Why B&Bs and guest houses in South Africa hate Airbnb

Before the outbreak of the COVID-19 pandemic and South Africa’s resultant lockdown, there was an ongoing battle between traditional guest house and bed and breakfast operators, and short-term home rentals like those on Airbnb.

Through their various industry associations, traditional hospitality businesses in South Africa have pushed for new legislation to regulate how Airbnb is allowed to operate in the country.

The key argument from the hospitality industry is that Airbnb is essentially allowing people to operate unlawful accommodation businesses. Airbnb does not require that its hosts have the necessary licenses, nor that they pay the various taxes and tourism levies applicable to hospitality businesses.

Large hotel chains are often cast as the antagonists in this story — corporate money lobbying government to tax the little guy to avoid competition from the “gig economy”.

However, it’s not only the big hotel chains that have an axe to grind with Airbnb’s practices in South Africa.

It turns out that running a bed and breakfast in South Africa that complies with all of the local and national regulations is an expensive endeavour. Small guest houses and B&B operators argue that all the tourism taxes are more onerous on them as they don’t have as many rooms as hotels to spread the costs over.

“Just my fixed costs are R45,000 per month,” said Michele de Souza, chair of the Pietermaritzburg Bed & Breakfast Network.

De Souza has been in the industry since 1996. She has been involved with KZN B&B Association, was the Deputy Chair of the Midlands B&B Association for 19 years, and has been involved with the Pietermaritzburg B&B Network for 22 years.

She has also sat on the Msundusi Pietermaritzburg Tourism Exco, was involved with the Tourism, Hospitality and Sport Education and Training Authority, and is a member of Pietermaritzburg Chamber of Business.

Licenses and taxes

De Souza told MyBroadband that bed-and-breakfast type accommodation like guest houses have to comply with a tremendous number of regulations to legally operate their businesses in South Africa.

She explained that she has to pay the Msunduzi municipality around R108,000 per year just to operate a B&B in Pietermaritzburg.

As a registered business, she pays R2,000 more per month in property rates and R6,000 – R9,000 more per month in utilities than residential properties.

Before opening a guest house or B&B you need to go through a land planning process and inform your neighbours of your intention to open your business.

You also need fire clearance, a public health permit, and a separate license to serve perishable food. If you want to serve alcohol at your B&B, you’ll need to go through the process to obtain a liquor licence.

Taking all of her operational costs into account, De Souza says that she has to charge between R800 and R900 per night for one of her rooms just to break even.

Airbnb operators are able to undercut traditional guest houses and B&Bs because they don’t have to deal with any of the bureaucracy, or pay their fair share of the taxes and licensing fees.

Before the coronavirus pandemic, guest houses in Pietermaritzburg saw their occupancy rates plummet as visitors choose to book with cheaper Airbnbs.

“My occupancy has dropped from a high of 57% to a low of 32%,” De Souza said.

“Obviously the weakened economy hasn’t done us any favours. People are looking for better deals wherever they can find them.”

As a result of the competition from Airbnb, De Souza said that smaller guest houses and B&Bs in the Pietermaritzburg area have started closing down.

Places that don’t have a large enough inventory of rooms simply can’t bring in enough income during busy periods to cover their costs. This is challenging, as you are only allowed 3 rooms to be classified as a B&B in KwaZulu-Natal. For guest houses, the maximum is 16. Anything over that, and you’re a hotel.

However, many of these smaller operators that officially closed down as licensed B&Bs have popped up again on Airbnb.

“In 2010, the municipality instituted draconian rates and punitive tariffs against small accommodation establishments, forcing many 1–3 bedroomed establishments to close as they were no longer able to make a profit,” De Souza said.

“This resulted in unemployment — at least 40 staff members in our local industry lost their jobs that I know of. My business went from five full-time staff members down to three in 2010.”

De Souza said that in 2019, her full-time staff members dropped to one, as she is no longer able to run a profitable business with the competition from Airbnb.

“The average nightly cost of an Airbnb in Pietermaritzburg is between R300 and R500. Authorised B&Bs are not able to charge these rates as their overhead expenses are huge. Most authorised establishments in Pietermaritzburg charge between R650 and R850 per night.”

In March 2019, two authorised B&Bs were sold in Pietermaritzburg as they were no longer profitable. Several more are on the market, including De Souza’s own guest house. After more than 24 years in the industry, she is ready to call it quits.

“It is unlikely that they will sell as accommodation establishments, as it makes no business sense to pay for an unprofitable business,” De Souza said.

This will hit the Msundizi municipality budget, as it means the rates and tariffs on these properties will revert to standard residential rates.

Laws and regulations on B&Bs should apply to Airbnb

De Souza said that at a minimum, Airbnbs should comply with the following laws:

  • They should obtain permission to run, or get a business licence from the municipality. The property must then be checked by town planning, and health and fire departments to ensure that there is no danger to guests.
  • Short-term home rentals must get hospitality insurance with a minimum of R30 million public liability.
  • Membership of a local tourism authority and registration with South African Tourism should be compulsory.
  • Airbnbs that offer breakfast or other meals must get a food preparation certificate and/or a business licence for preparation of perishable foods — health and safety checks on kitchens must be conducted.
  • Domestic workers must be paid in accordance with the hospitality sectoral determination. The minimum wage for this sector is higher than domestic workers.

