Short-term rental business – realities and challenges

Not long ago hotels were the only option for travellers. Nowadays, many people prefer to swap the convenience of a hotel for the more homely feel you get with a private property. Holiday lets are an unstoppable trend that’s continually in the news.

Adapted translation of an article published by El Mundo.

Owners who rent to tourists are accused of not paying taxes, property speculation, of appealing to mass tourism but not investing in their communities, and blamed for the high prices of long-term rentals. In an attempt to shed some light on the sector, the Spanish dailies El Mundo and Expansión recently held a roundtable with the main players in the market who looked at what’s new in this developing sector and its challenges.

“The first thing we need to correct is its name: holiday letting,” explained María Jesús Serrano, a partner at the legal firm Serrano Alberca & Conde. “The correct term would be short-term lets with a wide range of users, not just tourists.” Victor Fernández, CEO of Room Mate Group agreed and said that 68% of clients of Be Mate Apartments – the sister company for holiday lets belonging to the hotel chain – are executives who for professional reasons have to spend a few days in another city.

Holiday lets are not new. However, it used to be more of a seasonal trend. The new type of holiday lets belong more to the shared economy mindset and has become an unstoppable trend. According to the latest holiday let survey carried out in Spain by HomeAway – one of the main operators in the sector – 8 million Spanish residents between 18 and 65 have stayed in a holiday let over the last two years. That’s 3 million more than the previous survey in 2014.

“Holiday lets are definitely booming at the moment, mainly because the large letting platforms have facilitated a space where landlords and tenants can contact each other,” said Arnaldo Muñoz, managing director in Spain and Portugal for AirBnb. “It’s another form of the shared economy that has developed into a business, a business transaction that, like all of them, comes about because there’s demand,” said Fernández.

The new forms of shared economy already operate in sectors such as transport, accommodation, project funding, personal services, food, education and logistics. They have all experienced exponential growth over the last few years and have huge potential. According the specialist portal Web Strategist, between January 2000 and September 2015, almost €22 billion euros was invested worldwide in initiatives to do with the shared economy. Of this amount, 80% was for transport and accommodation. This type of investment is forecast to top €282 billion by 2025.

The challenges

One of the most common objections to holiday lets is that the tenants are tourists who contribute to over-crowding but don’t enrich the community. Juan Carlos Fernández, managing director of HomeAway for southern Europe, rejected this. “Our clients spend an average of €460 during their stay. This is a much higher figure than hotel guests who spend around €300. We need to bear in mind that people who use holiday lets want to have more contact with the city and they have to go out to lunch or to buy food, for example.”

According to HomeAway estimates, in the two years to April 2016, user spending totalled over €9.6 million in the areas around holiday lets in restaurants, bars and shops etc. If you add the holiday let rent to this amount, it’s estimated that the sector generated business worth €12.318 million over this period.

The participants agreed that holiday lets can be more profitable than long-term lets for the landlord. “It’s comparable to investing on the stock exchange or in government bonds. The first option gives higher returns but is riskier than the second. But both have their market,” said the Room Mate CEO.

The lack of regulations in the sector is, according to the participants, one of the causes of the fuss made about the sector. “A single set of regulations for the whole of Spain rather than a different one for each region would be very positive,” said Pablo Zubicaray, president of the Spanish holiday let association, Fevitur. “It would scale the market and we wouldn’t be hearing false accusations such as holiday lets don’t pay taxes. It’s the same everywhere – some people will try not to pay them, but it’s the tax authorities responsibility to go after fraud just as they do in any other market.”

Zubicaray insisted that the biggest challenge facing the holiday let sector is regulatory and that it could help the reality of holiday lets to surface and so make a huge contribution towards Spain’s continued position as a world leader in tourism.