The home-sharing company’s business has grown steadily while it has largely dodged penalties for hosting unlicensed properties on its platform.

For years, Airbnb and Taiwanese regulators have been playing a cat-and-mouse game. Local regulations limit short-stay accommodation rentals to licensed hotels or inns, but most Taiwan properties listed on the home-sharing platform do not meet that requirement. Nevertheless, demand for economical lodging is strong enough that Airbnb is willing to risk the inevitable fallout with regulators.

Previous crackdowns – which brought sharp increases in fines for operating illegal hotels – only temporarily curbed the number of listings. After a while, the volume start to creep up again.

In practice, regulators can’t easily punish Airbnb because the company has no physical presence in Taiwan. The company is registered in San Francisco. There are no Airbnb staff members on the ground here.

“What are regulators going to do? Send a notification of a fine to the Airbnb office in California?” says C.K. Cheng, founder of the Taipei-based vacation-rental platform AsiaYo.

Yet while Airbnb’s business continues to thrive here, the government’s tough stance on unlicensed hotels and homestays is having an adverse effect on some local businesses that cannot so easily skirt regulations.

For instance, most vacation rentals in Taiwan’s large urban areas are empty apartment units that do not qualify as homestays and cannot be legally listed on AsiaYo’s platform. Taiwanese law defines a “homestay facility” as accommodation services operated as a side business in an owner-occupied residence. If the owner is absent from a property being used for homestay purposes – as is the case with almost all Airbnb rentals in Taiwan – then it’s not a homestay and isn’t legal. Unlicensed facilities are subject to a maximum fine of NT$500,000 and must be shut down.

Some Taiwan loding offerings as shown on AsiaYo and Airbnb.

Being largely unable to serve the markets of Taipei, Taichung, Tainan, and Kaohsiung, “we are taking a big hit,” says Cheng. The company’s business is good in rural areas where homestay regulations are more relaxed, including Hualien, Taitung, Chiayi, and Pingtung counties. However, those markets are much smaller than the urban centers and tend to be overlooked by international visitors.

“If you’re coming to Taiwan from overseas, especially for the first time, you’re definitely coming to Taipei,” Cheng says. “You can imagine the frustration of being a vacation-rental platform that’s cut off from the largest tourism market in Taiwan.”

In contrast, Airbnb’s business is thriving, according to the most recent data compiled by the company. Guest numbers increased to 1.61 million last year from 1.3 million in 2017. Listings have increased from 15,000 in 2015 to 38,000 as of June.

In a forecast published in December 2018 based on internal search, booking, and wish-list data, Airbnb estimated that Taiwan would be its 19th most popular travel destination globally in 2019.

“There’s very strong demand for the segment, which feels like a homestay, for the leisure and family markets,” says Achim v. Hake, long-time general manager of the Sherwood Taipei, who has stayed in Airbnb properties in Germany.

For its part, the government seems determined to curb Airbnb’s Taiwan business, which it sees as non-compliant with regulations. In March, the Ministry of Transportation and Communications (MOTC) proposed to increase the maximum fine for operating an unlicensed hotel or homestay from NT$500,000 to NT$2 million.

Airbnb hopes to open a dialogue with the government to resolve the current impasse, says Singapore-based Marvin Ma, Airbnb’s public affairs manager for Hong Kong and Taiwan. The company understands that the government faces pressure from hoteliers to crack down on unlicensed short-term rentals, but it believes the best solution is to change the current regulatory framework, which was established long before homestays were a mainstream form of travel accommodation.

“We want the government to amend the law so that Airbnb can legally operate, and we believe that the government knows it needs to change the regulations,” he adds.

Overcoming a trust deficit

A trust deficit seems to be preventing Airbnb and the Taiwanese government from reaching a solution to the impasse. On the one hand, the government insists that Airbnb conform to existing regulations designed for traditional hotels and inns, though that may not be suitable for its business model, a third-party booking platform connecting property owners with guests.

“The message being sent is that new business models are not welcome, which isn’t good for Taiwan’s overall business environment,” says AsiaYo’s Cheng.

The Sherwood’s v. Hake says that hotels and Airbnb properties are “completely different” and should be regulated separately.

On the other hand, Chen Ming-ming, founder and chief executive officer of online travel activities booking platform Kkday, says that “from the government and hotel industry’s standpoint, Airbnb is competing in an unfair way.” He notes that Airbnb can charge lower prices than hotels because it pays no taxes on business it does here – transactions occur overseas. Nor does Airbnb have to pay the salaries of a large team of staff or high insurance fees like a hotel does.

Chen points out that Airbnb has also strayed far from its original “home-sharing” concept in the Taiwan market, where real-estate speculation is common. Professional landlords often have multiple apartment units that they rent out to Airbnb guests, just as they would to long-term tenants, he says.

The solution to the impasse is for the government to draft new regulations designed for Airbnb’s business model, while Airbnb should register in Taiwan and set up an office, he says.

“As long as Airbnb doesn’t have operations in Taiwan, it’s doubtful the government will be sympathetic to their views,” he says.

When asked about Airbnb’s lack of boots on the ground in Taiwan, public affairs manager Ma that the company has a “light operating model” that doesn’t always call for a physical office. He points out that other key markets for the company in Asia, such as Hong Kong and Thailand, also have no Airbnb office or staff members.

One way to resolve the conundrum would be to follow Japan’s model for short-term rentals, set up in June 2017 in large part to boost lodging supply ahead of the 2020 Tokyo Olympics. Under Japan’s new law, property owners must register their short-term rental units with the relevant government authority and can host a maximum of 180 overnight stays annually.

Reportedly, regulators two years ago considered permitting Airbnb and similar services to operate legally but dropped the idea after some hoteliers and inn owners cried foul. Many of the fiercest opponents of Airbnb had jumped into the hotel business during Ma Ying-jeou’s presidency to cash in on the Chinese tourist boom. They fell on hard times after Beijing curbed the number of group tours to Taiwan to signal its displeasure with President Tsai Ing-wen’s cross-Strait policy.

“Some small hotel operators see Airbnb as a direct threat to their business,” says Ping Lee, head of research at CBRE Taiwan, a property consultancy.

She points out that illegal short-term rentals have existed in Taiwan for years, but only attracted heavy regulatory scrutiny when Airbnb arrived. “Airbnb’s platform may have caused the number of such rentals to rise, but Airbnb did not create the problem,” she says. “The government needs to change industry regulations if it wants to ensure compliance.”

In the short term, Airbnb will likely continue operating in a legal gray area in Taiwan. The enforceability of fines is limited because authorities often don’t know where unlicensed hotels and homestays are located. Airbnb’s booking system conceals that information until after payment is made. And many people would think twice about reporting a neighbor to the authorities given the potential legal trouble it could bring.

Yet a lack of openness to new business models will ultimately not benefit Taiwan’s investment climate, the Sherwood’s v. Hake says.

“Airbnb represents a trend – a new way of traveling, with a lot of market potential. It’s not a good idea to try and shut it down,” he says.