Shaky law on Airbnb rentals

Shaky law on Airbnb rentals

Beachfront vacation: Tourist hotspots like the beach town of Hua Hin are proving magnets for daily rentals on platforms like Airbnb which many travellers prefer over traditional hotels.
Beachfront vacation: Tourist hotspots like the beach town of Hua Hin are proving magnets for daily rentals on platforms like Airbnb which many travellers prefer over traditional hotels.

A court ruling on Airbnb in Hua Hin was meant to weaken sentiment among condo buyers who buy units to rent out on a daily basis. Yet the data shows the number of daily-leasing units continues to rise.

Endless choice: A snapshot of listings available on Airbnb in Hua Hin. PHOTO: screen capture Airbnb web

Apichart Chutrakul, chief executive of SET-listed Sansiri Plc which has developed a large number of condo projects in Bangkok and the provinces said developers cannot stop condo buyers who want to rent out their unit on a daily basis.

"We cannot control it and it's not our duty to do," he said. "After we develop a condo project and transfer units to buyers, it is the juristic person's duty to manage the property."

Sansiri has a subsidiary, Plus Property Co, which is a property consultant and property management firm. It manages Sansiri's projects once completed and delivers units to buyers.

"If the majority of co-owners at a condo project agree to allow daily leasing, we as a property management firm need to follow their resolution," he said.

He said the daily leasing of residential units is a world trend of the sharing economy. Like Uber, those who benefit are consumers, while the taxi drivers lose out.

However, government agencies cannot prove whether a car with passengers is an Uber or not.

Many cities in the world have tried to ban Airbnb but the number of units available on the platform has not declined.

"If non-Airbnb unit owners say that Airbnb infringes upon their ownership rights, they must realise that they [non-Airbnb unit owners] cannot infringe upon other owners' right [to rent out on a daily basis]," he argued.

Mr Apichart does not believe that laws can enforce a ban on the daily renting of condo units, just like laws can't guarantee people don't cross the street in non-designated areas.

"In Thailand, daily and weekly rentals are already difficult to do as hotel rates are cheap," he added.

Tritecha Tangmatitham, managing director of SET-listed developer Supalai Plc, said the company has a policy to prevent buyers who purchase condo units for daily renting by limiting customers to one unit per project.

"Investors who aim to buy for daily renting usually buy many units at a project as the management cost will be lower than having only one unit at a site," he said.

Chanin Vanijwongse, chief executive of developer Habitat Group, which offers a rental yield guarantee at its projects in Pattaya, all of which have a hotel licence, said a court ruling on Airbnb in Hua Hin will have an impact on developers and buyers renting out on a daily basis, particularly in resort destinations.

"This ruling will not affect a condo if it has a hotel licence," he said. "Any condo which is under construction and wants to offer daily rent can adjust the specifications to bring them in line with hotel regulations and apply for a hotel licence."

He suggested developers that want to attract investment from buyers with the intention to rent units daily should apply for a hotel licence, set regulations for the project, and notify all customers that the project will offer daily rent units.

Developers may divide projects into zones such as a residential zone and daily-rent zone. The buyer should study project details before making a decision on purchasing. The juristic person at a project without a hotel licence should not support the Airbnb business, he added.

Dexter Norville, director of property and asset management at property consultant JLL Thailand, said a court ruling to an Airbnb operator in Hua Hin serves as a clear statement of intent that the law needs to be followed by co-owners within buildings that do not have the necessary licence.

Therefore, the decision may scare off some investors who want to purchase a condominium to let on a short-term basis, whether by themselves or through Airbnb or any other operator.

However, different markets may feel the impact to various degrees. Condo markets in major holiday destinations such as Hua Hin and Phuket, where there are high levels of demand for short-term rental accommodations, should feel the impact more than Bangkok.

In Bangkok, most condo unit co-owners purchase units for their own use or to rent out long term.

"If condo developers want to ensure buyers that their project will not support daily rentals, developers should ensure that their sales and purchase agreements and marketing materials state clearly that their development is a private residence and short-stay rentals are not permitted," Mr Norville suggested.

This should also be clearly stated within the rules and regulations of the property. All co-owners should receive a copy of the rules and sign them to show they clearly understand. There should also be a clear definition of what short-term lettings are in the documents.

There are some condo projects where a majority of co-owners agree to allow daily-leasing units at the project but those unit owners must comply with regulations set for daily-leasing guests. These unit owners must also pay higher common area fees than non-daily-leasing unit owners.

Follow the rules: A sign prohibiting daily rentals at a condo. PHOTO: Ville Con Management Co.,Ltd.

On this issue, Mr Norville said such an internal structure may help reduce resistance from some co-owners who do not want to welcome short-term guests into the building.

However, it will not change the law. Co-owners offering units for short-term leasing will still be at risk of potential litigation.

As a property management firm, effective measures to prevent or reduce short-term leasing units at condo project include notices around the building, he said.

