“Housing areas are for residents. If you are holidaying, go to a hotel.”
Last year, Penang’s state government said that it would ban short-term rental homes or homestays in response to complaints by residents of such properties. After a year of will-they-won’t-they, Penang finally announced on May 25, 2023 that it would impose the ban on short-term rental accommodation (STR) such as Airbnb or Booking.com stays at residential units on the island.
Jagdeep Singh Deo, Penang housing, local government, town and country planning committee chairman said “check-ins” at landed and highrise buildings for short-term rental homes would be banned. Speaking to Free Malaysia Today, Deo said, “Whether people like it or not, we will be firm on this. Housing areas are for residents. If you are holidaying, go to a hotel.”
The impact on Penang’s hospitality scene
Speaking to WiT, Chris Kerin, Managing Director of the Asia Travel Technology Industry Association (ATTIA), whose members include Airbnb, said “We are disappointed with this development. It really is a missed opportunity for Penang to be a leading model for short-term rental regulation in the region.”
He added, “We understand the objectives behind the Penang guidelines, and actually agree that some form of regulation is always prudent. However, imposing blanket bans definitely falls on the extreme end of regulation. Without a cost-benefit analysis, it would be hard to justify such a harsh response which risks harming Penang’s tourism recovery.”
While Penang may be the first Malaysian state to effectively restrict homestays, it isn’t the first tourist hotspot in the region to impose strict guidelines. For example, Singapore’s Planning Act states that property rentals have to be at least 6 months long for HDB flats or 3 months long for private properties. Furthermore, HDB flats cannot be rented to tourists. Such guidelines create an extremely narrow window of opportunity for the homestay operators.
In Japan, a law was announced in 2018 requiring all Airbnb properties to be licensed, forcing Airbnb to suspend around 80% of listings in Japan and cancel thousands of bookings.
Objectively, it’s hard to say to what extent travellers depend on homestays to make their trips work or to maintain a budget. As explained by Hannah Pearson, Founder of travel market research company Pear Anderson, “If you look back at 2019, Airbnb accounted for 91 million nights sold in Q1, around 20% of total lodgings worldwide. However, the share varies wildly, depending on who the traveller is – a business traveller, family traveller, a digital nomad, etc. What tourists look for is choice.”
“A STAAH study of 2022 booking channels showed that for top OTAs preferred by Malaysian travellers, Airbnb came in 9th place – for the Philippines, that’s higher, 7th place, so the homestay option is definitely one which is in the consciousness of travellers here”, Hannah added.
“Short stay rental accommodation (STRA) does undeniably take market share from smaller, budget hotels – particularly as hosts may not need to follow the same strict regulations as licensed accommodation providers, which can create an unfair price advantage. However, STRA still contributes to the economy of a destination – through visiting local attractions, using local transportation and even for those travellers who choose to self-cater – they still need to buy their supplies from somewhere.”
The rules and regulations
Penang Island City Council (MBPP) mayor Rajendran Anthony emphasised that those planning to offer STRs in the whitelisted categories must first get the approval of their joint management bodies (JMBs) or management corporations (MCs), with a 75% “yes” vote from other residents at an annual general meeting.
There’s also a stack of new fees in place, including an annual fee ranging from RM250 to RM500 per unit, new registration fees up to RM250, and a one-time security deposit ranging from RM1,000 to RM3,000 per unit. It is also imperative that the unit be registered with MBPP and the owner must provide Companies Commission of Malaysia documentation.
Each STR is only allowed to be rented for a maximum of 180 days a year and rental is also limited to 3 days a week.
That’s a relatively short stay for holidaymakers.
Is this counterproductive?
In response to Penang’s new short-term rental guidelines, Mich Goh, Airbnb’s Head of Public Policy for Southeast Asia, India, Hong Kong and Taiwan, highlighted the latest Clearpath Strategies survey (commissioned by Airbnb). Notably, over 7 in 10 (74%) Penangites polled said that renting out homes through Airbnb has a positive impact on their community and its residents, and also agreed that short-term rental accommodation should be allowed to take place in surplus vacant apartments to tackle property overhang.
According to statistics from the National Property Information Centre (NAPIC), Penang has the third-highest number of overhang or unsold residential properties in Malaysia as of end 2022, with 3,593 units valued at RM2.74 billion.
“Penang hotels are already nearly at full capacity, with occupancy rates close to 100% in December 2022,” explained Chris. “By restricting short-term rentals, Penang could soon be struggling with insufficient accommodation supply to meet the ‘revenge travel’ wave. Without enough rooms and potentially inflated hotel rates as a consequence, tourists could easily substitute Penang for other Asia-Pacific destinations.”
“For Penang to make a ‘comeback’ at this stage, the government must recognize that short-term rentals are a complement to traditional accommodation providers. The objective should be to ensure a diversified range of accommodation that caters to all types of travelers. That would be the pragmatic approach to developing a modern tourism economy.”
There’s also the notion that such stringent regulations are counterproductive to wider initiatives by Malaysia’s federal government.
As Hannah elaborates, “Malaysia launched its Digital Nomad visa scheme, DE Rantau, last year, with Airbnb as a partner, and the idea of establishing hubs, including in Penang. Instead of outright banning STRA, imposing a minimum stay could still allow this segment of travellers to find appropriate accommodation.”
Chris echoed this outlook, saying “In the immediate term, the existing guidelines would be counterproductive to the federal government’s tourism recovery plans (e.g., the ‘Visit Malaysia 2025’ campaign). It would also be at odds with the government’s digital nomad aspirations under the ‘DE Rantau’ programme.”
Finding a sweet spot
Reversing a ban doesn’t sound like an easy task, but there’s money to be made and tourism opportunities to harness if homestays are back in the ecosystem.
Question is, is there a version of this scenario that satisfies all parties?
“It’s very difficult to find a good way to implement regulations on short stay rental accommodation,” says Hannah. “Destinations such as Singapore and Barcelona have done so with limits on a minimum length of stay, Paris enforces the total number of days which a property can be rented out in a year. Whilst these limits can be confusing for both visitors and the hosts, it does still open the door for those longer staying visitors who are seeking accommodation.”
According to Chris, “A lot more could have been done to obtain input from a wider range of stakeholders, including the increasing number of entrepreneurial Penang-ites in the modern tourism and sharing economy.”
“The short-term rental platforms are keen to work in partnership with the government to tackle the root causes of noise and nuisance issues head-on. This is an approach that has worked well for cities in Europe and the United States, and balances the welfare of all parties involved.”
“We originally proposed a mandatory Code of Conduct, which would set minimum standards for host and guest behavior to tackle noise and nuisance. The standards would be common to all platforms, and the platforms would be responsible for assisting the government in monitoring and enforcing the Code against their hosts.
We also proposed a centralized digital registration system for short-term rentals, which would help make registration and renewals clear and simple for hosts. This would allow the Penang government to have better visibility of the number and geographical spread of short-term rentals, which could help inform future tourism and land use planning.”
It’s worth noting that the ban does not cover mainland Penang, which isn’t as much of a tourist hotspot as the island itself. However, according to FMT (Free Malaysia Today), the Seberang Perai City Council is expected to also regulate STRs and impose fees, following in the footsteps of the island.
