Home Stays Need More Regulations

Home stays have been a significant segment of the tourists’ itinerary in India – particularly when they are visiting South India, which has several homeowners taking in tourists as their guests; feeding them home cooked food, of course at a price. But this price is comparatively lower than that of the conventional hotels. However, now several players like Airbnb, VRBO, Homestays, etc. have jumped into the fray to provide accommodation to the tourists at homes, owned by individuals who are keen to rent their apartments on a daily basis.

Ashok Malkani surveys the home stay scene pertaining to India and understands how this trend of home stays is influencing the Indian hospitality industry. The ways governments in different countries have countered the invasion of the home stay aggregators in the hospitality space are also being discussed. 

Today, a holiday is as much about accommodation as it is about travel experience. Hotels have always been competing with each other to provide better service to the leisure tourists and business travellers. But now home stays are proving to be a stiff challenge for the hotels and resorts, particularly with entry of entities like Airbnb, Flipkey, VRBO, et al. Home stay, a niche segment in India’s domestic holiday itinerary until a decade ago, is fast emerging as an alternative to the hotel lobbies for travellers in India. Of course, in abroad too, home stays are gaining popularity.

Industry Reactions

Different segments of hotels have their differing opinions and reactions about the home stay players.

“What probably was conceived as an option for tourists to experience the local culture and enjoy   a homely stay has long got diluted. Today a majority of such stay options in reality, in India, are unregulated room rentals which have mushroomed across the nation under the guise of Bed & Breakfast (B&B) schemes or home stays. The issue is that a lot of establishments are taking advantage of this and are running full-fledged commercial enterprises without any kind of regulations and taxes. These home stay options presently are not as big a threat as it could become in the future, not just for  the Indian hotel industry, but also for the Indian tourism,” affirmed Dilip Datwani, President of Hotel and Restaurant Association (Western India) or HRAWI and Chairman & Managing Director of Datwani Hotels Pvt. Ltd..

Rishi Puri, Vice President of Lords Hotels & Resorts, added, “The biggest concern with this kind of arrangement is that it has diluted the concept of hospitality. Home stay arrangements like Airbnb have not been particularly successful in India like they have been abroad. These home stay arrangements are competition to hotels on the grounds that they work out to be far more economical to the customer. They are presently at an advantage due to their lack of any formal code of operating the business unlike hotels. This will bring the Average Room Revenue (ARR) down in India but they will not affect the business of luxury or the mid-market segment of hotels  in India such as ours. We have certain minimum service levels which the home stays do not provide. If at all, home stays may have an impact on the lower mid-market or the unorganised sector hotels.”

Derek D’souza, Executive Assistant Manager, Hotel Marine Plaza Mumbai holds the view that invasion of home stays in India will not affect the ARR of the conventional hotels in the country. “Although India happens to be one of the fastest growing markets for Airbnb, we haven’t yet seen a meaningful impact on hospitality business in the major cities of the country due to home stays.  I reckon the greater concerns are more towards the leisure destinations at this point of time,” he said.

“Disruptions can be healthy for the industry for they can enable customers to enjoy best services at affordable rates. But the disruptors cannot be allowed to disrupt and thrive simply on the basis of avoiding regulations and taxes. Today a hotel, let us say charges Rs.1500/- for a room, then it has to pay 10 percent as luxury tax besides other taxes. But a bungalow listed in Airbnb, for over Rs.10,000/- a day, ends up paying nothing. If nothing else, this is a loss of revenue to the exchequer also. We welcome competition in any and every form, but this kind of disparity is unhealthy for the industry. It is almost as if we are doing our business with our hands tied. We will hope that the concerned Government authorities take cognisance of this and act at the earliest to protect the interests of all the stakeholders,” affirmed Dilip.

