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Domestic Airbnb Players Emerge as Mainland Embraces Holiday Lets

Filling the gap between poor quality low budget hotels and extravagantly-priced high-end accommodation, a new generation of online-sourced short-term residential spare room lets is finding a ready market among young mainlanders.

Photo: Home from home: Hosted accommodation in Xian.
Home from home: Hosted accommodation in Xian.
Photo: Home from home: Hosted accommodation in Xian.
Home from home: Hosted accommodation in Xian.

Young holidaymakers across the mainland are increasingly using online services to book accommodation with local hosts rather than staying in hotels. This development has not been lost on residents in many of China's more picturesque and in-demand locales, with ever more of them repurposing their spare rooms for the use of leisure and business travellers.

Such vacation rentals are not only easy on the pocket, they also allow travellers to have a more direct experience of local cultures and customs. Driven by the global popularity of Airbnb, the California-based lodgings website, a growing number of mainlanders are now opting for affordable accommodation in private homes, with the value of the related rental sector also on the rise.

Huge Market Potential

The founding principle of Airbnb was to allow homeowners to monetise their spare rooms. Since its 2008 launch, the company has secured investment of more than US$1.5 billion (Rmb9.313 billion) and now has an asset valuation in excess of US$10 billion. It has also become a well-established brand and an acknowledged global success. According to Brian Chesky, the company's Chief Executive, Airbnb's maxim is "to use but not occupy". This reflects the company's philosophy of sharing your spare time and unused assets with others and forms the basis of the "sharing economy".

Spurred by Airbnb, the mainland's short-term rentals market has grown rapidly. This has seen the emergence of some 10 domestic platforms, all aiming to emulate the American company's success. Most notable among these are Xiaozhu.com, Tujia.com, Mayi.com, Youtx.com and Roomorama.cn.

Short-term rentals first became popular in China in 2011. According to Analysys.com.cn, a Beijing-based online research company, the sector recorded a market turnover of Rmb489.9 million in 2012, with business travellers and family groups representing the main clientele. According to a subsequent report by iResearch, a fellow Beijing-based internet research consultancy, the sector was worth more than Rmb4 billion in 2014. With 159.3% growth predicted, the 2015 figure is expected to be around Rmb10.5 billion.

Photo: Online promotion: Letting ads on the subway.
Online promotion: Letting ads on the subway.
Photo: Online promotion: Letting ads on the subway.
Online promotion: Letting ads on the subway.

Typically, short-term rentals are said to generate two to three times the income level of long-term rentals. For guests, short-term rentals can bridge the gap between "bargain price" and "good quality" in the accommodation market. They compare favourably to poor quality budget hotels and the extravagant prices charged at the higher end of the market. A number of analysts now believe that such short-term rentals may, ultimately, undermine the traditional hotel sector.

In Sanya, for example, a popular resort city on Hainan Island, the short-term rental market is already comparatively well developed, with some 81% of all such bookings made online. For Tujia, which targets the mid- to high-end vacation rentals market, nearly half of its rooms are located in Sanya, while hotels only account for a 20% market share.

Assessing the current state of the market, one analyst said: "Demand for vacation rentals is now significant. There are seen as a variety of shortcomings among the available hotel facilities and related services, with many of them failing to cater for the differing needs of business travellers, sightseeing tours, study tours, as well as visits to family and friends.

"Some family travellers, for instance, may prefer to self-cater, something that is outside the remit of many hotels. Short-term vacation rentals have actually found a market niche somewhere between long-term rentals and hotel accommodation."

Broadly agreeing, the head of one mainland short-let portal said: "For Rmb1,500, you can either choose to check into a five-star hotel room in Beijing's Wangfujing district or rent a siheyuan [courtyard compound] of a similar standard, which can accommodate your whole family, young and old alike. Which one is more economical?

"It doesn't always just come down to budget. As a short-term tenant, you will also have the opportunity to savour some authentic, old Beijing-style cuisine prepared by your host. For the host's part, they get to share in the experience of the travellers staying with them, many of whom will live very different lives. All of these are gains beyond monetary value."

