Singapore Property/ Hospitality - DBS Research 2018-04-16: Setting A High Bar

Singapore Property/Hospitality - DBS Vickers 2018-04-16: Setting A High Bar Short Term Accomodation AirBnB Hospitality REITs ASCENDAS HOSPITALITY TRUST Q1P.SI ASCOTT RESIDENCE TRUST A68U.SI CDL HOSPITALITY TRUSTS J85.SI FAR EAST HOSPITALITY TRUST Q5T.SI FRASERS HOSPITALITY TRUST ACV.SI OUE HOSPITALITY TRUST SK7.SI

Singapore Property / Hospitality - Setting A High Bar

  • Urban Redevelopment Authority (URA) to potentially allow short-term accommodation in Singapore such as those available on Airbnb.
  • But high barriers set to gain permission for shortterm rentals could discourage many owners.
  • Onus to be placed on shared accommodation platforms to only allow accredited rental units.
  • Maintain Overweight recommendation on the hospitality REITs given neutral-to-slightly-positive impact.



What’s New 


URA seeks public feedback on short-term accommodation 

  • Urban Redevelopment Authority (URA) announced that it is seeking public consultation for its proposed framework for the use of private residential properties as short-term accommodation (STA) as available on online platforms such as Airbnb.
  • Currently, private residential properties in Singapore are only allowed to be rented out subject to a minimum stay duration of three consecutive months.
  • Under URA’s proposal, they intend to allow STA only for private residential properties subject to certain conditions. STA will not be allowed in HDB properties.

Criteria for short-term accommodation (STA) approval 

  • Before STA is allowed in a private property, there needs to be approval by at least 80% of owners by share value and the permit to allow STA is only valid for a 2-year period before it needs to be renewed. If the level of consent falls below 80%, the STA permit will lapse.
  • In addition to the consent of private property owners, approval for STA is subject to the green light from URA. Approval is based on the impact of STA on the surrounding community and considers the following factors:
    1. type of residential development,
    2. character of the area, and
    3. the presence or absence of a formal self-governance structure within the residential estate. 
  • For example, developments with localised security measures that effectively mitigate the impact of STA use would be viewed favourably by URA. Likewise, properties that are in mixed-use areas such as commercial centres and business parks, or sites that are fronting major and arterial roads with good infrastructure would have a greater probability of obtaining approval. 
  • In contrast, most landed housing estates and properties with existing social concerns related to security and vice would find difficulty in gaining approval from URA.
  • Furthermore, even after obtaining consent from URA, the following restrictions will be put in place 
    1. Annual rental cap of 90 days 
    2. Occupancy cap of six persons per unit at any one time, in line with the occupancy cap for private residential units 
    3. Compulsory registration by each individual property owner with URA prior to listing the property for STA use 
    4. All approved STA hosts to provide URA with details of guests for each stay similar to the requirements for hotel guests for security reasons 
    5. Compliance with fire safety requirements similar to those for hotels and serviced apartments including the following: 
      • STA owners to fit their homes with equipment such as home fire alarm devices and fire extinguishers.
      • Upgrading the property to meet the prevailing edition of the fire code which may include the provision of rising mains, hose reels at every floor and upgrading of one passenger lift to a fire lift.
    6. For buildings that are strata titled, their Management Corporation Strata Titles (MCSTs) can put in place additional measures to manage potential disamenity and disturbances such as by-laws that have an annual rental cap that is lower than 90 days, occupancy cap per unit which is lower than six persons and a requirement that only owner-occupied units can be used for STA. Furthermore, MCTSs can also consider requiring owners of STA units to pay additional maintenance fees for common areas and facilities.

Regulations of Commercial Platform Operators

  • Under URA’s proposal, it will consider licensing of platform operators (LPOs) that advertise or market rental units in Singapore for STA use. Thus, platform operators without a licence will not be permitted to advertise or market units in Singapore.
  • LPOs will be required to 
    1. Ensure that only residential premises registered with URA for STA use are listed 
    2. Record the number of nights that a STA property is rented per year and reject rental bookings if the annual 90-day quota is exceeded 
    3. Pay any relevant taxes to the authorities on revenue generated from business activities in Singapore 
    4. Provide information on STA hosts' activities for regulatory and enforcement purposes such as data to ensure STA hosts are paying taxes on the rental income they earn 
    5. Ensure that STA hosts comply with government requirements and conditions LPOs which fail to comply with conditions imposed by the government will be subject to penalties and their licences may be suspended or terminated.


Our Thoughts 

  • The URA appears to have set a high benchmark for private residences to be used for STA such as 80% approval by owners, restrictions on areas where STA buildings can be located and additional fire safety requirements. 
  • This high bar and potential costs involved to retro fit a building for only 90 days use per year, may pose a large disincentive for owners to convert their properties for STA. Thus, should the current URA proposal be implemented into law after the public consultation, we believe the potential for a large influx of units available for STA beyond the c.7,500 active rentals currently available (based on data from AirDNA) may be limited.
  • Furthermore, with LPOs potentially being licensed and having the onus to only advertise registered STA properties, we believe there is potential for the number of active rentals to shrink near term as it may take some time for respective private residential units to obtain the consent from at least 80% of their owners and URA approval. This would be a net positive for the hotel sector especially those in the economy segment.
  • However, in the medium term, there may be additional competition for the hotel sector from the STA industry should new private residential developments be designed with STA in mind.
  • With a neutral-to-slightly-positive near-term impact on the hotel sector, we maintain our overweight stance on the hospitality REITs with CDREIT (BUY, Target Price S$2.00) being our top pick. 
  • We continue to like CDREIT for its attractive valuation with the implied value of its Singapore portfolio at S$600,000 per key versus physical market transactions of at least S$650,000. In addition, near term, we expect strong DPU growth of c.10% on the back of a recovery in the Singapore market but also the full-year contribution from last year's acquisitions.







Mervin SONG CFA DBS Vickers | Derek TAN DBS Vickers | http://www.dbsvickers.com/ 2018-04-16
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.970 Same 0.970
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