Short term thinking: fertile grounds for MENA’s Airbnb-inspired startups
If not a turnkey development, the Dubai Department of Tourism and Commerce Marketing’s MoU with Airbnb in May 2016 was proof of the emirate’s push on democratizing its hospitality industry.
The agreement’s emphasis on regulatory compliance with the Department of Tourism and Commerce Marketing’s (DTCM) late 2015 holiday home regulations may have been a contingency move to curb, and possibly, own Dubai’s future Airbnb-modeled economy – even more so to avoid a repeat of the ride-hailing industry regulatory muddles. But while enforcing stringent conditions for both tenants and landlords, it has set the parameters of a previously grey area for UAE holiday home operators. And in that, it has opened the gateway for others.
Picture this: An expat lands in Dubai, having secured a generous job offer. His one-month paid for hotel stay is expiring, so he checks Airbnb for temporary accommodation and prime locations, where he comes across mid-to-high end property listings by the likes of Blueground and Maisonprive. One month into his Dubai stint, he needs to settle, and signs up to Letmyspace, a platform where he can granularly specify his housing preferences and connect with like-minded landlords – not to mention spare themselves unnecessary agent fees.
Compare any of Blueground’s, Maisonprive’s or Letmyspace’s models to Airbnb’s, and you’re likely to get a unanimous line of defense: Airbnb is a partner and a channel, not a competitor.
Their businesses may overlap and fragment an already challenged market, but the region’s – and more so the UAE’s – Airbnb-esque startups that have sprouted up in the past two years, bet on three macro trends: a short-term mindset towards property rental and ownership, a preference for luxury experiences over luxury real estate, and, most importantly, an opportunity in gaps created by traditional hospitality players.
They’ve also carefully devised intermediary business and revenue models that spare them regulatory hassle.
Take Blueground, a self-described ‘technology hospitality startup’. They recently secured 5.5 million euros (US$ 6.2 million) from Athens-based VC Venture Friends. Starting in Athens and Istanbul, they expanded into Dubai eight months ago.
Targeting corporate expats, the company manages and hires 500 unfurnished mid-to-high-end apartments from individual owners, 50 of which in Dubai. Its edge lays in creating experiences by furnishing, equipping and decorating these residential units. As its cofounder Alex Margakos explains: “We add value to the apartments”.
Blueground guarantees apartment owners market prices, charges tenants a premium, and counts the difference as revenue. More recently, it’s been working with promoters on cost-sharing models.
Maisonprive is another mid-to-high end property management company that launched in Dubai earlier this year. Its model slightly differs in that it manages unoccupied furnished apartments as holiday homes, focusing on upgrading design and experience to meet its brand criteria. Think of it as a ‘virtual hotel’, explains Rami Shamaa, Maisonprive’s cofounder and managing director, that caters to both mid-to-high-end tourists and corporates for stays as short as 10 days or as long as a couple of months.
Gurfati, an early-stage online platform based in Saudi Arabia, has enjoyed fast growth on the back of simply digitizing reservation services for furnished apartments in the Kingdom, working with managed properties that house 30-plus apartments. It plans to expand into the UAE and Kuwait this summer. “[Furnished apartments] are close to 10,000 properties. People would usually roam around streets looking for furnished apartments for short stays, but we are bringing them online,” explains founder and CEO Muhammed Ali Abdul Jabbar.
Jyoti Goyal, cofounder at Letmyspace, a UAE-based matchmaking platform for tenants and landlords that launched in October 2016 and is currently incubated within In5, is looking at wider gaps and macro trends shaping up the emirates’ property market. Data aggregated by the platform, which currently counts 2,000 landlords and 5,000 tenants, suggests that new to town expats are looking at mid-to-short-term property rental commitments. “We know that the market is going to soften up with all the affordable housing coming up,” Goyal explains.
Expat short termism, coupled with shortcomings of real estate agents who can no longer justify their commissions with added value, guarantees repeated visits to Letmyspace. Both landlords and tenants set up personalized profiles on the platform, and through a ‘match-o-meter’, the latter can narrow their housing preferences down to the indoor gym availability.
Think Tinder for Airbnb, but for short-term mindsets, rather than holidays.
Too close to home?
Matchmaking is where Letmyspace’s job is done. Its subscription-based model and intermediary role spare it the legalities of holiday home operators, but even those licensed as such – including Blueground and Maisonprive – have yet to encounter any challenges in this regard. “Many people think that we sublease. We do not transfer the tenancy to another party, but we rent out the apartments similarly to how hotels operate,” explains Blueground’s Maragkos.
Gurfati’s Abdul Jabbar says that its model has been a welcome addition to Saudi Arabia’s domestic tourism efforts; so much so that the company’s been partaking in the local tourism authority’s roadshows across the Kingdom. “The domestic tourism market is close to 60 million trips a year, and 55 percent or more of them are stays at furnished apartments,” he tells Wamda.
Just how likely Gurfati is to get the same royal treatment in the UAE, and just how flexible the regulatory environment will be if and when similar businesses scale, is,however, a numbers’ game.
Research by property consultancy Knight Frank in October 2016 suggested that Airbnb’s 4,200 short-term lets have already dented Dubai’s hotel market rates. It also warned that submarkets such as the Palm and Dubai Marina would be hit the hardest due to their high supply of holiday homes. Despite government reps themselves calling on the UAE’s hospitality sector to embrace innovation, the global tug of war between Airbnb and longstanding players makes for a cautionary tale; from the NYC bill curbing the home-sharing model, to exhaustive reports on unfair competition resulting from Airbnb’s tax advantages in London.
Still, UAE startups, be they modeled after or enabling Airbnb, are betting on the Expo 2020 as fertile ground for all players. “There aren’t a lot of two- and three-star hotels here, and this is a gap that holiday homes can definitely fill. At the same time, one million people are going to have new jobs [on the back of Expo2020]. That’s my target audience,” says Goyal, while Maisonprive’s Shamaa adds that broadened UAE tourist demographics translate into separate audiences for hotel rooms versus holiday homes. “The way I see it is, it’s a different product. We are broadening Dubai’s hospitality offering.”
Even so, a highly fragmented market can kill smaller players, especially with established ones possibly expanding into their spaces. Booking.com has already started listing holiday homes, while Airbnb, inversely, is now transacting fully-fledged experiences. There is one reason why even classifieds’ portals like Dubizzle, let alone real estate listing platforms like Propertyfinder, won’t follow suit: they have a business model reliant on agent listings and commissions.
Abdul Jabbar tells Wamda that in three months, the number of furnished apartments they have aggregated doubled what Booking.com achieved in five years in Saudi. He says it’s because they designed Gurfati’s business model “to work around furnished apartments”.
Players like Letmyspace, Blueground and Maisonprive are betting on the quality assurance and experience of their platforms to future-proof their businesses.
Whether regional longstanding hospitality players and newer ones will cooperate or compete is a matter of time. It has been argued that Airbnb and hotels need each other, and if that is the case, the UAE seems to have already come to this realization.