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By Steve Umidha
Ever since Airbnb announced it was suspending all its marketing activities amidst numerous cancellations over the COVID-19 global pandemic, the sound bites have been increasing in volume.
The rhetoric has reached a crescendo in the past few weeks, as local Airbnb hosts – fearful of what the future holds in the crucial real estate sub sector – have stepped up their dalliance with the banks in the hope that lenders will soon extend a recent directive by the Central Bank of Kenya (CBK), if they are to remain in business.
Kenya’s Central Bank recently directed SMEs to contact their banks for assessment and restructuring of loans based on their circumstances. As a result, Airbnb hosts are now betting big on this notice that their lending partners will soon offer a three-month repayment break or possibly more refund holidays to cushion them against the economic disruptions caused by the deadly virus.
Their message is a simple one, “It is our only hope now.”
Erick Owaka, a senior Business Development Manager with Alpha Homes and Management, who has seen all bookings from mid-March all the way to July cancelled as a result of the ongoing pandemic, believes that the sector’s survival uniquely hinges on structural changes to the banks to conform to their needs at hand.
“Banks are our only hope since occupancy rate is now at zero per cent and short-term clients have canceled bookings and our corporate clients are putting theirs on hold,” says a distraught Mr. Owaka, who has been forced to make 100 per cent reimbursements to clients who had already secured his services only to abandon them for fear of the Coronavirus.
“I had to cancel my reservation for Easter Holidays due to the COVID-19 situation in the country. I must be responsible and work with the government guidelines on prevention of the virus,” says a distressed vacationer Peter Njoroge who had made reservations in Naivasha with Mr. Owaka his host in one of his furnished lodgings.
“I had to cancel my booking to attend my cousin’s wedding in Kilifi and luckily my host refunded the entire amount,” says Millicent Apondi, another distrait vacationer.
Owaka who manages such lodges and accommodations on behalf of developers, estimates to have lost about Sh 350, 000 for the six annulled bookings from the Sh 9, 000 daily he charges for his Naivasha-based lodges with most of his clients having reserved between 3-days to 4-weeks stay. These rates fluctuate depending on the demand and need.
His last and probably the lone obtainable option is adopting mutual agreements with his bank partners Equity Group and Faulu banks for a moratorium on his outstanding loans by the two lenders in the hope that it will buy him time and cushion his business from sinking in the red.
Local banks like Stanbic and Absa Kenya, formally Barclays Bank Kenya among other lenders have since initiated such plans with the former offering a three-month moratorium to its customers, more lending institutions are expected to take similar paths.
A moratorium, also known as repayment break or holiday, is a legal authorization to debtors by a lending institution to postpone payment at an agreed later date.
Availing a moratorium will ordinarily not entail any change in the existing terms and conditions of the loan and if the existing terms and conditions of the loan contain charges or conditions related to a moratorium, then these may apply depending on the repayment freeze policy by the lending institution.
“Alternatively I could be forced to surrender the properties to the owner or developer and instead focus on other revenue streams in sales and letting houses,” he said.
For Airbnb, 2020 has quickly become a challenging year.
Last week Airbnb founders Brian Chesky, Joe Gebbia and Nathan Blecharczyk suspended all the company’s marketing activities amidst numerous cancellations for reservations made on or before 14th March 2020 over the COVID-19 global pandemic as it seeks to save the company $800 million throughout this year, as they struggle to remain afloat.
The three further announced they would go without their basic salary for the next six months, with other top executives also taking a 50 per cent pay cut.
The company which was founded in 2008 had an annual turnover of over USD 2.6 Billion as of 2017 is also understood to be in talks with banks to extend an existing $1 billion financing.
The San Francisco-based company, according to a Bloomberg reporting last month, has been listening to investment pitches as it considers raising money – with the pandemic’s timing further putting breaks on its earlier plans to go public this year and could now be delayed until at least 2021.
As a result many Airbnb hosts not just locally but also across the globe have been forced to turn to other websites such as Facebook and other popular platforms for listing of their properties making them available for longer terms at discounted rates.
A similar trend was witnessed in the US where thousands of ‘super-hosts’ who bought up to 30 properties with bank loans were on the verge of defaulting on their loan terms due to such cancellations which meant there wasn’t rental income to services those mortgages.
Airbnb is an online marketplace for arranging or offering lodging or tourism experiences. Although the company does not own any of the real estate listings, it acts as a broker, receiving commissions from each booking.