Xiaozhu: China's Airbnb

Since launching in 2012, the Xiaozhu short-term rentals platform (Xiaozhu.com) has become the most significant such player, operating in 200-plus locations across China. It now has offices in more than 20 key cities.

Dubbed China's domestic take on Airbnb, Xiaozhu is now the leading property-sharing portal on the mainland. Its website allows landlords to share their extra room availability free of charge, with prospective renters having the facility to search, locate and book the rooms most suited to their needs. Renters can also post online reviews of their accommodation.

Photo: A short-term tenant relaxes in Qingdao.
A short-term tenant relaxes in Qingdao.
Photo: A short-term tenant relaxes in Qingdao.
A short-term tenant relaxes in Qingdao.

Xiaozhu also acts as an intermediary and guarantor between the landlord and the tenant, while its offline staff additionally review and verify the landlord's online information. Both the landlord and would-be tenant are required to upload their personal data and identity documents via the platform, with their initial-stage communication and payment activities having to be completed through the website.

Xiaozhu charges the landlord a 10% commission upon completing a successful transaction with a tenant. The company's staff also provide online advice to landlords as to how rooms can be renovated and decorated in order to maximise uptake.

While the process seems to be ideally suited to meet the needs of both parties, in reality, mainland property sharing portals still face a number of challenges. One such portal, Airizu, which almost entirely adopted the Airbnb operating model, closed in 2011, despite having secured tens of millions of dollars in investment. Its closure was ascribed to its failure to reconcile the operating differences between the US and the mainland markets.

Subsequently, a number of other brands, notably Tujia and Zhubaijia, have developed very different business models to that of Airbnb. Tujia, for instance, sources its rooms primarily from property developers, while Zhubaijia – founded by a former Vice-president of 5i5j.com, an online real estate company – serves mainland travellers looking for accommodation abroad. Principally, it is only Xiaozhu that has retained a focus on the spare bedrooms of mainland residents.

Chinese-style Vacation Rental

A key part of its success is that Xiaozhu seems to have identified just why the Airbnb model failed in China. First and foremost, according to the company, it is a matter of trust. Sharing accommodation inevitably involves access to the most private and personal daily living details. It is for this reason that comparatively few potential landlords are willing to let their surplus rooms, with many of them deterred by security and theft concerns.

Photo: The human touch: Essential for mainlanders.
The human touch: Essential for mainlanders.
Photo: The human touch: Essential for mainlanders.
The human touch: Essential for mainlanders.

In practice, establishing trust between the host and a potential guest actually requires a degree of both time and cultural sensitivity. It is also a question of meeting expectations. Overseas, for instance, "couch surfing" – the practice of sleeping on a sofabed or similar in a shared space – is quite common. On the mainland, however, the provision of a dedicated spare room is more typical.

Overall, though, two things above all else tend to be appreciated by Chinese travellers – a warm, human touch and a comfortable, home-like environment. These, then, are the areas that Xiaozhu prioritises and where it believes it has the edge over hotel accommodation.

As part of its bid to allay the concerns of landlords, Xiaozhu also promotes a number of security protocols. This sees it undertake to install smart locks on certain areas of a landlord's premises, while also providing insurance for both the host and the guest. It also guarantees to compensate the host in any case of property loss.

The portal also works with Zhima Xinyong, part of the Ant Financial Services Group, to offer a personal credit monitoring system for the online short-term rentals sector. This allows users on the Xiaozhu platform to authorise access to their personal credit ID, while also allowing them to accumulate credit points by posting instant reviews.

Highlighting the importance of this, Cheng Yu, a Partner with Morningside Ventures, one of Xiaozhu's key backers, said: "It is believed that a comprehensive credit protection system will provide a clear boost for the mainland's sharing economy."

Ren Yuan, Special Correspondent, Beijing

Content provided by Picture: HKTDC Research
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