends meet. Today, Airbnb is the go-to site for short-term rentals. From here the vacation rental business was born, and now everyone is slowly picking up on the Airbnb mechanism â€“ from homeowners, investors, even developers.
First of all, it should be clear that Airbnb is an online-driven hospitality service enabling people to lease or rent out their properties. Airbnb stands for "Airbed and breakfastâ€ so you get the idea. Much of the appeal of this is people get to experience neighbourhoods like a local by staying in homes rather than hotels. People also enjoy the extra comfort and luxuries of a home.
Sabah as a tourist destination is perfect for Airbnb. Ivan Chong, CEO and Founder of Widebed Sdn Bhd, a vacation rental management service provider company, believes that vacation rentals will continue to be in demand, saying, "3.4 million visitors arrived in Sabah in 2016, with approximately 10% growth (from the previous year). 36.9% of these are young travellers." There is a demand for leisure lifestyle accommodation and Ivan believes the potential is high for the Sabah market.
What makes Airbnb such a hit is how easy and accessible it is to not only rent but to lease out and host patrons. Through the Airbnb website or app, property owners can list their units and open it for booking within minutes. Likewise, those looking to rent simply input their details, date and length of their stay and proceed to make payment online. Similar to Uber for transportation, Airbnb has disrupted the entire hotel industry as people start to turn their homes into full-fledged Airbnb suites and running their homes like a business. Airbnb's home-sharing segment carry its fair share of controversy but presents plenty of opportunities as well.
Making Money from Air
Airbnb is such an appetising venture for investors because of the higher profit margin and quicker turnaround compared to traditional renting. For the sake of demonstration, let's assume you have a condo unit; after signing the paperwork and paying your agent, you are able to rent it out for RM2,000 a month. Great. You are generating income, netting roughly about RM800 a month after factoring in your loan repayment. However, by utilizing Airbnb to book your guests, you may gross RM200 a day â€“ that's RM2,000 for a 10-day booking. Which would you prefer? One earns double the typical rent in a month â€“ if done correctly, in addition to removing all the hassle of dealing with paperwork.
If you do decide to jump onto the "Airâ€ balloon, keep in mind it isn't as easy as buying a property, listing it, and welcoming patrons to your new space. Calculate your costs, you will still need to factor in your loan repayments, management fees, maintenance, household necessities etc. On top of that, you will need to upgrade your unit from an empty lot to a cosy and stylish abode. Also, note that Airbnb charges a 3% fee on every booking made via their platform. Renovations will need to be done make your unit Airbnb-ready. Ivan from Widebed estimates that renovations can range from RM10,000 to RM20,000 for a small studio, RM30,000 for a 2-bedroom apartment and around RM40,000 for a 3-bedroom condominium or apartment.
Enter specialized vacation rental management firms or operators â€“ a by-product of the Airbnb wave. These are groups of professionals who are knowledgeable on the topic of optimizing Airbnb spaces. If you own a home you'd like to be managed, they will come in and take care of the whole of your property from listing to cleaning. In return, they will take a share of the booking fee, ranging from 30 to 40 percent. Via this avenue owner who do not have the time nor expertise to manage bookings themselves will be able to get into the Airbnb market without much hassle. There is a huge number of property owners who are just too busy to tend to their properties and leave their units idle.
Kenny Wong, Director and co-founder of Wowspace Sdn Bhd believe they are a real-estate solutions provider, adding, "Our involvement begins by value adding to the property, as well as providing design and build solutions to maximise the potential of the property. We provide value for the travellers and at the same time fetching higher rental yield for the owners which in turn increases the value of the property in the long run.â€ He also believes that the demand for Airbnb units will continue to flourish as it caters to the demands of a younger generation of travellers who plan their own itineraries outside of conventional tour packages.
Giving his thoughts on Sabah's potential in the Airbnb market, Kenny says "I believe that Airbnb or vacation rental business will continue to grow for the coming years. However, this is a double-edged sword. With the rapid growth of demand for Airbnb space from the operators, the rental for these properties will skyrocket in a short period of time. Small-scale operators will definitely be affected especially when their previous tenancy agreement has ended, the landlord will ask for a higher rental due to the overwhelming demand.â€
The success of your listing depends on the ratings given by your patron, so you have to make sure your place is in top condition and you are a hospitable host every time. Right at the top of the list is cleanliness, no one likes a messy home, so you will need to spend time cleaning after your guests if you are to garner good reviews. What all of this comes down to is, will you have the time to properly manage your space? If not, you might want to consider the assistance of a management company to absorb the worries.
