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Wednesday, April 23 2014 @ 02:39 AM EDT

Underground Hotels - A Practice That Is In Fashion

HotelsMany tourists are only looking for a cheap place to stay. Apart from a 340% surplus in the supply of hotel rooms, the hotel industry must do battle with another hard flank - illegal lodging. During 2010 and 2011 about 6,813 new hotel rooms were constructed in Panama, and in 2012 another 4,135 additional hotel rooms will be added (bringing the total expansion to 10,948 new hotel rooms in just three years). Currently, number of visitors is increasing by about 15% per year. Against this background, the companies who are involved in the tourism industry (hotel owners) believe "clandestine lodging" is an unfair practice. The Administrator of the Tourism Authority of Panama, Solomon Shamah, said within the reforms they intend to make to Law 8 that regulates tourism in Panama, one of the points at issue is precisely this issue ("clandestine lodging"), with their respective laws and penalties. Shamah added they are studying the idea of changing the law, before the challenges represented by the power to keep as many hotel rooms full as possible.

Hotel sector - Annette Cardenas, the President of the Chamber of Tourism (CAMTUR), said when there is an oversupply of apartments, some condo owners, in order to recoup their investment, rent their apartments out by the day. Cardenas said "an apartment is not a hotel, it does not have the same levels as a hotel, and it requires much less investment." The president of CAMTUR said this issue also covers the fact that these accommodations do not provide any services, to the detriment of the labor force. As an example, she said the Marriott was built for about $50 to $60 million dollars, it was a big investment, buy it is easy for a person to buy five apartments and rent them by the day, at prices much lower than a hotel.

She acknowledged that currently there is an oversupply of hotel rooms, which is only going to get worse this year with the addition of more than 4,000 new rooms. "I put forward an easy equation. If you have 4,000 rooms, you need to have about 2,000 guests 365 days a year, in order to have a relatively standard rate of occupation," said Cardenas. "It's very difficult to grow this volume of visitors from day to day. For that you need airline seats, and to encourage an additional 2,000 new tourists to come to Panama, because there are an additional 4,000 rooms coming on line," she said. Cardenas said faced with the secrecy that exists in the rental of these apartments there must be a standard.

Armando Rodríguez Tatis agreed with Cárdenas with respect to the need to develop laws governing this kind of activity, because they generate unfair competition. He recalled this practice began many years ago when there was a hotel shortage, and this system was an alternative. Rodriguez said there have been cases in the area of ​​Via Argentina. To combat this lawlessness they are asking for the practice to be regularized through the modification of Law 8, because there are also small hotels that have not been registered to the ATP, which also fall into this illegality. (Panama America)

Editor's Comment: Extreme Bias Alert. This article contains only the points of view of the government, provided by Tourism Minister Solomon Shamah, and the hotel industry. They did not include one single word from anyone who is renting their condo or apartment on a short term basis. There are some very simple underlying facts. A couple of years ago when it became apparent that the apartment and condo market was being over built and over developed, all of the builders decided (at the same time) to switch to building hotels. It is a fact that there will now be a massive oversupply of hotel rooms, and it will take about ten years or so for the demand to grow to meet the new supply. Until then, competition between these hotel owners is going to increase. Not only are they going to rip one another's throats out as they fight for customers and clients, they are also going to try to kill off any other form of competition where they can. And, hotel owners see private property owners who rent their apartments out short term as "illegal competition" or "clandestine." You are their target.

Underlying Truth: A great many of the foreign investors who purchased their apartments in Panama City over the past few years did so with the knowledge they could, in fact, rent them out until they were ready to use them for themselves. It is not currently illegal to rent your private property out over the short term - there's nothing "clandestine" or illegal about it. This activity is perfectly legal according to current Panamanian law. If the hotel owners want to bitch about "unfair competition" then this practice of renting private property should be clearly regulated, but not made illegal. The hotel owners themselves decided to overbuild the hotel sector. Why should private property owners be penalized because hotel owners can't do very basic and fundamental market research. I could have told them at any time they were overbuilding, and the rate of hotel room occupation would drop like a rock.

