Learn about all the formalities to take care of before becoming an Airbnb host!
If you’ve been travelling around – well, before the whole Covid situation – there’s a good chance you paid to stay in someone else’s home rather than a hotel, and you did so because of Airbnb. If your experience was great, you might be thinking about how to become an Airbnb host yourself.
Airbnb becomes immensely popular in Malaysia
Indeed, the use of Airbnb as a home-stay accommodation has exploded internationally over the years since the company was founded in 2008. The same goes for Malaysia, as more tourists pour into the country year on year, Airbnb hosts are given an excellent chance to earn huge profits, especially during the holiday season.
The introduction of Airbnb is definitely attractive as it cultivates a sharing economy by allowing property owners to rent out their properties. Countless families had jumped on the Airbnb bandwagon and depended on the platform to pay their mortgage and stay in their homes. Well, the rental income gathered is even more crucial amidst the current Covid-19 crisis as the pandemic has created an untenable position for many households struggling to make ends meet.
However, it is also surprising to see interest in short-term rentals and home-sharing increasing in 2020 with the need for employees to work from home and more people becoming ‘digital nomads’ as many offices were shut during the lockdown.
While Airbnb offers wonderful opportunities for property owners to maximise rental revenues, there are still some formalities to take care of before becoming an Airbnb host. So, without further ado, let us discuss everything you need to know about transforming your home or investment property into an Airbnb!
Location, Location, Location
As with any type of property, location is the most important factor to maximise homeowners’ earning potential. Before you get started fixing up your rental space, you’ll need to do a little research on the demand in your area.
If your property is not located in an Airbnb hotspot, you may be handicapped from the get-go. But if your property is located close to sought-after attractions such as shopping malls, beaches, theme parks, museums – there is a higher chance that there will be a consistent yet strong demand for Airbnb travels around your area.
However, you could still improve the odds and attract great occupancy rate if you furnish your Airbnb listing with attractive and informative description on why your place is unique, such as having a private backyard garden where guests can enjoy a romantic dinner; a swimming pool to relax and recharge; or a courtyard to have a BBQ cooking session. Be sure to include great photos as they are as important to Airbnb listings as marshmallows and chocolates are to graham crackers.
Determine the Type of Listing of Your Rental
Airbnb allows hosts to list rental space ranging from private rooms to entire houses. Be it an apartment or a room in an apartment, if you have available space, Airbnb hosting could be an opportunity to turn your extra space into extra income.
While it is free to list your home on Airbnb, it’s important to keep in mind that the company will take a small cut of your booking fee, which is generally a flat 3% per reservation charged on hosts. This is something you need to factor into as ongoing maintenance and operation costs of running an Airbnb business.
Know the Laws
Next, property owners need to put in some time to research whether if it is legal to host in your area and what requirements you need to meet. Before officially becoming an Airbnb host, it’s important to understand how the laws work in our country.
The good news is, Airbnb is considered legal as announced by the Urban Wellbeing, Housing, and Local Government Ministry in 2016. There are actually no specific laws saying Airbnb is prohibited in Malaysia, due to the nature of travellers drawn to affordable prices and the mutual agreement made between the host and the traveller.
Does that mean you are safe to advertise your home on the site? Not just yet.
The local authority has a say.
Although there are no federal laws acting upon Airbnb, such as the issuance of licenses or new laws specifically to regulate short-term rentals/homestays like Airbnb, it is currently being regulated by the local government in each state.
What holds true for one area may not be applicable in another as local laws differ from city to city. For example, Kota Kinabalu City Hall (DBKK) has deemed that it is against the law for Sabah residents to lease their properties through Airbnb. The main argument is that short-term rentals are private dwellings that should not be allowed for commercial business. Further, such accommodations are not designed with the same regulations and protection as hotels, such as building safety and fire legislation considerations. Hence, to list an Airbnb in Sabah, a property must be situated on lands zoned for commercial or commercial mixed-use only, and are subject to lodging house license to operate.
