China-Style Airbnb Driving Home Purchases on Profit Promise
Wu Junhua had been allowing her investment, a furnished one-bedroom apartment in the lake city of Hangzhou, to sit empty for a year until she found a solution: China’s version of Airbnb.com, known as Tujia.
Letting Tujia put up short-time travelers who otherwise would stay in a hotel, Wu shares the income they generate while waiting for her 400-square-foot (37-square-meter) asset to appreciate. Her place can rent for around 260 yuan ($43) a night, the starting price of nearby four-star lodgings listed as “most popular” on China’s biggest online booking website, Ctrip.com, which also carries Tujia’s listings.
“Now I have nothing to worry about, and I get paid,” said Wu, 59, a retired pharmacist, noting that Tujia also changes towels, arranges cleaning and has kept her apartment in the same condition as when she bought it, erasing her skeptical first impression of Tujia: “Are these people con artists?”
It’s no trick. The global trend known as the sharing economy has come to China almost 65 years after the Communist Party took power. The short-stay model run by Beijing-based Tujia Technology (Beijing) Co., which started two years ago and now lists more than 80,000 places for rent in China and abroad, is taking advantage of idle properties held by homeowners like Wu, simultaneously helping drive sales of second homes on promises of rental income and property management services for their sometimes far-away investments.
“What’s great about this model is it benefits a lot of people,” said Justin Luo, 46, co-founder and chief executive officer of Tujia, citing the startup’s role in joining China to “the global sharing economy,” and calling real estate, “the most lucrative slice, to put it bluntly.”
Unlike Airbnb Inc., which in the U.S. has drawn the attention of New York enforcement agencies for not paying hotel occupancy taxes, Tujia has so far remained free of regulatory hurdles. It collects the money and pays all hotel levies as well as taxes on the rental income on behalf of property owners.
Airbnb, whose investors include billionaire Peter Thiel, helped spawn the so-called sharing economy, where people offer services -- such as beds for the night, car rides and power tools -- directly to one another online. LendingClub Corp., a peer-to-peer financing platform, is backed by directors including John Mack, former chairman of Morgan Stanley, and investment firms Sequoia Capital and BlackRock Inc.
Chinese investors and speculators helped cause a 12 percent surge in housing prices last year and prompted new government measures to rein in prices, according to SouFun Holdings Ltd. (SFUN), the nation’s biggest real estate website.
“Many developers raised their prices after signing up with us,” Luo said in an interview in his Beijing office, citing a building in Xiamen, in the southeastern province of Fujian, where all 800 apartments sold immediately and at 1,500 yuan a square meter higher than expected when the developer told buyers that Tujia would find them short-term renters and manage properties in their absence. “Because Tujia can do this, homes are selling faster.”
Tujia’s rental revenue exceeded 100 million yuan last year, while income from management and housekeeping services for 150,000 mostly high-end properties including those owned by Chinese who don’t want overnight guests is “even bigger,” according to Luo.
The company takes a 10 percent rental commission on listed Chinese properties it doesn’t actively manage, as well as those posted by overseas affiliates, such as Austin, Texas-based HomeAway Inc. (AWAY), which amalgamates vacation home rentals through partners worldwide and is the main competitor of Airbnb.
Tujia’s listings on more than 3,000 properties it manages and is contracted to find renters for were occupied for more than 70 percent of the year in 2013, according to Tony Tang, Tujia’s spokesman. Registered members exceed 400,000, he said, declining to disclose how many renters have booked stays.
“Our rental sales are doubling every quarter, which is shocking,” Luo said, adding that more than 70 prospective investors are seeking a piece of the business, which has attracted 400 million yuan from seven stakeholders including HomeAway and Ctrip.com International Ltd. (CTRP) “This shows you how prosperous the investment property market is and the strength of consumption power in China.”
Tujia’s deeper involvement in property rental and management than San Francisco-based Airbnb and other online rental sites that only provide a customer-to-customer platform helps bridge a lack of trust between Chinese property owners and renters and expedites transactions, according to Shanghai-based iResearch Consulting Group. Its focus on higher-end apartments makes Tujia’s model less-risky and more-profitable, while a concentration of properties in the same complexes enables less-costly and more-efficient management.
“I’m more optimistic about Tujia’s model because it fits local conditions and customer needs better,” Wang Tingting, a Beijing-based analyst at iResearch, an Internet research provider, said by phone. Support from shareholders HomeAway and Ctrip is also crucial, he said.
Chen Jie, a 34-year-old finance executive, said Tujia’s services prompted her to buy a 100-square-meter villa in Sichuan province’s Qingcheng Mountain, a world heritage site known for its Taoist relics and tranquility, in August for 1.5 million yuan, so that she and her husband can retire there. She plans to use Tujia for the next two decades.
“We can live in there ourselves for a month each year, and let Tujia find short-term renters when we are away, and we share the income 50-50,” Chen said by phone from Chengdu, Sichuan’s capital. “I wouldn’t have bought my retirement home now if I didn’t know that a company like Tujia is managing the property. Any cash returns will be adding flowers to the bouquet.”
