Coronavirus impact – is the short-lets market in serious trouble?
The results of a poll conducted by the UK’s short-lets trade body with its corporate membership has revealed just how damaging Covid-19 has been when it comes to companies’ reservations and income.
The feedback the UK Short Term Accommodation Association (STAA) received from its corporate members, representing the majority of the short-let industry, highlighted some very stark issues.
Since March 13, when the first effects of the coronavirus in the UK were fully felt, most firms have seen more than 70% of their reservations cancelled, with some losing more than 90%. Meanwhile, most companies have lost more than 70% of their income. All companies surveyed said they would have to consider making some employees redundant without government support.
Merilee Karr, chair of the STAA and chief executive of UnderTheDoormat, said: “These findings are certainly not surprising but show that the short-term rental sector, that makes a massive contribution to the UK economy each year, is under severe threat. Bearing in mind that most of our members and their customers rely on tourism for between 70-100% of their revenue, the impact of the Covid-19 virus is potentially catastrophic.” She said that, for those short-letting their home, the loss of both present and future income could be devastating. “Thousands of people use the sharing economy to help pay their mortgage; for some, it is their primary source of income. Countless small entrepreneurs face going out of business, removing money from local economies both now, and in the future, when they will not be around to service demand once the virus has abated,” she added.
On a more positive note, many homeowners, property management and hospitality companies have been making the best use of their assets by opening up properties for key workers. “Schemes like NHS Homes, where properties are being offered to NHS staff as free accommodation, show just how the short-term rental industry is pulling together to do their bit during this crisis,” Karr continued.
The STAA says it is in conversation with the UK government to request that certain measures be introduced to provide some protection for the sector. These include:
Amending domestic legislation to allow the provision of refunds and price reductions as vouchers and credit notes instead of cash
The biggest issue facing short-term rental businesses is cashflow, according to the STAA, because they’ve had to issue refunds to guests cancelling bookings, which drains them of cash to cover ongoing operating costs.
Additionally, the demand depression caused by the Covid-19 outbreak means that businesses have no guaranteed income in the near future. As a result, they may struggle for viability in the longer-term due to reduced bookings.
The STAA believes that the European Union’s Directive 2015/2302 on package travel and linked travel arrangements – which covers pre-arranged package holidays and also self-customised packages – should be amended, as it forces all companies to give cash refunds if travel is restricted.
The trade body suggests that it’s better to enable companies to issue refunds in the form of vouchers or credits for future use, instead of cash refunds. This will both satisfy the consumer and keep liquidity in the market, it adds.
Furthermore, it’s a solution which is essentially free for the government, ‘as it does not require payments to businesses or costs in terms of rebated taxes’. Implementing temporary solutions to address cash drainage arising from the chargeback mechanism under credit card schemes Property management companies, under current credit card schemes, shoulder the full financial risk exposure for services that have already been delivered by online travel agencies (OTAs), the STAA says, and where payment for the service has already been transferred to the short-term rental owners.
This could lead to a cash drain on property management companies, with the real potential of collapse for many of them within weeks if chargebacks continue to rise and are not prohibited.
Altering the Coronavirus Job Retention Scheme to keep people working through the crisis
The STAA says that the requirement outlined in the Coronavirus Job Retention Scheme to ‘furlough’ employees, and keep them on the payroll rather than making them redundant, can encourage businesses to reduce activity at a time when the industry needs to be doing more. Including managing customer cancellations, providing meaningful work for people and preparing for the recovery.
It suggests, instead, that the Employment Retention Scheme should be directly applied to companies that are facing a substantial fall in revenues to make sure that their staff are able to remain in work through the whole of the crisis and help with the speed of recovery.
Issuing guidance to ensure that company directors are not obliged to personally guarantee loans
Small and medium-sized enterprises can access up to £5 million in government-backed loans through the Coronavirus Business Interruption Loan Scheme. Whilst the STAA welcomes this move, it remains concerned by widespread reports that banks are insisting on personal guarantees for the loans from business owners. This includes, but is not limited to, property such as second homes and savings.
This policy, the STAA argues, puts business owners in a very tricky position as it potentially puts their family’s financial security at risk. As a consequence, many business owners may choose not to access the Business Interruption Loan Scheme and thereby face the risk of closure.
With this in mind, the STAA has called for the government guidance to be issued to lenders stating that personal guarantees for emergency loans should not be required.