In Penang, residential houses that were rented for short terms had been issued summonses by Penang Island City Council (MBPP) with the fine amounting to RM250. These operators were fined for operating a business without a license under the 1991 Local Council By-laws for Trade, Business, and Industries. It was deemed that only serviced apartments are allowed to operate homestays or short-term stays, while all residential apartments, condominiums, flats, and gated residential houses are banned from carrying out lodging houses business.
However, after continued pressure on the local council to draw up guidelines to regulate such short-term rental businesses like Airbnb, Penang is now the first state in the country to regulate developments in the short-term accommodation (STA) industry with new building by-laws. It was announced by the State Housing Committee chairman Jagdeep Singh Deo recently in March 2021, that the by-law ensures home-sharing services and platforms, such as Airbnb, can only operate in a building if 75% of its residents agree to it at an annual general meeting (AGM) of the unit owners. These by-laws will be enforced by the Joint Management Corporations (JMCs), and housing residential associations or committees to control who comes and goes in their residential accommodation. We will move into that topic of JMC later.
In KL, Airbnb is legal, but Kuala Lumpur City Hall (DBKL) announced that all Airbnb operators are required to register their property with the municipality, failing which action can be taken. This is a practice for the Companies Commission of Malaysia (SSM) to conduct studies on the operators who rent out their properties for short-term stays legally and for them to be placed under the supervision of DBKL. Registration can be done on elesen.dbkl.gov.my.
That’s not it. The residential management also has a say.
If you live in a condo, make sure you check with your condo management if you are allowed to host paying guests on your premises. Due to a large number of apartments, condos, and stratified properties mushrooming all across Klang Valley, DBKL delegated its powers to the residential managements in imposing regulations to control short-term accommodation (STA) operations.
As a unit owner in a stratified property, you are still bound to certain ‘house rules’ that are set by the condo management. Based on the Strata Management Act 2013 (SMA), Section 70(2) of the SMA empowers a joint management body (JMB) or management corporation (MC) to make additional by-laws in regulating STA operations by passing a special resolution at the AGM. Hence, it is important to note that not only do the powers of the residential management apply in KL, but everywhere across Malaysia. If there are no guidelines set on the local council level, your management’s decision would be final.
That being said, the management also has the authority to impose fines not more than RM200 on owners who break any of the by-laws made. However, here is an interesting fact. The management is allowed to fine owners only once for the offence. In other words, the condo management cannot fine the unit owners on a daily basis for any breach of the by-laws.
From the examples above, it is clear that some cities are very strict about hosting paying guests, while some are lenient. It is important for owners who are keen to rent out their property in the short term to check on the rules and by-laws enforced by the local council, housing residential associations, and condo boards to ensure you stay within the law. If all is good with your local council and the condo management, you are another step nearer to starting your Airbnb venture!
Protect your Investment
Oftentimes, 99% of Airbnb guests obey the house rules and mind their own business throughout their stay. However, there is always that 1% unruly group that likes to be difficult, and unfortunately, hosts must feel the brunt of it. It is not unheard of for roguish guests to become a nuisance and break furniture or steal something such as electrical appliances.
As much as you hope to maintain your property in good condition, accidents can happen, and things can get broken or damaged. To protect your investment, make sure your insurance covers your new venture.
Aside from the Airbnb Security Deposit collected from guests which protects your Airbnb properties from any minor damage, Airbnb also offers something called their Airbnb Host Guarantee, which is automatic liability insurance to every host. The Host Guarantee provides the host with protection for up to $1,000,000 and this will cover any damages, breakages, or lost items to the property in the case that those damages exceed the security deposit paid by the guests.
However, there are some restrictions homeowners need to be aware of when it comes to the parameters of their Host Guarantee. These exclusions include:
Theft of cash and securities (for example: savings bonds, stock certificates)
Damage from ordinary wear and tear
Bodily injury or property damage to guests or others
But even with the guarantee policy you get from Airbnb, it is probably better to buy your own short-term insurance if you’re worried about being left with a bill for some expensive accidental damage. And before you start accepting guests, it is a good idea to read through the fine print of your existing homeowners or renters insurance policy to check the levels of coverage and financial relief you can get in case of any damages to your home, property, or personal belongings. Some policies have stipulations that extra renters can negate your entire policy.