The Chinese government’s target of doubling per-capita income by 2020 will boost demand for second homes, benefiting sales by developers in tourist destinations, according to CCB International Securities Ltd. China already has 20 million to 30 million existing unoccupied homes, according to an estimate by Zheshang Securities Co. analyst Dai Fang.
Ten cities boasted average annual residential property yields of 20 percent or more in the five years ended Jan. 31, with Beijing topping the list at 29 percent, according to a report by Zhongjin Standard Data Research Ltd., known as CNFS Data, a Hong Kong-based data provider covering 116 Chinese cities. Houses in some cities, including Hangzhou, Ningbo and Wenzhou, have lost value in the past three years, it said.
New-home price growth in first-tier cities slowed in January, with Beijing and the southern business hub of Shenzhen both recording a 0.4 percent increase from a month earlier, the slowest pace since October 2012, according to the National Bureau of Statistics.
Focusing on a niche market for wealthy tourists seeking high-end accommodation, Tujia distinguishes itself from Chinese platforms such as Mayi.com, which carries listings costing less than 50 yuan per night, and Youtx.com, which carries dormitory beds for 23 yuan per night in Beijing and is owned by SouFun. Beijing-based Internet information consultancy Enfodesk predicted online short-term residential rentals would jump sixfold to 2.9 billion yuan by transaction volume this year from 2012 levels.
Last year’s 12 percent property-price rise came after China’s biggest cities tightened controls to moderate price gains, according to SouFun, which surveyed 100 cities.
“People rich enough to buy properties can have eight or 10 homes, while people with lesser means probably won’t be able to own one in their whole lives,” Luo said. “Can they rent out their homes, or even just one, so that others can also enjoy it? That would benefit them, too.”
The day after resigning in August 2011 as co-president of China Real Estate Information Corp. in Beijing, Luo flew to Sanya, a tropical city on China’s southern Hainan island, known as China’s Hawaii, knocked on apartment doors and persuaded owners to let him manage their properties on days they sit idle.
Luo was initially inspired in 2001 when he became stranded in Hawaii as a business traveler working for Cisco Systems Inc. The Sept. 11 terrorist attacks led to flight cancellations, and he found himself spending $170-a-night at a Hilton hotel and paying to do his laundry while two travel companions were able to enjoy Chinese food and beer in a $10-a-day rental apartment. When HomeAway went public in June 2011, Luo decided Tujia’s model could work.
He scrubbed toilets, tolerated mosquito bites, hired helpers and listed more than 50 seaside Sanya apartments online by the end of the year to seek renters before the peak travel season. The “tu” in Tujia means road or travel, while “jia” means home.
“The opportunity for growth in both the awareness of the industry and the benefit vacation rentals offer to travelers is often disproportionately beneficial to the market leader,” Carl Shepherd, co-founder and chief development officer of HomeAway, said in an e-mailed statement, adding that Ctrip’s stake “made Tujia a compelling investment.”
Ctrip.com lists Tujia rentals only on its Chinese-language site. About 133 million Chinese Internet users, or 22.4 percent of the total, had booked accommodation, airline or train tickets online as of June 30, a jump of 21 million from six months earlier, according to a report released in August by China Internet Network Information Center.
“Tujia is not very big yet, but it will have a relatively big impact on three-star or lower hotels in tourist destinations” such as Home Inns & Hotels Management Inc. (HMIN), Owen Yang, vice president of Shenzhen-based United Hotel Consultancy Co., said in a phone interview, citing price competitiveness. “Some shrewd hotel operators have already realized the threat.”
The home-purchase restrictions in more than 40 Chinese cities setting qualification requirements for property buyers are posing challenges to developers who are turning to Tujia to give customers more reason to buy with the comfort of earning rental income.
“Many such projects face pressures and would like to work with online platforms to find buyers,” Qu Anxin, a Shanghai-based research director at Centaline Group, parent of the nation’s biggest real estate agency. “Tujia can be helpful.”
Developers signing up include Shimao Property Holdings Ltd. (813), a Shanghai-based developer of high-end homes and hotels, and Yanhua-Zhixin Industrial Group Co., the Chengdu-based developer of the Qingchengjun project where Chen bought her retirement home. China Vanke Co. (000002), the biggest developer by market value traded on the nation’s exchanges, has also had discussions with Tujia, Luo said.
“Signing up Tujia adds few costs, but our chances of selling well are higher,” said Zhang Xiao, the Qingchengjun project’s general manager, who said Tujia signs rental agreements with owners as well as provides separate housekeeping services for one year, which owners can extend.
Tujia has agreements with developers for about 300 projects, averaging 500 homes each, and “another 900 projects” in the pipeline, Luo said.
For now, Tujia faces no real competition as it expands.
“Tujia seems to have strong growth potential,” said Gu Yunchang, honorary director of the tourism real estate committee under the China Real Estate Chamber of Commerce, a 5,000-member organization focused on growth in the property sector. “But where they go next depends on how they manage the business and ensure their product quality.’
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