As Tourism Booms in Sri Lanka, Officials Grapple with Regulating Homestay Businesses

NEGOMBO, SRI LANKA — Malcoln Peiris and his wife Sagari are busy preparing a bedroom for a guest arriving later in the day. The Peirises run a homestay named Villa Jean Raj in Thimbirigaskatuwa area in Negombo, about 38 kilometers (23 miles) from Colombo, Sri Lanka’s economic capital.

Villa Jean Raj is both comfortable and homey. Family photographs adorn the soft pink walls in the living area, and the family dining table is where they host homestay guests to meals. Like many Sri Lankan homes, there’s a family sofa on which to sit around and talk, or to watch some TV. The kitchen opens out into a spacious back garden with banana and other fruit trees.

Homestays like Villa Jean Raj, reserved through online booking are rocketing in popularity among tourists visiting Sri Lanka. Sri Lanka’s Tourism Development Authority estimates that more than one in four of the 2 million tourists who visited Sri Lanka in 2016 stayed in homestays and other informal accommodations. In 2006, only about one in 10 stayed in such accommodations.

Large hotels and licensed operators say some regulation of the fast-growing informal accommodation sector is needed — and soon. At the end of 2015, nearly 20,000 rooms were available in large tourist hotels, while nearly 11,000 rooms were available in the informal accommodation sector, according to Tourism Development Authority data.

“If you want to operate a business, you need a license; that’s a practice around the world,” says Sanath Ukwatte, president of the Hotels Association of Sri Lanka. “Homestays don’t need a license. They don’t pay any taxes and also there’s no standardization.”

Paddy Withana, chairman of the Sri Lanka Tourism Development Authority, agrees.

“The informal sector has grown with online bookings, and most are small properties, or parts of small properties,” he says. “Our responsibility is to bring them into a more formalized structure.”

But even Ukwatte cautions against over-burdening the sector and halting its growth as a result of excessive regulations or taxes.

“We are in the same industry and there is a growing trend towards this segment of [informal] accommodation and we must encourage that,” he says.

From Cruiselines to Airbnb
Ships, including cruise liners, have docked in Colombo harbour since the early 20^th century, but a tourism boom started in the 1970s when air travel became popular and Sri Lanka’s economy liberalised in the late 1970s, according to Suranga Silva, a senior lecturer at the University of Colombo, who carries out research on Sri Lanka’s tourism sector.

“In the 1970s, we had no real competition for tourism from other South Asian countries, not even from the Maldives. In the whole region, we were the best,” he says.

Until Sri Lanka’s civil conflict from 1983 to 2009, tourism kept pace as international tourism grew worldwide, increasing from around 46,000 in 1970 to more than 400,000 by 1982, according to the Sri Lanka Tourism Development Authority. Arrivals slipped during the conflict but then picked up with tourist arrivals exceeding 1 million in 2012, and doubling to more than 2 million in 2016.

This year, the Tourism Development Authority expects a growth of around 15 percent or around 300,000 more tourists than in 2016, according to Withana.

Tourism is one of Sri Lanka’s great success stories. In 2016 travel and tourism total contribution to GDP was $9.7 billion, or 11.4 percent of GDP, according to the World Travel and Tourism Council, an international advocacy group.

It’s also a major foreign exchange earner for the country, employing nearly 136,000 in 2015. Foreign exchange earnings grew from $410 million in 2006 to nearly $3 billion in 2015, according to government statistics.

Villa Jean Raj, which has booked rooms online since April 2013, brings in some of that money. It is booked seven or eight times a month for stays of one or two nights with most of the reservations coming through booking.com and Airbnb, Peiris says. Guests can book a single, double or triple room or the entire house, which accommodates seven people. The single room accommodation with breakfast costs $16 a night, and whole house $40.

The stays earn the couple about 40,000 Sri Lankan rupees ($262) a month on average.

Foreign tourists pay embarkation taxes, tourist levies and buy tickets to official museums and other sites, producing more than $55 million in government revenues in 2015. This doesn’t include revenues from taxes charged by traditional hotels, which are obligated to collect 15 percent value-added tax and other fees like city taxes and surcharges. No numbers for tax collections by this sector were available.

