Bumbling Proposals To Curb Short-Term Accommodation

Updated: Jul 21, 2019

There is a proposal that will allow STAs to operate for only 90 to 180 days in a year. According to The Star report, this proposal is part of a revision of existing laws that will come into effect next year.

The first question that comes to mind when reading this proposal is why 90 to 180 days? I mean it could be 30 days, or 45 days or even 270 days. There is not much explanation from The Star on the reason for a 90 to 180 day limit. I was hoping to read comment from Malaysia Productivity Corporation, the body that prepared the proposal.

Quit clowning around

How Will This Rule Be Monitored & Enforced?

It will be extremely difficult for the government or regulatory agencies to monitor this limit on STAs. Homeowners can easily hide their occupancy data. The only way for the government to monitor this is to get AirBnB to monitor and ensure that its hosts comply with the limit.

In the past, AirBnB has been reluctant to do this. In the event that AirBnB does agree to do this, it may not be effective. Think about this; you are a multi-billion dollar, profit-driven organisation to monitor and report a policy that will drive down its profits. How do you think that is going to work out?

Even if AirBnB does agree to limit its hosts operating durations, this can be easily circumvented by the hosts themselves. They could list their properties on AirBnB for 180 days, then list on other platforms like Agoda, Expedia, Booking.com, C-Trip, Homeaway, and Trip Advisor for the balance days in the year.

It would take a very, very efficient government to be able to monitor and enforce this rule.

House Prices Have Increased Dramatically In Malaysia Because of STAs?

Malaysia Association of Hotels CEO, Yap Lip Seng, offers an explanation. He claims that "a limit would counter the negative effects of home-sharing on property demand and value." Seriously?

Lip Seng, goes on to explain that home-sharing causes house prices in cities to rise to the point that genuine home owners cannot afford to buy those houses. Really?

Home prices rise because of inflation, scarcity, and other economic factors. These increases can be amplified through speculation and easy credit. Lip Seng would be doing us a favour if he cared to mention which cities in Malaysia have seen sharp rises in prices due to the home-sharing phenomenon.

AirBnB became a significant player in the Malaysian property scene sometime in 2014. Since then, price growth in most major cities in Malaysia have reached a plateau. Going by Lip Seng's fantastic cause and effect analysis, one cannot be faulted for coming to the conclusion that, in Malaysia, the rise of home-sharing has caused a dramatic slow-down in price appreciation.

Homeowners Should Only Rent Out Rooms

Malaysia Budget Hotel Association President, P.K Leong says that homeowners should only be allowed to rent out rooms not an entire apartment.

Does that mean the homeowner of a 3-bedroom apartment can rent out 3 rooms to different guests at the same time? AirBnB does have that option by the way - where you can rent your entire apartment on a per room basis.

What problem is this supposed to solve Mr. P.K?

P.K further stresses that STAs should only be allowed in properties with commercial titles and they should be subjected to all the taxes imposed on licensed hotels.

This would make sense if STAs are hotels in the same way that budget hotels are. The fact is they are not. They're a hybrid. Construction cost per square meter of a budget hotel in Malaysia is in the region of RM5,000.

So the typical budget hotel room, which should be 30 sq.m by DBKL guidelines costs about RM150,000. After apportioning land cost (assuming a price of RM2,000 p.s.f, land size of 15,000sf, and 130 rooms), the total room cost is about RM380,000. Such a budget hotel in the city would be able to charge nightly rates of RM100.

A studio apartment in the city which is typically 50 sq.m can cost upwards of RM700,000 including furniture costs. The price that a typical AirBnB host can charge for a luxury 50 sq.m apartment? RM170 per night.

The cost to nightly price ratio for a budget hotel is 1:3,800 whereas for a STA it is 1:4,100. The budget hotel operator has a good cost advantage. In addition to this, the budget hotel operator has economies of scale which the typical homeowner does not have (some huge STA operators like OYO and Hyatt House are an exception).

The majority of STA operators are homeowners or small operators. They do not have the ability to stream cable TV from a single decoder to multiple apartments or use one WiFi router for a whole floor. Every apartment (even studios) may have 2 air-conditioners. A typical budget hotel room would have 1. Again, there are huge cost disadvantages for the homeowner.

The playing field is not level for an equal tax and regulatory structure.

Missing The Woods For The Trees

The real problem with STA in Malaysia is a social problem. It can disrupt the quiet and peace that residents of a building or neighbourhood enjoy. There are security concerns.

There is an increasing chasm between buy-to-rent and buy-to-occupy owners. Both groups have different priorities and balancing the interests of both sides is a very fine line that has snapped in one too many apartment buildings and neighbourhoods.

This is the problem that needs to be addressed. Residents want to live peacefully and feel safe in their neighbourhoods. Investors want to be able to maximise their property returns. Government bodies should be focused on bridging this gap.

Limiting the operation of STA to 90 days is not going to solve this socio-economic problem. It serves no purpose except to placate budget hotel owners. I do not believe STAs compete with 4 & 5 star hotels. Budget airlines did not kill off traditional airlines. They opened a whole new market. In that same context, STAs are not going to kill off 4 & 5 star hotels. They just opened new markets.

The clientele of 4 & 5 star hotels will not stay in a STA. They want concierge services, room service, facilities like restaurants, business centres, and a direct line to the front desk for any inquiries or complaints they may have. An STA does not offer these services.

What the STA market needs is a regulatory framework to host responsibly. Government bodies should be working with management of stratified buildings and neighbourhoods to help create streamlined processes to ensure the security of residents, weed out "party" guests, and educate homeowners on best practices. Increased cooperation is needed with police stations. More responsible hosts are needed. This is where the focus should be.

The government need not worry about the level of service that STAs offer tourists. AirBnB has an excellent review system that works better than any form of regulation. Peer-review systems have proven to be far more effective in weeding out bad service providers and encouraging higher levels of service.

In the current scheme of things, the government is only stifling micro-entrepreneurship. AirBnB said that it contributed RM200.4 million to the local economy in 2017. This cannot be overlooked. Please do not miss the woods for the trees.

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