SINGAPORE (Reuters) - Singapore, a keen early adopter of the sharing economy, has fired a warning shot across the bow of Airbnb and Uber with tighter rules that could shake up their business models and growth ambitions in Asia.

FILE PHOTO - People look out from the observation tower of the Marina Bay Sands amongst public and private residential apartment buildings in Singapore, February 22, 2016. REUTERS/Edgar Su/File Photo

The rules, some say, are a sign that even governments sympathetic to companies that allow citizens to rent out their expertise or property have a hard time striking the right balance between encouraging disruptive technologies and keeping them in line.

“I know a lot of people will give back their keys, that’s for sure,” said Lionel Ong, 33, an Uber driver, who wants to look for a less demanding part time job.

As its traditional manufacturing industry has hollowed out in the past decade or so, the affluent city-state has been quick to embrace opportunities in the digital economy, hosting the Asian headquarters of Airbnb and Uber, inviting its executives to conferences and investing in Uber’s regional rival Grab through a unit of its investment arm for Temasek.

It’s too early to say what impact the new rules would have on Uber and Airbnb, but they highlight increasing scrutiny by regulators globally and growth challenges facing these new economy businesses.

April Rinne, an expert on the sharing economy who has advised companies and governments, including Singapore, says the city state’s case mirrors other early adopter countries like Denmark, where legislators are mulling laws which would require taxis to have seat sensors, video surveillance and taxi meters.

“It’s a watershed that should also sound warning bells,” Rinne said.

Singapore’s new rules, passed this month, will be implemented in stages from the second half of this year. They allow officials to suspend a ride-sharing company for up to a month after three or more instances of their drivers getting caught without a proper license or insurance. The drivers themselves face fines and jail.

In the case of Airbnb, officials will have the right to force their way into homes to check whether residents were renting them out illegally, adding teeth to a rarely enforced law which bans the renting out of private property for less than six months.

Slideshow ( 4 images )

HIGH GROWTH MARKET, HURDLES

The sharing economy business is billed for explosive growth, estimated by PricewaterhouseCoopers to reach $335 billion by 2025, from around $15 billion in 2016.

So there’s a lot at stake for companies. And the worry, says Adrian Lee, who runs a car-sharing service called Tribecar in Singapore, is that other markets might ape the city state’s stance.

“I’m afraid other legislators may take a leaf from our play book without allowing these services to get to critical mass.”

Singapore had been one of the few bright spots in Asia for Uber, which has been facing legal scrutiny in many markets across the region. Uber has suspended its service in Taiwan and has withdrawn from China after selling its business there. And in South Korea and Japan, authorities have limited its operations.

Jean Chia, a Singapore-based academic who studies the sharing economy, says since short-term renters “were previously operating in a gray area”, the tighter regulations raise some immediate questions around the business model of Airbnb.

Airbnb’s director of public policy in Asia Pacific, Mike Orgill, echoed those concerns, saying there are “thousands of people earning supplemental income … so the lack of clarity is of concern for hosts.”

Drivers of Uber and Grab said a requirement for all drivers to obtain a vocational license would force out a lot of part-time drivers, while the threat of fines and even jail would deter others.

There is no comparable measure in “the more than 450 cities we operate in,” Uber’s Singapore general manager Warren Tseng said of the rule change, warning it would affect tens of thousands of drivers and “hundreds of thousands of commuters.”

Uber’s strong regional rival Grab, which is planning to invest $700 million in Indonesia, one of Asia’s biggest markets, is more sanguine about the new laws.

Grab’s country head Kell Jay Lim said though the company expects some drop-off after the regulations kick in, the rules showed that Singapore was now absorbing the sharing economy into the mainstream.

“It’s a stamp of approval of what we’re trying to do.”