By Alberto Perret Gentil, Pering Group/BlueAruba Rentals
The resilience and importance of condominium projects for the economy is confirmed in these times of crisis. Different from hotels, condominiums never closed as they always have owners, long term renters and guests staying in their properties. In general, there were very few layoffs, if any.
It is definitely a resilient industry as is also the case for timeshares. Owners and repeat guests will be among the first ones to return to Aruba while hotels and other accommodations are still closed. Our island has been through challenges before, and with the help of the condo-hotels, timeshares and vacation home rentals, Aruba will get its economy back much faster.
A recent poll by Magna Global in the US suggested that after travel restrictions are lifted tourists prefer and feel safer staying in the privacy of a vacation home than in a hotel.
A few facts.
The vacation rental industry is a US$ 140 plus billion market growing worldwide at an accelerated pace with the likes of Airbnb, VRBO and Bookings.com. Vacation Rentals caters mainly to millennials and families which will contribute to rejuvenate Aruba’s mature product. Given its huge potential, hotel brands like Marriott (Home & Villas by Marriott), Wyndham and Accor are entering the market. Expedia didn’t pay $3.9 billion to acquire VRBO and Homeaway for nothing.
In keeping with Aruba’s vision to attract more affluent tourists to sustain economic growth, vacation homes provide visitors an alternative to traditional lodging offered in tourism-based economies. It is a client looking for family vacation, a more “homey” and tranquil environment away from the lines and crowds of the big hotels and want to experience the island’s culture. The literature on vacation homes suggests that tourism is the catalyst that drives the second-home market.
It also becomes important to understand if the tourists who rent homes/condos would come to Aruba as a tourist if vacation rental market did not exist. Most likely they will go somewhere else.
Hundreds of Aruban families supplement their income/mortgage hosting guest in their 2nd home or annex. VHRs tourism revenues have the benefit that trickle down to Arubans and not only stay in a few (foreign) hands, and can help many survive these challenging times. No need for any additional immigration either.
The VHR industry must have a level playing field and everyone shall pay its room taxes or be denied the possibility to rent out. Just in room taxes vacation rentals could generate close to AWG 20 million to the GOA.
We share the concerns expressed by the Aruba Hotel and Tourism Association (AHATA) and others over equity and fairness with existing lodging establishments and VHRs, and do believe this industry should be regulated (not over regulated) and all players should abide by the law and pay the room tax and environmental dues. Unfortunately, that is not the case and most vacation rentals are not paying either of the taxes.
Enforcement is the weak link. Servicio di Impuesto (SIA) shall enforce the decree enacted in July 2018. Besides the lost revenue for the GOA, this creates an unleveled playing field with an additional negative consequence in that the companies complying with the law lose clients to the ones not paying because of the price disadvantage and thus creates a big incentive not to pay the tourism taxes.
The good news is that the solution is not complicated; and based on comparable tourist destinations, it only needs two/three capable persons appointed to control room tax evasion. For example, the town of Breckenridge, Colorado with a vacation rental market the size of Aruba, has a 99% compliance rate in part due to a dedicated two person’s enforcement group. With a smaller VHR pool vis a vis big cities and local knowledge by those tracking listings-photos, properties are often easy to recognize.
Some ideas
1. Improve enforcement by Servicio di Impuesto (SIA). They should focus first on the big players (realtors/condos) and accommodations on hosting sites.
- Airbnb is already collecting the room tax on Amsterdam’s vacation rentals as well as many other cities throughout the world. Minister Bermudez and Aruba Tourism Authority (A.T.A.) were working to reach a similar agreement with Airbnb for Aruba some 5 years ago, but it never materialized.
- Monitoring the big online travel agents (OTAs) in the VHR market (Airbnb, VRBO, Bookings.com, Expedia, etc.) in addition to controlling the big players in Aruba, you would have over 80% of the vacation rental room tax collection problem solved.
- Have hosting sites display lodging permit number on their hosting sites for easier monitoring by SIA (mandatory).
- Enact new law for vacation rentals and thus leave no margin for interpretation. Vacation rentals regulations were incorporated at the last minute in the law designed mainly to regulate all-inclusive hotels. To clarify my point:
– Need of a level playing field for hotels, VHRs, and timeshares. Timeshares should also pay room tax only when renting to transient guests. As a matter of fact timeshares are a big player in the VHR business but with a 9.5% price advantage! By the way, easy to collect, because the players are Marriott, Costa Linda, Playa Linda, Divi, etc.; companies that without a doubt will comply with the law.
– Shall include responsibilities/norms for OTAs to operate in the Aruba market.
– Co-responsibility for paying taxes not only for the owner of the property as in current law, but also for the rental manager if collecting rental revenues.
– Establish minimum standards for obtaining a lodging permit.
Decisions on regulation shall not be based on a particular sector’s interest, but just on its contribution to the larger economy and well-being of ALL tourism stakeholders and that of the Aruban people. More so in these dire times.
If well managed, in just a few years the VHR industry could contribute more revenue to Aruba than the cruise industry.
