Rental market disruptors

February 2, 2015 1:30 PM SGT

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SINGAPORE: Online property letting websites are connecting landlords directly with tenants and facilitating lucrative shortterm rental terms. But bona fide residents at the affected properties are griping about overused common facilities, and worrying about security in their own homes. And, it could mean more competition for hotels.

Martin Phillips, group managing director of the eponymous Phillips Group, believes that his new website, Rentals.Sg, which became live in mid-December, will be a disruptor in the Singapore real estate rental market.

The website offers an opportunity for landlords of residential, strata commercial space (office and retail) as well as shophouses to list their properties for rent for a fee.

Rentals.Sg is designed as a space where landlords and tenants can deal directly with each other, bypassing real estate agents altogether if they wish.

“The tougher the economy gets, the more people will be looking at alternatives for listing and getting their property out there.

And if they can save money in the process, why not?” says Phillips.

“This model will appeal to people who think they can do a better job than the property agent.

It’s a free market.” To gain traction for the website, Phillips signed an agreement with CBRE, whereby the firm’s associate real estate agents can list their inventory of properties on Rentals.Sg.

“It’s important to have a good selection of launch content on the site for all members and our exclusive arrangement with CBRE brings us content, [as] landlords and tenants become increasingly aware of our services,” he explains.

As for CBRE, the Rentals.Sg website provides “an alternative platform for our associates”, says Joseph Tan, its executive director of residential services.

Over time, Phillips expects direct landlord listings to dominate as the website will be very much a “landlord-to-tenant model”.

He simultaneously launched RentalsWorldwide.com, which offers long-term home rentals in Singapore, and vacation homes for rent, from villas in Bali, Indonesia and bungalows and apartments in Thailand, to beachfront homes and cottages in Australia and New Zealand, as well as apartments in Miami, the US.

“The main idea of RentalsWorldwide.com is the convergence of vacation home rental and long-term rental properties, with the addition of yacht charters,” he says.

The long-term rental properties posted on RentalsWorldwide.com are for a minimum period of 12 months in any location worldwide.

The residential listings on Rentals.sg are for a minimum of six months, in line with current Urban Redevelopment Authority (URA) guidelines, emphasises Phillips.

“We can’t stop Singaporean landlords from listing their property as a vacation home rental,” he admits.

“If a landlord attempts to list a Singapore property as a short-term vacation rental on RentalsWorldwide.com, it would clearly be in breach of local regulations.

They must under stand their own country’s laws and by-laws.”

Too big to ignore? Websites such as Airbnb — which offers short-term home and room rentals — have proliferated and are gaining popularity among endusers, homeowners and investors.

For example, in October 2012, Airbnb was reported by Bloomberg to be worth US$2.5 billion.

The company, which started in 2008, is said to be valued at US$10 billion ($13.38 billion) today.

“The sector is growing tremendously as people realise they can rent an apartment instead of staying in a hotel in the same location,” says Phillips.

But the socalled sharing economy is not without controversy; when it comes to rental homes, there are issues of legitimacy and security, he adds.

Unlike others, Rentals.Sg and RentalsWorldwide.

com do not offer rooms for rent, Phillips says.

Another key differentiator of RentalsWorldwide is that besides home vacation rentals, it provides long-term rentals and yacht charters as well.

Short-term home rentals are a fast growing sector, with close to 3,000 properties in Singapore listed on the various websites, such as Airbnb, HomeAway, TravelMob, Roomorama, iBilik and PandaBed.

The phenomenon is clearly too big for the authorities to ignore.

The newly formed Sharing Economy Association (Singapore), whose members include Airbnb and Panda- Bed, has been lobbying the government to change its guidelines.

The association published a paper on Dec 22, pointing out the merits of “home sharing” platforms.

The benefits it listed include authentic local travel experiences for tourists, a boost for tourism income, and a chance for homeowners such as retirees or primary caregivers to earn extra income as “hosts”, by renting out their spare room.

It is also a way to meet travellers from around the world, says the association.

“Increasing numbers of travellers are looking to book accommodation through home-sharing platforms.

At the same time, we hear from many Singaporeans who have used such platforms as travellers [and] they wish to be hosts here,” says the report by the association.

However, the majority of homeowners prefer to retain the residential nature of their properties, points out URA on its website.

“Allowing residences to be used for short stays leads to high turnovers of occupants, and gives rise to nuisance and safety concerns,” it adds.

“Most of us do prefer some familiarity with the people who live around our homes.” Last month, URA announced that it was conducting a survey to gather feedback on the issue of shortterm home rentals.

It will also be launching a public consultation on short-term home rentals and its implications, with more details to be released later.

This has sparked speculation that it could review its policy for rental of private housing.

“Given the current public interest in the subject of short-term home rentals, URA’s public consultation is to assess if there is a need to review the policy,” says a URA spokesperson in an email response to queries from The Edge.

“As in all reviews, URA will only be able to make a decision after assessing the input from the public and other stakeholders.” According to the spokesperson, “The public should, therefore, not prematurely conclude that this will mean that we are changing the policy”.

URA currently stipulates a minimum stay of six months for private residential properties.

“This is meant to safeguard the living environment of residents and ensure safety and privacy for neighbours.

These objectives are still relevant,” according to URA.

Under its sub-letting guidelines, it is illegal to sublet a home for less than six months.

