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Home-sharing clouds recovery prospects for Singapore hotels

Government to consider rules, safeguards for short-term rentals

SINGAPORE (Nikkei Markets) -- Singapore's hotel industry is starting to recover after three years of declining room rates as the number of visitors to the city-state continues to rise.

Hotel owners such as CDL Hospitality Trusts, Far East Hospitality Trust and OUE Hospitality Trust, which have released encouraging results for the September quarter, could also benefit from the expected drop in new supply entering the market.

Yet some industry watchers are sceptical about the recovery story. That's because home-sharing arrangements are becoming more popular, despite government restrictions on short-term leases, such as those offered by Airbnb Inc.

"The growing sharing economy is disrupting traditional channels, not just in transport but also accommodation," Chua Hak Bin, an economist with Maybank Kim Eng, said in a recent report.

According to Chua, hotel rates and revenue have remained relatively soft although visitors to the city-state have increased and government surveys indicate tourists are spending more on accommodation. "The share of visitors who stayed in hotels has fallen to 60% in 2015 from 65% in 2013," he wrote.

Excess capacity, along with a tepid economy and shrinking company budgets, has damped earnings for Singapore's hotels in the past few years despite fairly robust tourist numbers.

The city-state had around hotel 63,850 rooms across 413 hotels, including hostels, at the end of 2016 based on Singapore Tourism Board estimates. This year, the number of rooms is expected to increase by 3.9%.

In its recent earnings report for the quarter ended September, CDL Hospitality Trusts, Singapore's largest hospitality real-estate investment trust, said occupancy at its domestic hotels declined 2 percentage points to 88.7% during the quarter, while the average room rate was 0.8% higher at 187 Singapore dollars ($137) a night.

However, the trust's overall net income grew during the quarter, helped by its properties overseas. CDL Hospitality, which is managed by local property giant City Developments' hotel arm, owns six hotels in Singapore, the most prominent being the five-star Grand Copthorne Waterfront and Orchard Hotel, which is located in the city's prime shopping belt.

Smaller rival OUE Hospitality Trust owns the landmark Mandarin Orchard and Crown Plaza Changi Airport, while Far East Hospitality Trust has eight hotels, including the four-star Elizabeth Hotel and Orchard Parade Hotel.

Both Far East Hospitality and OUE Hospitality managed to boost both occupancy levels and revenue per available room in the latest quarter.

Far East Hospitality, which reported earnings on Thursday, said average occupancy during the quarter improved by 1 percentage point from a year ago to 89.4%. While the average daily rate declined marginally by 0.7%, revenue per available room, another measure used by the hotel industry, increased by 0.4%.

As for OUE Hospitality, its net property income from its two hotels in Singapore rose 5.6% year-on-year to S$23 million.

In a commentary on OUE Hospitality, DBS Group Research said it expects a sustained recovery in the Singapore hospitality market from 2018. The bank reasoned that the supply of new hotel rooms would be constrained in the medium term as the government has not released any new hotel sites for development over the last three years.

CDL Hospitality estimates the pace of growth in new hotel rooms to slow to 2.1% per annum in the next four years.

However, prospects for hotels could change if Airbnb and other short-term leasing platforms take off. Even if tourist arrivals rise, hotels may find it hard to lift occupancy rates, say some.

Data from STB show visitor arrivals grew by 7.7% to 16.4 million last year, while tourism receipts surged 13.9% to S$24.8 billion.

In the eight months to August, visitor arrivals in Singapore rose 4% to 11.7 million over the same period of 2016, boosted by a jump in tourists from China and India.

For now, hotels are cushioned by rules which aim to prevent residential areas from turning into accommodation hotspots.

Although the government halved the minimum lease period for private apartments to three months earlier this year, the rule is a major constraint for Airbnb, which has its regional headquarters in Singapore.

Still, anecdotal evidence of owners renting their apartments for short stays abounds and a check with Airbnb shows over 300 listings for Singapore.

A Member of Parliament has urged the government to regulate rather than ban home-sharing services, as it does with ride-hailing services like Grab and Uber.

The government has said it intends to review and consider safeguards in place to ensure that such rentals do not negatively affect the amenity of residential estates.

--Kevin Lim

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