“The important thing is that customers must realise that if they are offered a cheaper product or service then there is a good chance that it is being offered at the cost of quality. So the customers have to identify what is best for them. Also at the same time, it is unfair that home owners are allowed to operate hotels under the guise of home stays and not comply with any rules and regulations that organised hotels have to. We will hope that the Government will see the disparity and also foresee the consequences of allowing a business model like this to continue,” declared Rishi.

Unfair Advantage

All the three experts were discussing the unfair advantage of home stays pertaining to the Indian hospitality industry. One of the major reasons for the success of Airbnb and other home stay players in India is that they don’t have to deal with government rules and regulations like that of conventional hotels.

“The biggest advantage these operators have over us is that they are currently cost- effective to tourists. This is because they do not pay taxes or follow regulations that hotels need to. This gives them an unfair business advantage that goes against the concept of fair trade practices and it is a grave issue. While five-star hotels in India pay a substantial 38 percent of the room revenue as direct and indirect taxes, some of the lavish bungalows listed in hotel aggregator sites like Airbnb do  not pay a single rupee as taxes,” Dilip asserted.

“Further, over 42 licenses are required to start and operate an organised sector hotel in our country, while the unregulated sector operates without a single license. The regulations that the licensed establishments have to follow are vast and cover fire safety measures, food safety measure, hygiene parameters among many other compliances. Our Government will have to either allow hotels to operate with the same relaxations as are being given to these unregulated home stay players, or regulate these home stays with conditions that are similar for operating a hotel,” reasoned Dilip.

“As per the proposed rules, a home stay provider is expected to be exempt from service tax. This means there will be more savings; translating to earnings for home stay owners. There are also proposed exemptions for non-commercial charges on electricity and water bills, as well as property tax, to home stay providers. In contrast, for a hotel there are huge heat, light and power (HLP) expenses because a hotel enterprise falls under the organised sector and is a revenue contributor to the Government,” elaborated Rishi.

“Home stays are a great way to promote tourism because they are supposed to give the tourists an experience of local culture and food. However, many such home stays today operate almost like a hotel. The concept of giving the guest an experience of a home remains just in theory. More than advantages, many of the home stays have disadvantages because of lack of security, lack of service, unprofessional or rude behaviour by the care-takers, among other issues. These incidences are a bigger threat to tourism; all the more if these tourists are foreigners as this paints a very poor image of India in their eyes. So the Government should mandate some minimum service level requirements for home stays that need to safeguard the interests of tourists,” Rishi pointed out further.

Steps Taken Abroad

Since home stays affect the revenues of the conventional hotels and resorts, several countries like Singapore, France, Germany, the Netherlands, Spain and the US have regulations in place to tackle the issue.  

It may be stated in this connection that the Parliament of Singapore passed a new law in February this year, making it illegal for home owners to rent out entire apartments and rooms for less than six months, unless they have permission from the Urban Redevelopment Authority (URA) to do so. Germany banned unlicensed rentals from 1st May 2016. Since then 40 percent of Berlin’s Airbnb listings disappeared. Amsterdam, meanwhile, has allocated $1.1 million to identify apartments that are being offered for short-term rentals or don’t have landlords living in them. Barcelona has slapped Airbnb and Homestay $65,000 each for listing apartment without permit. 

Dilip, elaborating on the law passed by Singapore early this year to curb homeowners from renting their apartments through these entities, said, “This move is likely to affect private home owners renting their houses through hotel aggregators like Airbnb. The changes to the law came on the back of growing complaints regarding short-term rentals last year. The URA received 608 complaints in 2016, 61 percent more than the 377 complaints in 2015.”

“Besides Singapore, some of the other countries too have regulations in place to prevent invasion by home stays. The measures adopted by countries like France, Germany, the Netherlands, Spain and the US have not only created a level playing field among all parties, but also netted revenues to the exchequer in the form of taxes. The measures could be different for different countries but essentially the Government should act in the interest of all stakeholders,” explained Dilip.

Affecting Hotel Business?   

The phenomenon of cheap accommodation by Airbnb and other aggregators has been worldwide. “We must not forget that Airbnb model is more of lodging while the hotel industry adds the service component to its numerous offerings,” observed Derek.

