Diversifying our tourism facilities

Since the early sixties, when the government of the day wanted to encourage the birth of an indigenous tourist industry, we recall how many pristine sites were granted to constructors and so-called amateur hoteliers to build seafront hotel accommodation and a lido. Such plots were dished out at give-away rates and sometimes even linked to a ten year tax holiday.

Over the years ownership changed hands partly due to the fact that the value of property skyrocketed in the late eighties. Others believed in the industry and invested in adding more rooms and embellished amenities. Naturally one cannot begrudge their zeal to make a fast buck.

They had a Midas touch and when the industry cycle dipped they disposed of hotels at the time when the property market was on the upward trend. Nevertheless, pioneers such as these, assisted by government grants, built a tourist industry which during its infancy saw our beaches populated by a few hundred thousand bucket and spade visitors and ex services personnel who were stationed here during the war.

Fast forward and last year, NSO statistics show a record arrival of 1.8 million tourists, exceeding four times the local population, with exemplary results as regards cruise liner vessels entering the Grand Harbour. The tourism minister appeared buoyant, exclaiming that the upward trend is continuing and in his words, nearly 40,000 cruise liner passengers arrived in Malta in the first quarter of this year, an increase of 90% over the same period of 2015.

This all looks hunky dory as more hotels are expected to expand and build more rooms while older ones like St Georges Corinthia and the adjoining Radisson Blue will be pulled down to make way for a six star replacement. The long awaited privatization of the extensive White Rocks development is at the final stages of adjudication and when completed is expected to be the flagship of a booming tourist sector.

All this flurry of construction is certainly keeping MEPA and architect firms busy while there will be a shortage of beds during the time it takes to pull down or renovate existing properties. Granted that developers are bullish about the future and are busy touring financiers and overseas banks to secure sufficient capital for such luxury properties. The future beckons bright.

There is a gradual improvement in hotel bed night occupancy, especially in the four and five star category while revenue from banquets, events and international conferences is on the increase. The fly in the ointment seems to be the proliferation of Airbnb facilities, which is spreading like wild fire and has caught the ire of the Malta Hotels and Restaurants Association.

There are currently over 1,000 Maltese listings on its website, ranging from spare rooms to whole apartments, farmhouses and luxury villas. The association insists that private accommodation is currently being given an unfair advantage by not being required to abide by the same safety and licensing requirements as hotels. Quoting Tony Zahra, current president of the MHRA, he protests with the authorities that Airbnb properties need to be fully licensed and taxed so as to present a level playing field and fair competition with the legacy hoteliers.

Airbnb can offer cheaper accommodation and this causes a drop in occupancy for the licensed members of the MHRA. Reliable sources indicate that such accommodation is popular and accounts for 25 per cent of beds utilised by tourists and while a number of unlicensed properties do exist, the vast majority of Airbnb listings are fully above board.

Really and truly such rooms are being registered to comply with Malta’s regulations for rental through the Holiday Premises Regulations and pass muster with the Host Family Accommodation Regulations. Fearing competition, hoteliers brand Airbnb as an unregulated blunder which exploits economies of scale through its vast memberships and ease of booking. It has upset the cozy applecart of traditional operators.

At this juncture, it may be useful to quote Thomas Cremona, who runs a property management company with a number of listings on Airbnb. “Today, I’d say the majority of my bookings come through there.” What is this marvellous website that started eight years ago as a teenage prank in California and is a now a Unicorn worth over ten billion dollars.

It started in 2007, when its founders had just graduated from the Rhode Island School of Design, and destiny has it that they were sharing an apartment in San Francisco. Penniless, they struggled to pay the rent. Then the innovative streak crossed their minds. A design conference was coming to town, and they decided to rent out air mattresses on their floor to visitors for $80 a night. They called and emailed every major design firm in San Francisco, asking if anyone else had a room for rent. They built a web site, airbedandbreakfast.com, to connect hosts and guests. They even persuaded conference organizers to email attendees about it, linking to the site. It was a modest beginning but they never looked back as they were smart and managed to borrow money from business angels, venture capital and later on financial institutions. 

Simply put, Airbnb allows travellers to find and rent private accommodation for their trips, which has been rapidly gaining in popularity in recent years. According to the company, it is now available in 34,000 cities and 190 countries. Its founders, Brian Chesky, Nathan Blecharczyk, and Joe Gebbia, have convinced many visitors to foreign countries to experiment and enjoy the hospitality of natives inviting them to home cooking in a family atmosphere.

So far a fairy tale of three teenagers who in a spirit of adventure and unbridled innovation created a website which surpassed 800,000 listings worldwide. The trio proudly state that they now offer more lodging than Hilton Worldwide or InterContinental Hotels Group or any other hotel chain in the world.

So what is Airbnb? It is a phenomenon that has changed many people’s lives for the better. What makes this company so noteworthy is that it has moved beyond building a disruptive business to battling entrenched interests. Airbnb has also repeatedly found itself in some countries to be on the wrong side of the law. For those who are fed up of sharing a room in a property with a thousand other dwellers and not being able to mingle with the natives then Airbnb may prove to be an exciting alternative albeit cheaper. 

To conclude, according to its founders, Airbnb is about much more than just renting space. They proudly brand it as a lifetime experience as it is all about meeting people. At the end of the day, they owe its huge popularity to this motto of trying to bring the world together. The sexy slogan says you are not getting a room, you’re getting a sense of belonging. In other words, a stranger is just a friend who hasn’t slept in your spare bed yet.

Naturally, the narrative does not bode well for members of the MHRA, particularly in the second and third class category who complain about transgressors in their market, who do not register with the authorities.

They also insist that the government should lobby to collect the seven per cent VAT due on rentals directly from the website, rather than leaving it up to individual landlords as is currently the case. In the end the government needs to respect the modern trend that has taken the world by surprise and in the process make sure that the MTA continues to act vigilant to ensure that a level playing field persists for all operators.

George Mangion is a senior partner of an audit and consultancy firm, and has over twenty five years’ experience in accounting, taxation, financial and consultancy services. His efforts have seen that PKF Malta has been instrumental in establishing many companies in Malta and placed PKF in the forefront as professional financial service providers on the Island. He can be contacted at [email protected] or on +356 21493041.