Photo: VET Magazine
Home-sharing is increasingly dominating Vietnam's hospitality market and already affecting hoteliers.
by Khanh Chi & Linh Ngoc
- Hospitality property in short supply
- Tourism growth presents opportunities for hospitality market
- Hanoi & Da Nang among Airbnb's Top 10 destinations
Vietnam was listed as the global top-growing destination on Airbnb in 2017, with Hanoi seeing 212 per cent growth and Da Nang 255 per cent. The impressive growth confirms that home-sharing is becoming increasingly popular in Vietnam, according to Mr. Neil Sutton, Co-founder of Dot Property. Airbnb and similar sites are the most visible within new “sharing” hospitality models based on technological platforms, which have changed the way people around the world access and use hospitality services.
The sites not help travelers save on their accommodation costs but also present a business opportunity for anyone with a house to lease or any spare rooms. “The sharing economy model is having a growing influence on the low-end hotel business and directly compete with online travel agencies [OTAs],” said Mr. Kenneth Atkinson, Executive Chairman of Grant Thornton Vietnam.
Vietnam has become more and more attractive in the eyes of international travelers in recent years, with the number of tourists arriving the country rising by nearly 28 per cent last year and predicted to grow into the future. As the tourism sector grows, so does Vietnam’s home-sharing economy.
The fact that Vietnam has two of the Top 10 trending destinations on Airbnb also indicates the platform is rapidly attracting more homeowners and travelers in the country, Mr. Atkinson said. Airbnb has developed quickly over the past few years, with listings rising from some 6,500 nationwide in 2016 to more than 16,000 in 2017 in just Hanoi and Ho Chi Minh City, according to figures from AirDNA.
First present in Vietnam about four years ago, the convenience and benefits of the relatively-new “sharing” business have appeal for travelers looking for a distinct and localized cultural experience and homeowners seeking to optimize costs. Despite using Airbnb when staying overseas, many local people opt for Luxstay when holidaying in Vietnam because its accommodation has more unique features and advantages.
Luxstay has increased its presence to the extent it’s often called the “Airbnb of Vietnam”. It’s attracted even more attention since securing investment of $2.5 million last March and announcing an additional $2.5 million from foreign investors in a recent Pre-Series A Round. Different from Airbnb, which targets mid-end customers and millennials, Luxstay focuses on older customers with higher incomes. “We are a specialized platform for homes and villas in the high-end and luxurious segment,” CEO Mr. Nguyen Van Dung told VET.
At the end of 2017 Luxstay had about 600 home listings around Vietnam but now has more than 2,000. “The number of products entering the short-term rental market is growing rapidly,” Mr. Dung said. On the demand side, Luxstay received about 8,000 inquiries in June and the number is growing at an average of 20-30 per cent each month. “Overall, we are going well, but we are also looking forward to a boom in the near future,” he went on. “We previously focused on local customers, which were about 70 per cent of our clientele, but still have about 30 per cent who are foreigners coming via a travel community or partnership exchange with overseas platforms. Almost all traffic comes from digital marketing.”
Online travel platforms are increasingly dominating the market as Vietnam’s tourism industry develops, and the flourishing home-sharing model will certainly put pressure on hotels and OTAs.
“Airbnb will affect lower-end hotels more than higher-end hotels, though some hotel operators in the four and five-star segments report losing regular guests to Airbnb,” Mr. Atkinson said. The Airbnb model, he added, can often offer good-quality accommodation at a price much cheaper than staying in a one to three-star hotel, and so is better for budget-conscious tourists. It also offers the chance to experience local hospitality.
Similarly, Mr. Sutton from Dot Property said that most Airbnb users are younger travelers who prefer to stay in places that have a more local atmosphere. “This means that three-star hotels and those in the budget segment will be affected due to their similar pricing,” he said.
“With the development of technology, smartphones and the internet, they have been able to reach more people,” said Mr. Atkinson. “Booking on the Airbnb platform is simpler than using travel agencies, giving the platform an advantage.”
Since the home-sharing economy plays the role of intermediary between hosts and guests, it competes directly with OTA platforms like Agoda or Booking.com, Mr. Atkinson added. Its ongoing competitiveness, however, will depend on the quality of listings. Airbnb said in March that it aims to compete directly with OTAs based on lower fees for hotels, which many smaller hotels consider are too high with OTAs. “This is true especially with Booking.com, where 100 per cent of fees are charged to the hosts, not the guests,” he said.
OTAs, meanwhile, are trying to remaining competitive by increasing listings, with Expedia acquiring HomeAway in 2015 with this in mind. “These actions make it difficult to predict the effects the home-sharing economy will have on OTAs,” Mr. Atkinson said. “Globally, the home-sharing economy has not been able to have much impact on OTAs’ revenue, mostly due to the latter having already built up an inventory of listings.”
A report from Piper Jaffray, a leading investment bank and asset management firm, stated that any negative impacts from Airbnb on OTAs would be minimal in the 2016-2020 period. “We have to remember that OTAs traditionally focus on the hotel market, whereas home-sharing models focus on the private owner/managed market, hence the relatively small impact,” according to the report.
Regulation to come
The home-sharing economy will need to address certain challenges if the boom times are to continue. Mr. Sutton pointed out that transparency in the quality of listings and the way homeowners manage their property count among the greatest difficulties in Vietnam at the moment, as do legal aspects. “As services like Airbnb expand, it will test the limits of local regulations,” he said. “Similar to ride-sharing, home-sharing will require a framework that creates standards for all parties to follow. Local authorities are faced with obstacles from needing to create a tourist-friendly environment while also finding a way to ensure current regulations are not being violated.”
As home-sharing quickly grew in Japan, Thailand and Malaysia, local governments were caught flat footed since there were no existing regulations that properly covered the business. “This caused some confusion in these markets that harmed both property owners and tourists,” Mr. Sutton said. “Everyone in Vietnam would benefit if this type of situation can be avoided.”
Mr. Atkinson also sees obstacles to overcome. “Taxation is a problem for local authorities, similar to the ride-sharing economy with Uber and Grab,” he said. “Since Airbnb does not have representation in Vietnam, it will be difficult to tax it on revenue generated in the country. Legal regulations around e-commerce, which are under development, could create challenges for both platform operators and users and owners in the future.”
The hotel segment, meanwhile, possesses advantages in competing with home-sharing and has recorded steady growth over recent years. According to figures from the Ministry of Culture, Sports and Tourism, 79 new upscale (three to five-star) hotels came into operation in 2017, ten of which were five-star, up 10 per cent against 2016. In particular, revenue per available room (RevPAR) at hotels continued to increase, by 7.6 per cent and 10.2 per cent for four and five-star hotels, respectively.
In such a competitive environment, Mr. Sutton recommended that hotel operators and property developers utilize digital technology and use their own advantages as opportunities to redevelop existing hotel facilities to better match the demands of guests, while also adopting new strategies to cater to tourists’ preferences.
- Vietnam's hospitality market