Access control measures like key card access to facilities and elevators are also effective. Rules and regulations should be reviewed and/or amended to underline that rental practices should not be against the law.

While owner committees and juristic managers advising co-owners within the condominium of the leasing restrictions have met their responsibility, they should not take the law into their own hands.

In any case, they should seek help from a qualified legal adviser so they know which practical steps must be taken without any repercussions on the co-owner committee or juristic manager.

This will also include legal advice on how to handle a situation where a co-owner within a condominium breaks the law, given the fact that owner committees or juristic persons are not government officers, he added.

"First and foremost, everyone should understand the law so that no one unintentionally breaches it," he said.

For existing buildings, if the consensus among co-owners is that they would like to see whether they can obtain an operating licence, they must seek legal advice.

Where the consensus is against short-term lettings, legal advice on how to enforce the law must be sought.

What should be discussed in more detail by authorities is how investors and developers can move forward to obtain licences for existing properties if the majority of owners are in favour of applying for the operating licences and for developers of new projects to set a clear path on how to obtain the correct licences at time of design and planning.

There is obviously a market for these types of properties where investors can purchase a unit and then allow an operator to rent it out to produce a yield for the owners. Other geographies have properties that are so-called condotels -- a condominium legally operated as a hotel, offering short-term rentals.

If made legal in Thailand, this property format should accommodate the demand of individual investors who want to buy a unit to let on a short term. However, hotel operators may have some opinion on it, said Mr Norville.

Phattarachai Taweewong, senior manager, research department at property consultant Colliers International Thailand, said the court ruling to an Airbnb operator in Hua Hin will have an impact on condo projects in major tourist destinations targeting investment buyers like Chiang Mai, Phuket, Pattaya and Hua Hin.

"The majority of condo buyers in tourist destinations buy a unit as a second or resort home or as a short-or long-term investment," he said.

"The impact on those buying units as a second home will be minimal but those buying homes as an investment will now need to think twice before making a decision," Mr Phattarachai added.

He said the short-term leasing condo business in destinations like Pattaya, Phuket, Hua Hin, Chiang Mai and Cha-am is popular among Chinese investors.

They buy units in bulk in one project and rent out to groups of tourists.

Thailand is one of the most popular destinations among world travellers, particularly the Chinese. The number of tourist arrivals to the country totalled more than 35 million last year.

"The law enforcement on the daily-leasing of condos will likely have an impact on sales of condominium projects in resort destinations," he said. "These projects are in the middle-end segment with prices of around 70,000-130,000 baht per square metre."

Buyers in the upper-end segment mostly buy a unit for their own use. They need privacy and do not want to rent out their unit as they do not want their decorations damaged.

No wanted: Stern warning against daily rentals at a condo. PHOTO: Thai Hotels Association

However, condo projects in resort destinations which are popular among buyers that want to rent out daily still have good sales. Some projects which were newly launched in Pattaya and Hua Hin in the past few months recorded sales rates of over 90%.

In Phuket, which is regarded as a prime destination for condo investments, more than 60% of projects still have remaining units for sale and are offered with a rental yield guarantee.

"The case [the punished Hua Hin Airbnb unit] may have a slight impact on projects that aim at investment buyers but developers will eventually revise their strategy and find ways to avoid any impact on sales of their project," he added.

From a recent visit to a resort destination, Mr Phattarachai observed that some projects removed a message saying "rental yield guarantee" out of their advertisement in front of their sales office after the Hua Hin case as their projects are not designed to comply with the hotel act.

However, they notified this message to customers on a case-by-case basis. For projects where their design complies with the hotel act, the hotel licence is submitted post-completion and there is no impact on sales activity.

Mr Phattarachai said there are many condo projects that have a design which doesn't comply with the hotel act and will not apply for a hotel license but will still offer a rental yield guarantee.

"The rental yield guarantee at these projects is just a campaign to boost sales. Complying with the hotel act requires a higher investment than a general condo," he added.

Many condo unit buyers are unhappy with units renting out on a daily basis as some guests who stay at those units display bad behaviour or do not comply with the condo's rules. To ensure condo buyers the project does not support daily-rent units, developers should clearly notify buyers via sales representatives that the project focuses on sales of units for personal use or for those looking to rent out long-term.

James Pitchon, head of research and consulting at property consultant CBRE Thailand, said there is a long-term rental market for expats in the central business district locations. Accordingly, there will still be interest in buy-to-rent residential properties in Bangkok for those buyers targeting expat tenants.

In the resort markets, there is demand from tourists who prefer renting an apartment or a villa for a week over staying in a hotel. However, this is currently not legally possible.

The government might want to amend the law to allow this. It can follow the example of some other countries which have legalised such rental scenarios if certain safety standards are met. If the law was changed, the government should seriously consider asking Airbnb to collect relevant taxes on properties listed on its platform so that the government can generate extra income.

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