So far the growing homestay sector is not obliged to pay the kind of taxes that traditional hotels must collect. And while the government encourages homestays, it, like other nations, is examining how to collect revenues from the sharing economy.

Sri Lanka’s 2017 budget proposes creating an online government platform that would house all the online homestay sites along with more traditional hotels. This would enable the government to keep track and impose taxes on homestay tourists like those imposed on formal hotels. Such a move would raise an estimated extra 25 billion Sri Lankan rupees ($164 million), according to the 2017 budget statement.

Sri Lanka’s Ministry of Telecommunication and Digital Infrastructure and the Ministry of Tourism and Christian Affairs are tasked with investigating how to set up such an online site.

Instituting Standards
Large hotels aren’t the only group concerned with standardizing the homestay industry.

Shanti Perera and his wife operate Sunray Villa in Mount Lavinia, a suburb of Colombo city, which was a popular tourist destination in the 1970s and 1980s.

Perera, 74, says they opened their home as a guesthouse in 1978 because there was a high demand for accommodations by foreigners.

“Foreign visitors used to come and knock on our gate asking if we would rent rooms,” Perera recalls. “There was such a shortage of rooms.”

But the slump in tourism during the conflict period, and the rise of drug peddling along Mount Lavinia beach led to a drop in visitors, Perera says. Although tourism in the area is picking up again, the Pereras have not signed on to any online services, and are now competing for guests with newer, cheaper room rentals, which are linked to online booking sites.

Low-priced room rentals in the area, where a dormitory room is available from $7 per person, are a challenge to Perera’s business, and to the sector, Perera says.

“By bringing down the prices to such a low amount, you are bringing down the quality of tourism,” he says. “Obviously you can’t provide a good standard if you are charging a very low amount. And then, that becomes the standard – rather than improving, you are cutting back and cutting costs and lowering the standards.”

The government wants to ensure that the quality of homestays is high, and Withana notes that the Sri Lanka Tourism Development Authority began a registration program for informal sector accommodation in 2011. Nearly 300 homestay providers had registered by the end 2016, with 70 new registrations last year. The total number of informal accommodation units registered with the tourism authority is 702.

The actual number of informal accommodation is probably much higher, Silva says.

Booking.com in an email to Global Press confirmed they had around 600 homestay listings across Sri Lanka in February. Airbnb has seen an active growth year-on-year of 115 percent in Sri Lanka, according to Jake Wilczynski, Airbnb spokesperson in an email. Airbnb had 10,080 active listings in Sri Lanka in February. Since the first Airbnb booking in Sri Lanka was made in 2011, the company has facilitated 220,000 inbound guest arrivals, with around 126,000 in the 12-month period from February 2016 to February 2017.

“We continue to grow in Sri Lanka and across the region because tourists increasingly want new, adventurous and local experiences when they travel,” Wilczynski says. “When our guests visit cities, they are more likely to spend money in the neighborhoods where they stay, which helps distribute tourism spend to local businesses — restaurants, cafes and shops — that have not traditionally benefited from tourism and hospitality.”

Malcoln Peiris agrees, saying his homestay guests use local shops and hire local three-wheel drivers.

“Our neighbors are happy to see the guests coming, because it brings income to them also,” he says.

Harshani Samarajeewa has a full time job, but in 2012, decided to open the separate guest space in her house in Colombo to Airbnb visitors.

“I will continue to do this as long as I can because it brings in an extra income from a space I don’t regularly use,” Samarajeewa says.

Having access to online travel accommodation sites is the key to her ability to provide this service, Samarajeewa says.

“Without online resources, like Airbnb, you can’t really do something like this,” she says. “You can’t advertise because the usual methods only reach a small group of people.”

Homestays and other informal accommodation are better for Sri Lankan tourism than the large international hotel chains, Silva says.

“The social development that happens through homestays is very high,” he says. “If people are earning an income from homestays, they will be invested in protecting and conserving their local community.”

Malcoln Peiris believes this too. He has begun building a separate, self-contained apartment on his property to operate a second homestay.

“Homestays are becoming more and more popular, and we know it will grow every year,” he says. “We even have sales people from online booking sites visiting us and asking us to sign on. That shows that people are investing in the growth of our kind of accommodation.”

 

Manori Wijesekera, GPJ, translated one interview from Sinhala.