Money rolling in the street, GOA just has to pick it up

Condominium projects are important for the economy, especially in times of crisis. Why? Condos never close, they always have owners, and they host a mix of long term renters and transient guests. During CoVid19 the condos complexes in Aruba suffered few layoffs.

The timeshare industry is another good one. Owners and repeat guests will be among the first ones to return to Aruba while hotels and other accommodations are still thinking about it. Aruba has been through challenging times before, and with the help of the condo-hotels, the timeshares and the vacation home rentals, the island will get back on its feet much faster than you think.

A recent poll by Magna Global in the US suggested that after travel restrictions are lifted tourists would prefer to book and feel safer staying in the privacy of a vacation home, away from busier, crowded accommodations.

A Few Facts

The vacation rental industry is a US$ 140 plus BILLION market and growing worldwide at an accelerated pace with the likes of Airbnb, VRBO and Bookings.com, in the race. Vacation Rentals cater mainly to millennials and families which will contribute to rejuvenate Aruba’s mature product. Given its huge potential, hotel brands such as Marriott (Home & Villas by Marriott), Wyndham and Accor are entering the market, as well.

Expedia didn’t pay $3.9 billion to acquire VRBO and Homeaway, for nothing.

In keeping with Aruba’s vision of attracting more affluent tourists to sustain steady economic growth, vacation homes provide visitors with an alternative to traditional lodging offered in tourism-based economies. This type of client is looking for a family-oriented feel, a more “homey” and tranquil environment away from waiting in lines and crowds at the big properties, wishing to also experience the island’s culture.

Moreover, the literature on vacation homes suggests that tourism is the catalyst that drives the second-home market.

It also becomes important to ask if tourists who rent homes/condos would have come to Aruba as visitors if the vacation rental market hadn’t existed??!!

Most likely they would go somewhere else.

We have to remember that hundreds of Arubans families supplement their monthly income and pay their mortgages hosting guests in their 2nd home or annex. VHRs tourism revenues have the power to trickle down to LOCALS and do not only remain in a few (foreign) hands. That extra income helps many locals survive challenging times.

HOWEVER, the VHR industry must have a level playing field and everyone must be made to pay room taxes OR be denied the privilege of renting out.

Just in room taxes alone, vacation rentals could generate close to AWG 20 million for GOA.

 Blue Aruba Rentals share the concerns expressed by AHATA and others, over equity and fairness in regards to lodging establishments and VHRs.

We believe this industry should be regulated, not over regulated, but regulated enough, so that players abide by the law and pay the room tax and environmental fees, as dictated by law.

We unfortunately fear, that most vacation rentals on the island are not paying their taxes.

Enforcement is the weak link.

GOA’s Departamento di Impuesto, DI, should enforce the decree enacted in July 2018.

Because besides GOA’s lost revenue this delivers an additional negative consequence, as the companies complying with the law lose clients to the ones not paying their taxes, and discounting rates instead.  

The attractive 9.5% discount plus $3 a day, creates an incentive for clients to book, and for the VHR not to charge, leaving GOA out of the equation.

The good news is that the solution is not complicated; and based on comparable tourist destinations, it only takes two/three capable persons at Departamento di Impuesto, DI, to control room tax evasions/compliance.

For example, the town of Breckenridge, Colorado with a vacation rental market the size of Aruba, has a 99% compliance rate in part due to a dedicated two-person enforcement team. With a smaller VHR pool and local knowledge of tracking listings-photo locations, properties can be easily recognized and taxes.

SOME IDEAS @impuestoaruba

Improve enforcement by Departamento di Impuesto, DI. They should focus first on the big players (realtors/condos/rental and property managers) and accommodations on hosting sites.

Airbnb is already collecting room tax on vacations in Amsterdam rentals as well as many other cities throughout the world. Former Minister of Finance Angel Bermudez and the Aruba Tourism Authority already signed an MOU with Airbnb, twice, and were working to reach a similar agreement, years ago, but it never materialized.

Monitor the big online travel agents (OTAs) in the VHR market (Airbnb, VRBO, Bookings.com, Expedia, etc.) in addition to controlling the big players in Aruba, you would have over 80% of the vacation rental room tax collection challenges solved.

Have hosting sites display lodging permit numbers on their listings for easier monitoring by Departamento di Impuesto, DI.

Enact a new law for vacation rentals and thus leave no room for misinterpretation, because vacation rentals regulations were incorporated into the law designed to regulate all-inclusive hotels, last minute, and there is no separate legislation.

– A level playing field for Hotels, VHRs, and Timeshares, is required. Timeshares should also pay room tax when renting to transient guests. As a matter of fact, timeshares are a big player in the VHR business but with a 9.5% price, plus $3 a day advantage!

By the way, that is easy to collect, because players like Marriott, Costa Linda, Playa Linda, Divi, etc., are reliable companies that will comply immediately.

– The new law should include responsibilities/norms for OTAs to operate in the Aruba market.

– Co-responsibility for paying taxes should be on the owner of the property as in the current law, AND also on the rental manager, or management company, if collecting rental revenues.

– Establish minimum standards for obtaining a lodging permit.

Decisions on regulation shall not be based on a particular sector’s interest, but just on its contribution to the larger economy and well-being of ALL tourism stakeholders and that of the Aruban people. More so in these dire times.

If well managed, in just a few years the VHR industry could contribute more revenue to Aruba than the Cruise industry, and perhaps replace it

Alberto Perret Gentil

Pering Group/BlueAruba Rentals

 

 

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June 02, 2020
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