Should Short-Term Rental Accommodation be regulated?

Short-term rental means a furnished space that is rented out for a short period and is becoming an alternative to hotels, often referred to as “Airbnb” nowadays. The numbers of short-term property rental have been increasing like mushrooms after the rain over the past few years. Travellers are more enlightened and empowered than ever as they could stay in a cosy accommodation for half the price of a usual hotel.

Technology advancement allows the landlord to rent out their homes to connect with people who are looking for accommodations, for example, Airbnb, Booking.com, Expedia, HomeAway, TripAdvisor, Vrbo and others. The short-term rentals sector is rapidly expanding and all of these vacation rental websites are benefiting from it.

With the emergence of Airbnb and other accommodation solutions, travellers have more choices than ever before. However, staying in a hotel or short-term rental are two very distinct types of experiences.

Hotels provide a greater sense of service and make you feel pampered while travelling. In hotels, concierge serves guests by performing tasks like managing booking of hotels, arranging for restaurant reservations, transportation, travel arrangements and tours of local attractions. Having said that, you can’t always expect things you would expect at a hotel if you stay at an Airbnb, such as room service, more toilet paper or help to arrange a taxi.

However, travellers love short-term rentals because it can make them feel like they are staying in a ‘home from home’ and experience life as a local because they get to connect with local people who live there. For example, in the case of accommodation sharing, travellers are expecting to meet their local hosts who could introduce them into the local community.

Airbnb works great for travel groups where rental of the entire house with many rooms is possible, compared to staying at hotels which could cost a lot more. However, which one you choose really comes down to the purpose of your trip and your personal preferences, as some people prefer to stay in a hotel when the room service is just a phone call away.

Legally, the hotel industry is very much regulated by statutes and acts in the state such as the Tourism Industry Act 1992, Innkeepers Act 1952, Fire Services Act 1988 and others. Policies and regulations were enacted to regulate the industry players and stakeholders as well as to safeguard the welfare of the customers. To obtain a licence to operate a hotel, numerous requirements have to be fulfilled for example fire escape route, fire insurance and approval from the fire department to name a few.

On the other hand, the short-term rental accommodation is not properly regulated yet as requirements and policies governing hotels are not applicable to short-term rentals. The absence of sets of regulations and laws to regulate the industry will create confusion and issues between related parties, especially when disputes arise. Henceforth, many countries are taking steps and commencing efforts to properly regulate the industry and Malaysia is in the process to do the same.   

It was reported in the Citylab Daily newsletter in July 2019 that unregulated or underregulated short-term rentals industry has caused European cities to face massive housing shortage in the cities. Ten major European cities are seeking help from the European Union (EU) to intervene by regulating the short-term rentals at the local level.

As an example, Barcelona has successfully implemented a stricter licensing system for the vacation rental to trace and prevent rule-breaking apartments.

To remedy the damaging effects, some cities have begun to impose stricter policies and/or regulations to protect the local residents and local culture, as follows:

1. In December 2018, Los Angeles City Council passed a law which requires the hosts to register every year and can only rent out their primary residence (a place where the host lives for more than 6 months of the year). Besides, the short-term rentals are also limited to a maximum of 120 days a year unless approval is given with extra fee.
2. In New York, the New York Governor Andrew Cuomo signed into law a ban on short-terms rentals on home-sharing sites. It is illegal to advertise and/or rent out the entire apartment less than 30 days. Short-term rentals are permitted provided the host is also staying there throughout the rental period. Hosts are also disallowed to list more than one home each time.
3. On 15th June 2018, Japan’s minpaku law was imposed to limit the rentals to 180 days a year. Hosts must obtain a minpaku operating licence and must display their notification number on listings or advertisements for their short-term rental. Besides that, hosts must report their guestbook information to the Government every two months.
4. For our neighbouring country, Singapore, the Urban Redevelopment Authority (URA) announced on 8th May 2019 that short-term home rentals are illegal. The minimum stay for those renting private home needs to be at least three months.