Issues of safety and security “From my perspective, there are practical issues of safety within your own home, privacy and security,” says Augustine Cheah, a council member at The Sail, the 1,111-unit private condominium at Marina Bay that has been plagued by problems of short-term lets.

“What about the safety of the tourists themselves? All you need is one incident of molestation or theft and the shit hits the roof.” As it is, prime condos such as The Sail are still grappling with issues of short-term lets and serviced apartment operators, says Cheah.

An owner at The Sail recently complained to council members that his neighbouring unit is being used as a depot by a serviced apartment operator for storage of cleaning equipment and for conducting staff briefings.

Living in a condo is also about living in a community, “and that cannot be a zero-sum game”, adds Cheah.

“If I rent out my unit on a short-term let, I gain.

But you, as a bona fide homeowner, will lose as the cost of wear and tear of common facilities escalates.

There’s a good reason why the rules were set up in the first place.” Another council member of a management committee at a downtown condo who only wants to be known as Mr Tan is likewise opposed to the idea of allowing short-term lets.

“Why are they [URA] doing a survey?” he laments.

“As far as the law is concerned, anything less than six months is like running a hotel.” Tan has seen the extent of the wear and tear that rampant shortterm home rentals have exerted on common facilities.

“I’m a bona fide owner [of a unit] at the downtown condo, which was completed only five years ago.

But I live in Ardmore Park, a 14-year-old condo, [where] the facilities are in better condition.

That’s because we don’t have this problem with short-term lets.” If short-term lets are allowed, it will be difficult to control access to the condo.

“We have no idea who the serviced apartment providers are putting in their units, and the friends they are likely to bring in,” adds Tan.

“Registering residents will be a problem.

We don’t need the fracas.” Tightening residents’ access using photo ID cards in an effort to stem illegal short-term lets have led to reports of skirmishes between residents and security guards, as happened at the 910-unit City Square Residences in the Kitchener Road-Serangoon Road neighbourhood last year.

The difficulty is in enforcing the rules.

“While URA had followed up and investigated when we were aware of, or received feedback on suspected unauthorised uses in specific premises, not all the cases led to enforcement because some turned out to be bona fide rental arrangements,” URA explains.

“Others may not be straightforward when the evidence is not conclusive and need further investigation.” There have been instances where HDB flats and private condo units were rented out to “ladies of the night”, or turned into boarding houses for foreign workers.

Investors and property agents operating condo units as hotels or serviced apartments “is nothing new; it has been going on for years”, says a property agent who declined to be named.

“Eventually, the un licensed operators will drop out of the market if regulations are enforced.”

Game changer in hospitality? Housing rents are expected to continue to decline this year owing to the slew of new condo project completions and the limited budgets of expatriates coming to work in Singapore.

“With corporate belt tightening and organisational revamps, small format homes, HDB flats and individual rooms in private condos may be the more lettable unit types in 2015,” comments Alan Cheong, head of research at Savills Singapore.

Cheong’s forecast is for rents in the Core Central Region (CCR) and Rest of Central Region (RCR) to weaken by 5% to 10% this year, with the suburban condos in the Outside Central Region (OCR) seeing a greater downward slide of 10% to 15% owing to a greater number of new project completions in the pipeline.

He does not see short-term lets as the solution to rising vacancy and weakening rents.

“Short-term rental units will come back to the market,” Cheong adds.

“It will not affect the housing sector but, more likely, hotels and serviced apartments.” According to Cushman & Wakefield in a report on Jan 5, in Asia-Pacific, Singapore posted the highest average daily room rate last year at US$207, followed by Hong Kong (US$193) and Sydney (US$185).

This could explain the rise in popularity of websites such as Airbnb in these cities, where one could enjoy cost-savings by renting a private apartment over a hotel room.

If regulations were to change to allow short-term home lets in Singapore, “it would definitely create a scenario where end-users would have a larger inventory to choose from”, says Akshay Kulkarni, Cushman & Wakefield’s regional director of hospitality for South and Southeast Asia.

“The service quality would differ and so would the price points.” Kulkarni does not see short-term home rentals being a threat to hotels and serviced apartments.

Websites such as Airbnb and others offering short-term home rentals are becoming game-changers in so far as they attract “a completely new inbound traveller segment and increase the overall tourist flow”, he says.

While there may be some spillover, Kulkarni does not expect a huge wave of hotel users today to switch over.

Nevertheless, hoteliers cannot afford to ignore websites such as Airbnb as a growing competitor, particularly as the company continues to attract new properties with the intention of providing travellers with an alternative, affordable and “more local experience”, notes Frank Sorgio vanni, head of research at JLL’s Hotels & Hospitality Group in Asia in his blog.

“What we know is leisure tourists are seeking unique travel experiences that hoteliers must deliver if they want to limit the impact of companies such as Airbnb.

The hotel industry must continue to relay the message to travellers that it can offer more.” Even as Phillips welcomes the news of URA’s initiative to launch a public consultation on short-term home lets, he does not expect regulations to change in the near term.

“I can see some objections from the hotel and service apartment industry,” he says.

“Ultimately, the users and providers of such accommodation will determine the demand.” When it comes to improvements in the basic fundamentals of the residential rental sector, especially with regard to safety standards within rental properties, “there’s still a long way to go”, adds Phillips.

This article appeared in the City & Country of Issue 659 (Jan 12) of The Edge Singapore.

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