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Throwing down the gauntlet

Released at: 08:07, 07/01/2018

Throwing down the gauntlet

Photo: Viet Tuan

Over time, Airbnb and similar sites will pose a major problem for hotels of all sizes.

by Hong Nhung

Late one Saturday evening after finishing work, Ms. Nguyen Nhu Quynh, a 35-year-old businesswoman living in a newly-purchased apartment at Vinhomes Central Park in Ho Chi Minh City’s Binh Thanh district, was surfing the internet to find information. In particular, she was keen to find out what photos to use and how to write a post on Airbnb that would attract local as well as international travelers. 

She and thousands of others in Vietnam have found a new business opportunity in leasing vacant rooms in their home or letting out empty properties. This has gradually become an important sub-segment in Vietnam’s emerging real estate market, and forms part of the “sharing economy” now taking shape around the world, which seems sure to eventually influence the business of hotel operators.

The “sharing” era

Airbnb joins Uber and Grab as the most recognizable of the new “sharing” business models that have changed the way people around the world access and use services. It provides an online market for hospitality services based on technological platforms that connect people seeking accommodation with those looking to rent out space, and takes a fee from transactions. The relatively new service has found favor among the Millennial generation, who have grown up during the digital era, because of its cheaper prices than hotels and, more importantly, the chance to experience a different culture when staying with local owners. 

Collecting fees of 3 per cent from the homeowner and 6-12 per cent from tenant, Airbnb has seen its global revenue increase rapidly since appearing eight years, which now stands at some $30 billion in total. Payments are only made via credit card, and both lessor and lessee review each other afterwards, which has a major impact on both. 

Different from traditional hoteliers, Airbnb users cannot make cash payments. But compared to hoteliers and traditional accommodation service providers, Airbnb attracts customers with its competitiveness, which is presented not only in cost savings but also in the provision of a wide range of detailed information. 

Ms. Trinh Thu Hang, a 52-year-old editor living in a comfortable apartment in Ho Chi Minh City’s Phu My Hung Urban Area, decided a few months ago to join the Airbnb community, after her son went overseas to study. She’s catered to five or six foreign tourists every month since, earning an average of $20-30 each night. “I’m picking up around $400-450 every month, but most importantly I feel my home is ‘warmer’,” she said.

Luxstay, similar to Airbnb and founded in Singapore, has also become popular in Vietnam due to its large property network with prime sites in leading travel destinations, such as Sapa, Hoi An, and Hoa Binh. The one-year-old startup gained renowned after successfully calling for investment from Japan’s Genesia Ventures in the middle of this year. “We target older customers and more luxurious real estate than Airbnb does,” said Mr. Steven Nguyen, Co-founder and CEO of Luxstay.

Expansion boom

Airbnb has been available in Vietnam since 2015, with the initial 1,000 rooms for rent growing to 6,500 listings by the middle of this year, primarily in Hanoi and Ho Chi Minh City, according to the latest research from Grant Thornton Vietnam. Meanwhile, thousands of apartments and villas in Ha Long, Sapa and Da Nang are for rent on the platform, with prices 30 per cent cheaper than comparable hotels. Hanoi has been ranked sixth among ten destinations with the highest increase in bookings in 2017, according to Airbnb. 

Airbnb’s figures also show that Vietnam has among the highest rate of homeowners with listings on Airbnb, at 30 per cent. The rate stands at just 9 per cent in Paris, 16 per cent in New York, and 17 per cent in Sydney. “It is a relatively new form of accommodation in Vietnam and significant growth has been seen over the last two years,” Mr. Kenneth Atkinson, Chairman of Grant Thornton Vietnam, told VET. “More travelers are using Airbnb, which is quite popular in developed countries like Europe and North America, and the market will continue to grow in Vietnam unless it is hampered by the regulatory environment.”

Luxstay’s network is also expanding domestically, reaching around 400 bookings each month on average, and 120 new apartments were listed during August alone, according to Mr. Nguyen. It aims at 20,000-30,000 new members within three to five years, and with its latest funding targets becoming the largest short-term rental platform in Southeast Asia.

Hotels in Ho Chi Minh City acknowledge Airbnb’s increasing popularity. “The number of international tourists coming to Vietnam is soaring but reservations at four and five-star haven’t really increased since 2014,” a representative from Pullman Saigon told VET. “This accommodation sharing model has had an influence on the four-and five-star hotel business.” 

Pressure mounts

Recent reports have revealed that while occupancy has been increasing slightly in main cities in Vietnam, room rates have declined. This could in part be because of the competition from new hotels and also Airbnb. “Hoteliers cannot ignore the impact on the market that Airbnb has had over the last couple of years,” said Mr. Michael Robinson, General Manager at the Caravelle Saigon. “That being said, we feel that it does not necessarily take away business from the hotel but enables more travelers to experience the country. Airbnb and similar sites provide a local experience and give travelers more choice in accommodation options.”

Airbnb accommodation, however, is unlikely to have any real impact on the luxury segment, because few of its listings offer the services provided at luxury hotels, according to Mr. Atkinson. The Caravelle Saigon has worked hard to provide its guests with a more local and authentic experience. It has recorded 30 per cent growth in occupancy this year and seen a slight increase in overall growth in revenue per available room (RevPAR), and expects this steady growth to continue into 2018.

The major impact from Airbnb, at least in the short term, is likely to be on the mid-price hotel market, where guests are looking for value for money and also greater freedom and flexibility. The Grant Thornton report shows that the current availability of Airbnb in Vietnam is equal to over 30,200 hotel rooms, so it surely has an impact on all hoteliers. The actual impact, however, may be less obvious given the 30 per cent growth in tourist arrivals.

For other real estate segments like condotels and serviced apartments, according to Mr. Atkinson, Airbnb does not pose a threat but instead offers property owners a specific platform to the market, helping buy-to-lease owners improve their return on investment and also encourages multiple property ownership, because it serves as an online travel agent (OTA) for property owners. “As Airbnb is really an alternative platform to other established OTAs, the impact will be in the context of people switching from hotel accommodation to private accommodation,” said Mr. Atkinson. “Again, the impact may not be felt in absolute terms because of the significant increase in tourist arrivals and domestic tourists, but for sure it will be taking away business from OTAs.”

The potential growth of Airbnb in the years to come will require some form of regulation rather than rely on travelers’ feedback and reviews. “With this comes a risk of oversupply, which in turn will curb rates, making it less attractive for owners and investors,” said Mr. Robinson. “There will always be a market for travelers staying in fully serviced accommodation, and if Airbnb is not regulated this will only strengthen the confidence guests have in hotels and their amenities.” 
According to Grant Thornton, the only real limitation on the expansion of Airbnb is the number of property owners wishing to rent out their properties. But the channel is yet to be properly regulated and in many cases guests are not properly registered with local authorities, as required, and this is likely to lead to the introduction of new regulations or the tightening of existing regulations in the medium to long term. There are also risks for guests, in terms of safety and security, as it’s unclear whether all listed properties meet acceptable fire and safety standards.

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