Terrie's Take: Airbnb Legality in Japan, Shipbuilding, J-Finance, and Peach Airlines!

Terrie's Take - AkihabaraNews.com

Terrie’s Take is a selection of Japan-centric news collected and collated by long-time resident and media business professional Terrie Lloyd. AkihabaraNews is pleased to present Terrie’s learned perspective; we all could use another take on the news - here’s Terrie’s:

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Terrie’s Take on April 28, 2014

Feature:

  • Airbnb Legality in Japan

Briefs:

  • Billions being pumped into shipbuilding
  • Consumer loans interest rates to be unleashed?
  • Major insurance player gives up on JGBs
  • Oji Holdings to buy NZ co.
  • Peach Airlines to cut 2k flights in next 6 months

Airbnb Legality in Japan
A very interesting battle is brewing in the USA between crowdsourced accommodation provider Airbnb and the state of New York, which is challenging Airbnb's very business model. The state Attorney General alleges that the company has been breaking local state laws for several years with its system that allows unlicenced individuals to rent out their homes and apartments for periods shorter than 28 days. The existing law's purpose, apparently, is to stop slum lords and other opportunists from taking advantage of travelers and economically challenged consumers. Probably the state of New York has a point, because although Airbnb is talking confidently to the press, it's no coincidence that the company has just eliminated over 2,000 listings of properties in New York even as it heads to court. 

The case is being watched by more than just Airbnb investors, because what goes down in New York will have reverberations in crowdsourced travel markets around the world. Basically it is the first full-on confrontation between a crowdsourced travel website operator and traditional business and legal interests. Of course this conflict is not just happening in the travel industry, you only need to look at Google and Amazon steam-rollering the publishing and retail industries to see the overall trend of web vs. traditional business, at work.

But what is unique about the travel industry, and other sectors to follow, is that it is fairly well regulated. And since regulations usually arise from one of two sources: safety or self-interest, Airbnb has its work cut out. Internet businesses are generally seen as innovators that will improve the lot of consumers and exports in the global knowledge economy, especially in/from tech-centric states such as California. And so they are allowed to experiment on the edge of regulation, invoking such arguments as:
1. We're just an open market for services, and the responsibility for service quality and licencing falls on the users.
2. We're exercising freedom of speech and allowing buyers and sellers to communicate with together, so we're protected by freedom of speech.
3. We don't charge the customer, we simply provide payment services for one user to conveniently transact with another, so we're not the seller.

But while California incubates its innovators with a laissez-faire attitude, we foresee a backlash elsewhere, starting with New York and spreading abroad. Moderate governments will start asking themselves why being online and providing the tools rather than the end services excuses companies from not having to comply with local laws, or more accurately, allowing their users to avoid complying with those laws.

Take Singapore for example. Currently there are two aspects of crowdsourced travel that are illegal there -- temporary accommodation and tour guiding -- both of which will create a flashpoint sooner rather than later. Right now (as of today), there are 385 apartments and houses for short-term rent on Airbnb in Singapore, and yet as recently as September last year the Singapore Housing Board (HDB) warned that providing paid accommodation of less than 6 months duration without being a registered hotel is illegal and anyone caught doing so would face heavy penalties. By "heavy", we're talking maximum sentences of SG$200,000 and/or 12 months in jail.

In 2012, the HDB investigated 1,800 cases of unauthorized short-term rentals, and in 2013 the number is apparently up by 100%. The Singapore rules specify two criteria for allowable short-term stays that are not hotels: i) The person staying should not be paying cash to the owner, and ii) their stay should not disturb others. As a result, we believe that if the Airbnb case doesn't go well in New York, the Singaporean authorities could well act against the company as well. That will also include its competitors, Roomorama, Travelmob, and Wimdu.

We believe the Japanese are probably looking closely at the same case, although, interestingly, so far this country doesn't seem to have a comprehensive set of minimum requirements for hotels. The regulations we can find all seem to be either voluntary or more related to issues such as fire and earthquake proofing -- probably because of the industry's bed-and-breakfast ("Minshuku") origins. At the same time, though, there seems to be new legislation coming down the pipe which will hobble the Airbnb business model.

Perhaps one reason the authorities haven't moved faster to regulate is simply that Japanese are not used to renting out their places for transient occupancy -- it's just a very big departure from the cultural norm, where people seldom move more than once every couple of years and where private individuals don't have enough spare space to entertain unknown guests. This means that Airbnb is not a big enough threat just yet. If you look at the listings for the site for Tokyo "Entire Place" (versus single rooms), while the number has doubled each year from 2012 to 2014, even now, we're only talking about 688 listings.