“Globally, especially in the west, home stays are quite popular as home owners in the countryside of Europe have been used to the concept of having guests over, who may be complete strangers. It is a different scenario there, in which both the guests and the home owners are comfortable with the idea of sharing a spare room in the house. This concept must have been the inspiration for aggregators like Airbnb to set up online platforms to connect the two parties and provide convenience for both,” explained Rishi.

 However, he opined that this ‘convenience’ had not translated well in execution. “Governments of many counties have either put conditions or completely banned such Bed & Breakfast operations from operating in the hospitality space,” he stated.

“The most important thing to take into account in the home stays is that the idea of hospitality is being diluted.  It is important that the Government should put in place a regulator for these home stays that will monitor and set policies, which would ensure that they operate in the interest of the customers too and not just themselves,” Rishi proffered.

The hotel industry comprises of different segments — ranging from the economy to the luxury. So how have these home stays affected different segments of hotels in India?

“Airbnb or such other home stays are not our competitors. Lords Hotels & Resorts is a premium mid-market chain of hotels and resorts that offers full service and amenities that home stays do not offer. These home stays may mean competition to the lower mid-market segment of hotels but not to a chain like ours,” averred Rishi.

“Also, MICE is a category that operators like Airbnb do not cater to. Even today, Airbnb is not as popular in India as it may be in other countries. People are skeptical about the service and safety while considering a home stay. Home stays and bed-and-breakfast options have so far witnessed limited popularity in the country. On the whole, the notion of staying at a stranger’s house is not very comforting, and an element of trust and security has been lacking in the Indian hospitality market as far as home stay options go,” he elaborated further.

Dilip however felt that “Home stays have definitely affected our business. Not only in percentage but our average rate per room has gone down.”

“Till now, we haven’t seen any affect of home stays yet on a mid-market boutique hotel like Hotel Marine Plaza Mumbai. However, we are mindful of it as the market develops further for accommodation models such as these,” pointed out Derek.

The Menace of Vandalisation

Besides having an unfair cost advantage over conventional hotels and resorts, home stays have also been subjected to complaints of vandalisation. This has become a big issue. 

“The issue of vandalisation is a big concern with the unregulated room rentals. While hotels that fall under the organised sector are subjected to administrative clearances, liquor permits and other licenses including being responsible for maintenance of security, these unorganised accommodations  are exempted from all of it. So safeguarding the safety of patrons or other serious concerns are not formally the responsibilities of the home stay owners in India. In contrast, hotels in India are not only expected to maintain security in their premises but also are required to keep a record of all guests staying with their properties. Additionally, by law, hotels in India are required to send details of their foreign guests to the police station by submission of a C Form. This is a security requirement from the Ministry of Home Affairs. Home stays in India are not mandatorily required to be compliant with all these regulations, and the industry fears that eventually they will become the de facto accommodation for those foreigners who seek anonymity from the police,” averred Dilip.

“Yes, there have been incidences that question the safety and security of staying at home stays. There are no requirements for these home stay owners to maintain security at their premises like hotels do. These are discouraging factors, and thus many people do not prefer these over hotels. In fact, many of those who may have stayed at such home stay arrangements may have done so purely to experience it,” analysed Rishi.

 The fact that many of the home stays do not have adequate security measures can be detrimental to their business in the long-run, despite their cost-effectiveness as compared to the conventional hotels. 

Derek, however, feels that there would be market for both conventional hotels and resorts and home stays in the realm of Indian hospitality industry.

As many players in the Indian hospitality industry feel, the home stay sector too should also have some rules and regulations and also contribute to the national exchequer in similar way as the hotel industry does. Unless that is done in our country, the further growth of the home stay sector in India can only harm the business of many hotels in the country in the long-run, and neither home stays’ impressive growth can contribute substantially to the betterment of the Indian hospitality industry at large.

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