The reason Airbnbs should have public liability insurance, De Souza said, is that currently guests are not covered by insurance.

If something major goes wrong at an Airbnb and a guest is seriously injured, hosts typically only have domestic insurance with minimal public liability.

Foreigners assume that they are covered by insurance and have recourse as they would have in any authorised establishment in Europe, she said.

“This could even result in a lawsuit against a municipality,” De Souza warned.

In addition to complying with the above laws, De Souza said that short-term home rentals should be classified as a business.

That means paying the same rates an taxes as a business, paying business rates on services like phone lines and fibre, and paying for DStv and getting SABC licences for each individual TV on the premises.

De Souza also provided a list of suggestions for regulating Airbnb and similar platforms in South Africa:

  • Airbnb itself should be required to pay 15% VAT or a 15% Tourism levy over to the government for every booking made on its portal. If authorised establishments are VAT registered, they can apply for this VAT back.
  • Airbnb must provide the government with a list of establishments, the names of the owners, their addresses and ID numbers for SARS.
  • Establishments must not be allowed to use the name “breakfast” in their business name unless they serve breakfast.
  • Airbnbs should not be exempted based on the number of rooms they have. This can’t be policed and people lie about how many rooms they have. Furthermore, many of the formerly authorised 1–3 bedroomed establishments that were forced to close as a result of punitive business tariffs simply re-opened as Airbnbs and continued to trade, avoiding the high municipal business tariffs.
  • Hosts must live on the property.
  • All South African Airbnbs should be required to register annually with the local tourism authority and with their local Department of Economic Development and Tourism. The registration certificate must be displayed on the accommodation portal.
  • Proof of UIF registration as a hospitality employer, tax clearance, SABC business licence, and other relevant documents must be provided.
  • Airbnb could limit the number of days per annum that a property could be rented out without being registered or, better yet, graded by South African Tourism — perhaps a maximum of 30 days.
  • Perhaps an annual registration fee of R12,000 per room could be paid to the municipality for people who advertise their short-term rentals per room. The average Airbnb earns between R10,000 and R15,000 per month per room. An authorised establishment spends about 25% of their income on municipal rates and tariffs and 25% on wages. R12,000 per annum would compensate municipalities for the loss of income, but would not be too onerous for the Airbnb to pay.

De Souza also noted that many Airbnb owners have moved from only advertising on Airbnb to other accommodation portals such as Trivago, Rooms for Africa, Afristay, Travel Ground, Lekker Slaap, Booking.com, Safarinow, and Agoda.

All of these should also comply with the registration conditions and pay over a tourism levy to the government.

Airbnb responds

MyBroadband asked Airbnb to comment on De Souza’s submissions on behalf of the Pietermaritzburg B&B Network.

“For South Africa to reach its ambitious tourism goals that are key to economic development and job creation for all citizens, it is vital that guests to the country have a wide selection of accommodation and experience options — including home sharing which allows guests to stay in different areas as well as with local hosts who are ambassadors to their country,” said Airbnb’s Velma Corcoran.

Corcoran served as Airbnb Country Manager for Sub-Saharan Africa until August 2020. She has been promoted to the Regional Lead for the Middle East and Africa at Airbnb.

“Airbnb supports fair and proportional rules that are evidence-based, benefit local people, and distinguish between professional and non-professional activity taking into account local conditions,” stated Corcoran.

“For example, rules based on the level of activity as opposed to the platform where the accommodation is listed with a clear distinction between traditional hospitality providers and occasional home sharers.”

“Similarly, any additional requirements for tour guides should not unfairly discriminate against entrepreneurial citizens from different walks of life,” Airbnb said.

Tourism Amendment Bill

Listening to De Souza, it’s clear that the real problem is not merely a lack of regulations for Airbnb operators. It is the crushing tax and licensing regime imposed on small businesses like B&Bs and guest houses that are increasingly making it impossible for them to make ends meet.

Of course, there is nothing wrong with requiring that a place be properly licensed to serve perishable food and liquor, but levying a business tax on a small guest house of over R100,000 per annum is self-defeating.

It’s sad to see because such establishments create solid jobs. Groundskeepers, housekeepers, maintenance workers, cooks, night managers — all being taxed out of existence.

The Msunduzi municipality has promised to take a look at its tax regime and come down hard on unauthorised establishments, but it remains to be seen whether it will make good on that promise.

National government, for its part, is proposing to amend the Tourism Act to give the Minister of Tourism jurisdiction over short-term home rentals.

The former Minister of Tourism, Derek Hanekom, published a draft Tourism Amendment Bill for public comment on 12 April 2019. The period for public comments closed in June.

The bill specifically allows the Minister of Tourism to set certain thresholds on short-term home rentals.

In-line with De Souza’s suggestions, Hanekom indicated at the time that they are looking at a limit on the number of nights per year that an Airbnb may be rented out before hosts are required to register their property as a formal B&B or guest house.

A report in the Sunday Times stated that thresholds of 30, 60, 90, and 120 nights per year are being considered. The report also said that, on average, Airbnb hosts in South Africa rent out their properties for 19 nights per year.

Now read: Travel as you knew it is over – Airbnb CEO

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Why B&Bs and guest houses in South Africa hate Airbnb