Like any other countries, the emergence of Airbnb and other short-term rentals in Malaysia have caused huge concern to the hotel industry and the government. The hotel industry is highly affected as the occupancy rate in hotels declined badly. Besides that, landlords seek to circumvent tax collection since the business is not registered with the Companies Commission of Malaysia (SSM).

In Malaysia, since there is no specific law regulating the short-term rental industry, different states or local governments are dealing differently in their respective states.

In early 2018, the Tourism Industry Act 1992 was amended, which the definition of “accommodation premises” in Section 2 of the Act has been expanded to cover all homes, and not only hotels. However, until now, the issue on the legality of short-term rental remains unresolved. However, here are some guidelines which we may consider if you are considering to rent out your property to travellers as short-term rentals.

First and foremost, you will need to check whether your property is situated on a residential or commercial title development. If the latter, renting your

unit to travellers on a short-term basis should not pose any legal issues. However, if your property is situated on a residential title development, you are not supposed to operate the short-term rental if the development’s by-laws contain such terms that prohibit you to do so. According to Section 32 of the Malaysian Strata Management Act 2013, any violation of the above empowers the building management to impose a maximum fine of RM200 on the landlord.

As mentioned earlier, different states deal differently in regards to the short-term rental. We may now look at some of the states.

In Sabah, the State Government has declared Airbnb to be illegal. The Assistant Sabah Tourism, Culture and Environment Minister Datuk Pang Yuk Ming during a press conference in October 2017 stated that the ban against Airbnb is to safeguard the safety of the people and the Government is seeking to protect the interests of the hotel industry.

In Penang, the Pulau Pinang City Council (MBPP) had taken strict action in issuing summons against owners who rent their residential properties for short-term stays. Recently in August 2019, according to the report in The Star Newspaper, it was reported that the number of stratified residential properties offering short-term rentals in Penang arose even though the practice is deemed illegal. This has become worse when developers with unsold units would furnish them and rent them out to the travellers.

In November 2019, Tourism Malaysia director-general Datuk Musa Yusof in officiating the Penang & Perak #VM2020 Kick-Off Conference, commented that the Short Term Residential Accommodation Taskforce, which was led by the Housing and Local Government Ministry, was finalising the regulations for local authorities to manage short-term accommodation services and can be expected to be done by early of 2020. Amongst the proposed regulations is for the period of rental of the short-term accommodation to be up to 180 days per annum. Apart from that, the proposed bill also states that all short-term accommodation operators are required to register with local municipal and be subjected to the existing fire safety regulations.

Meanwhile, in Kuala Lumpur, the Kuala Lumpur City Hall (DBKL) in 2018 required any individual, property agent or businesses involved in renting residential properties for short-term stays on websites to register with them. The objective is to enable the DBKL to monitor and collect relevant data to facilitate the Companies Commission of Malaysia (SSM) for the ongoing study on the operation of the short-term rentals.

According to The Star, on 14 February 2019, Minister Datuk Mohamaddin Ketapi has urged operators of Short-Term Rental to register immediately with Tourism, Arts and Culture Ministry or to avoid legal action under the Tourism Industry Act 1992. However, a few days later, Airbnb replied by saying that the mechanism for registration seems to be up in the air, as there were no registration forms for its hosts or landlords to register their properties with municipal authorities. They further commented that the registration forms do not apply to Airbnb properties, but only available for hotels. Airbnb has reiterated that they are working very hard with every nation to craft and implement regulations that ensure respectful and responsible home sharing.

Following the survey conducted by Airbnb, the majority of Malaysians want a clear and consistent national approach for short-term rental. Regulation plays an important role in shaping the welfare of economies and society. Thus, the local councils are responsible for implementing regulatory policies and must be aimed towards protecting the consumer. By imposing such regulation, the objective of the Government or regulatory body is to help locals to earn extra income and gives travellers greater and more affordable choice, and in return, Airbnb hosts or landlords must assist the Government to achieve its purpose. Most importantly, both must work together to grow the tourism industry which is a key pillar of the Malaysia economy.