Overall, whether you choose to get extra insurance depends on the level of risk you’re comfortable with. As getting home insurance for Airbnb rentals are often costly, hosts can also mitigate potential risks by thoroughly screening guests, establishing occupancy limits, setting clear house rules, as well as childproofing your premises.
How has Airbnb Affected the Real Estate Industry?
As with most things in life, short-term accommodations like Airbnb are a mixed bag of positives and negatives. It is no doubt that Airbnb’s exploding popularity has completely disrupted the real estate marketplace. It may bring a positive supply shock to short-term accommodations, but it may also negatively affect the surrounding neighbourhood’s quality of life. So what does this mean for traditional real estate? Let’s have a look below!
Higher Costs of Rent
Homeowners with properties in high-demand areas can make greater income renting out their homes for the short term on Airbnb than they would with traditional long-term rentals. Of course, when hosts can charge tourists a higher rate for short-term stays, why not?
Cities and towns have a finite supply of housing, so this process pushes rent prices up for local residents who need to live in thriving cities for the long term. However, if the area is not too touristy, and hence, does not attract that much demand for short-term rentals, these homes do not see a high increase in rents as the properties are still primarily occupied by long-term residents or the owners themselves.
Housing Shortage for Long-Term Renters
As renting out through Airbnb could be more lucrative than renting to a long-term tenant, many homeowners have made a permanent shift from long-term to short-term rentals and developed a professional buy-to-let business model to supply for tourists. With the massive popularity of Airbnb, investors continue to list their properties on the platform as an excellent strategy to gain income from multiple investment properties they own.
Hence, this creates a reduced supply of housing for local residents living and working in high-demand areas which attracts Airbnb travels as residential properties shift from serving local residents to serving tourists.
However, short-term rentals through platforms like Airbnb are seen to improve efficiency in markets where properties are not fully used. For example, empty apartments during holiday periods are efficiency losses that can be reduced through short-term rentals to tourists. Besides, markets with excess property supply could also benefit from the surge of short-term rental demands in times of Covid as employees are looking into flexible remote working arrangements.
Affordable Housing Crisis
While the continuous expansion of Airbnb into cities carries large potential economic benefits, the costs to renters and first-time homebuyers likely exceed the benefits to travellers and homeowners.
It is found that over-tourism facilitated by Airbnb negatively impacts house prices and the local communities, and the impact is stronger in areas with fewer owner-occupiers, such as vacation destination towns. Hence, housing is becoming more unaffordable for local residents as they are being priced out of their own neighbourhoods.
Locals Move to More Affordable Areas
Airbnb has been a major factor in driving up rents and house prices. This forces local residents to move to more affordable, less expensive cities to cope with the problems of soaring rents and stagnant salaries
Another major concern on why locals are moving out is that they are kept awake at night by parties in a nearby Airbnb apartment. This causes locals to abandon urban areas entirely and move to the suburban neighbourhoods to find some peace and quiet.
Rising Popularity of House Hacking
House hacking is when you rent out a part of your primary residence for income. The sharing economy has made this concept more popular than ever.
With home prices skyrocketing across the country, homeowners are renting out spare rooms in their houses to help pay their mortgages. For first-time homebuyers struggling with stagnant incomes and the rising cost of living to afford a traditional home, house hacking offers an alternate route to homeownership. When done correctly, it helps owners to create passive income that oftentimes covers the whole mortgage.
Summary
It is clear that the Airbnb business model is here to stay. Even with the COVID-19 outbreak, the company is able to reinvent its business model swiftly where they now include ‘Online Experiences’ such as concerts and cooking shows by hosts from all around the world. This has made a rippling effect throughout the entire real estate game. As technology in the sharing economy continues to evolve, it is no doubt that Airbnb will continue to be a driver of change and evolution in the real estate industry.
As with any venture which involves money, up-to-date knowledge and understanding of the latest trends are key to success in being an Airbnb host. Invest wisely, list accurately, and keep abreast on the happenings of our country’s economic and political landscape to implement whatever is possible to watch the profits come in as you successfully become an Airbnb host in Malaysia!
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