Developers are also in for the Airbnb ride. With issues surrounding the legality of running an Airbnb in residential units, developers have by-passed the issues with marketing commercial SOHO type units for Airbnb. A good example of developers taking Airbnb to the heart is SG City mixed development by SG Group that will feature a hotel tower fully managed as Airbnb units. Buyers will be able to purchase individual units here and opting to let it be managed by the developer. Newly opened ITCC has also enlisted a company to manage Manhattan tower as Airbnb. Another project would be Bay 22 by Remajaya Sdn Bhd that has developed their plan with Airbnb in mind, allocating certain floors of a residential condo as commercial lots to be utilized for Airbnb. As people adapt, developers are enlisting the help of short-term stay management companies like Ivan's Widebed and Kenny's Wowspace, management teams who are well-versed with the world or Airbnb, to make sure that their project is vibrant and generating revenue when the project completes. Airbnb has truly challenged the traditional way of thinking when it comes to developments and investments.
Legal Issues on Airbnb
The sharing economy is a volatile one. Depending on new legislation and regulations, your dream of becoming an Airbnb host can be crushed even before it begins. Rules can vary between city to city, even development to development. Bear in mind, the management of your newly acquired property may or may not be welcoming to listings on Airbnb. Also, listing your residential unit on Airbnb might get you in trouble with the law following complaints from the neighbours.
As of writing this article, no new form of regulation or update has been implemented for Airbnb on the state or federal level. For many it is still unclear whether the management council can restrict Airbnb activity on their premises. However, there are existing laws that may apply. According to Stanley Chong, Director of City Planning Department Kota Kinabalu, Airbnb falls under the Hotels and Lodging Houses By-Laws 1966. "Only land zoned for commercial or commercial mixed-use areas may be used as Airbnb" Stanley said, adding that there must be a grant of license by the city council to the operator as well as a health certificate in order to deem an Airbnb operation legal. Stanley also said that it is the right of the Management Council to restrict or allow home-owners run Airbnb activities. So, it is vital to know the facts and know the legality of running an Airbnb space in your building.
Stanley does agree however that there must be an adjustment made to regulations to include Airbnb as these regulations are widely ignored by the general public. Most would agree on the creation of new regulations regarding the issue, including Airbnb hosts. The question to ask is how well will these regulations be enforced by the authorities and how severe will the charge be.
Kenny is of the same opinion to Stanley saying, "I agree that Airbnb has to be regulated with proper guidelines so not to cause inconvenience to other residents in the building and at the same time safeguard the travellers interests. To be fair to potential house buyers, they should be made known whether the property is under commercial zoning before signing on the Sales and Purchase Agreement.â€
As of September, the Tourism Tax Act 2017 has come into effect. Accommodation premises such as hotels are now obliged to collect a RM10 tax from tourists for a night's booking. "Accommodation premisesâ€ is defined in the Tourism Industry Act 1992 as "Any building, including hostels, hotels, inns, boarding-houses, rest houses and lodging houses, held out by the proprietor owner or manager, either wholly or partly, as offering lodging or sleeping accommodation to tourists for hire or any other form of reward, whether or not food or drink is also offered.â€ In the case where accommodation premises such as houses or apartments managed by an operator, irrespective of whether such premises are in the same locality, the operator is required to be registered if having 5 accommodation rooms or more. What this means is, if you manage properties that cumulatively exceed 5 rooms for Airbnb, the law should apply to you as well and you are required to apply tourism tax. These laws are new as it remains to be seen how effective enforcement of these laws are in time.
Keep in mind that Airbnb is simply a very good broker or middleperson. They are only providing a service and you as the owner will be liable for anything that might happen. No doubt, there is an ever-growing demand for Airbnb especially in Sabah with the influx of tourists into the state. That said, be diligent and always keep a finger on the industry's pulse and keep an eye out for regulations that may pop up regarding Airbnb accommodations in Malaysia. It would be wise to future-proof your investments.
SIGN UP NEWSLETTER