Perhaps another slice of the tourism market which is more clearly restricted and policed in Japan, and which we think will guide the thinking of the authorities when it comes to regulating the likes of Airbnb, is the tour guiding business. In Japan, if you are accompanying tourists and interpreting for them for money, you need to have a licence. There are heavy penalties for not only unregistered tour guides, but also the companies that might be tempted to use them. So this pretty much prevents the likes of Vayable and other "Experience Tourism" matching sites from setting up in Japan.

That said, there have been some early adopters who understand the legal issues, and these sites, such as Anyroad.com and triplelights.com, require that all guides signing up with them be properly licenced. But because of the shortage of such professionals, this defeats the purpose of crowdsourcing and they don't seem to be gaining much traction here.

Thus there is an opportunity for a creative individual or company to come up with a legal solution -- one that is sufficiently appealing to travelers, and yet does not over-stimulate the authorities. Our guess is that a combination of having the server outside the country (to obfuscate the jurisdiction issue) and using technology to change the guide-customer relationship, could be a winning combination. As an example, if the person (the "non-guide") accompanying the tourists was to speak to them in Japanese, which was then interpreted by a third person at a phone-based service, then probably that would not be breaking Japanese law...

With the Olympics coming every closer, it will be interesting to see how this all plays out.

Billions being pumped into shipbuilding
An indication of just how far the Abe government will go to re-float the economy can be found in the industries and companies that are now receiving hundreds of millions and sometimes billions of dollars of cheap loans or "government investments" -- even though those industries were previously in a death spiral due to competition from low-cost centers abroad. One such industry is shipbuilding, which had been pretty much written off other than for defense contracts and specialized craft. Now the Japan Bank for International Cooperation (JBIC) is providing low-interest loans to anyone who will buy Japanese-built ships. This is particularly popular with European shipowners, who are struggling to get funding back home. JBIC has so far handed out JPY30bn in customer loans in 2013 and is likely to provide even more this year. ***Ed: This is of course on top of the 7-year low yen rates, which allow shipowners wanting big, fuel-efficient craft to consider the more expensive Japanese product balanced against to the lower financing and operating costs.** (Source: TT commentary from bloomberg.com, Apr 23, 2014)

Consumer loans interest rates to be unleashed?
We suppose that there is some logic in the idea that if the government is going to start licencing casinos in Japan, then society in general is going to have to learn to look after itself with regards to the moral hazards of personal finances. Accordingly, it shouldn't come as a surprise that the government is considering removing the upper interest limits on consumer loans as well. The LDP is apparently considering allowing consumer finance companies to return their rates to a high of 29.2% per annum. ***Ed: There are going to be some very unhappy foreign finance companies who lost a ton of money after the consumer finance industry interest rate cap of 20% was introduced as a result of judicial fiat back in 2006. One could almost be forgiven for thinking that there was a master plan at work to flush out the low-end players and foreigners from the industry...** (Source: TT commentary from japantimes.co.jp, Apr 27, 2014)

Major insurance player gives up on JGBs
It's a major event when one of Japan's largest life insurance companies, Dai-ichi Life, announces that it has given up buying Japanese Government Bonds (JGBs), at least temporarily. Dai-ichi says that the JGB yields are too low, and that instead of essentially just parking cash with the government, it has decided to chase higher yields through overseas bonds as well as Japanese stocks. Dai-ichi has about JPY35trn of assets under management. (Source: TT commentary from reuters.com, Apr 25, 2014)

Oji Holdings to buy NZ co.
Major Japanese paper company, Oji Holdings, has announced that it will buy out New Zealand's Carter Holt Harvey Pulp and Paper for around JPY90bn. [Ed: The Nikkei says the price is JPY31bn, which seems to be wrong.] The seller is the Rank Group, which belongs to NZ's richest man, Graeme Hart. Oji says that they are buying the NZ forestry company due to its concentration in conifer forests, which apparently are in short supply globally. ***Ed: The really interesting part of this story is the fact that Oji made the purchase with the government's INCJ fund. Both organizations have co-invested before, but you have to wonder why Oji with all its existing overseas experience, needs government help to make this purchase? We can only assume that it's a classic case of Abe's grand "Japan Inc." renaissance plan, which seeks to use public money with favored private firms, to secure future global revenue to offset the shrinking markets in Japan.** (Source: TT commentary from asia.nikkei.com, Apr 26, 2014)

Peach Airlines to cut 2k flights in next 6 months
One wonders what is really going on over at ANA-owned budget carrier Peach Airlines. The company says it will cut up to 2,088 flights during the peak travel months of May through October this year, ostensibly because it says it can't find enough pilots. The company says that while the cuts will virtually eliminate the upside on previously announced expansion plans, it is trying to be "careful in how we plan our business." ***Ed: While this may be true, it is common knowledge that there are plenty of pilot outsourcing companies around, some of which are already servicing other Japanese airlines here. Our guess is that the company has other problems -- stay tuned.** (Source: TT commentary from asia.nikkei.com, Apr 25, 2014)

• • •

That was Terrie's Take.

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