What's A "Tourist"? Let's say I rent my apartment for a full year on contract - then it's a house, and I'm not threatening any hotel, right? The issue comes when it's less than a full year. So, what's the cutoff? Six months? Three months? One month? I would start with a definition of "tourist." That should be really easy. Most true tourists stay in Panama for about two weeks or so. These are the people most likely to stay in a hotel room. So, why not make it illegal to rent a private apartment for less than two weeks? Or, if you want to rent your private property for less than two weeks, you have to treat the income as is you are a hotel, pay the hotel tax, etc. Or, make the private property owner get certification as a "hostel" and then be free to compete in the market. If the Marriott or the Veneto or any other hotel wants to offer a room at $120 per night, why can't I offer a room at $15 per night, if I want to? Do these hotel owners really think someone who's paying $15 per night is going to stay at a hotel that's much more expensive? Of course not.

Apartments Offer "More Bang For The Buck" If you rent an apartment short term, then you not only get a bedroom and a bathroom, but also the kitchen, living room, dining room, and the social area of the building to use. If I'm spending $100 per night to stay at an expensive hotel, I get just the room and a bathroom. If I stay for two weeks I spend $1,400 for the privilege. For that same amount of money or less I can rent a fully furnished two or three bedroom apartment. It's not "unfair competition" but rather a much better deal for the money. Hey, the hotels can always lower their prices if they want to compete, right? That's what fair market practices are all about, not having the government intervene on behalf of one sector of the market to the detriment of the other.

With Regards To Investment: I love the example of the Marriott hotel, built with an investment of $60 million dollars. Let's use that. The Marriott has 363 guest rooms, 15 suites, and 8 master suites. In Panama City the average price for a good apartment with a view of the ocean is about $250,000 dollars (low ball estimate). Let's double that to $500,000 for the "suites" and let's use $750,000 (penthouse) for the "master suites", just for sake of argument. If these apartments were purchased by individuals, they represent a total investment of $104.25 million dollars - or about twice of what it takes to build a hotel with the same number of rooms. This makes perfect sense when you think about it for a minute. When you're building a hotel you don't have to build all of those kitchens or living rooms or dining rooms - just bedrooms and bathrooms. So, the argument flies right out of the window on the math. Individual investors spend about twice as much money to buy their apartments, compared to hotel owners. And, it's mostly foreign direct investment - new money pouring into the country from overseas.

Shamah Linked To Hotel Owners: There's an underlying truth to all of this. The hotel owners have the Tourism Minister Solomon Shamah firmly in their back pocket. He will do whatever they want him to do. The hotel owners don't want private property owners to be able to rent their apartments out, to anyone, ever. Back when it was learned that the government of the United States had cancelled the visa of Solomon Shamah to visit the United States (due to alleged links to drug traffickers and money launderers) and there was mounting pressure for him to either resign or for president Ricardo Martinelli to fire him, it was the hotel owners who held a press conference to express their support for Solomon Shamah. This show of support moved him to tears at the press conference (*sniff*), but more importantly, here's the payback. The hotel owners don't only own hotels, they also own Solomon Shamah. If they want this law, then he's going to fight for it. Period.

Opposed? Get Organized: I know there are a great many members of the English speaking community of expatriates in the Republic of Panama who are property owners participating in this "clandestine" activity of renting your properties out for less than a year at a time. First of all, it's not illegal nor is it "clandestine." The simple choice of words used in this highly biased article are an indication of the government's position on this issue. The Panama America is now practically the "official" newspaper of the government of Ricardo Martinelli so don't expect to see many dissenting opinions published there. If you are opposed to his proposal to modify Law 8 to make this practice illegal, then I would strongly suggest that you begin to get yourselves organized. Personally speaking - I don't have a dog in this fight. I don't own any property and I don't rent anything out short term - but I know many of you do. If you don't get organized, develop your counter arguments and counter positions, and fight this proposal from a unified front, then you're going to get steamrolled. Here's an idea - let's say you create an organization and you have 250 members. Those people each purchased an apartment for about $250,000 dollars. Do the math, and there's direct foreign investment of $62.5 million dollars. Those are the kinds of arguments you need to build.

Not The First Time: Tourism Minister Solomon Shamah tried to do this once before by issuing a resolution from the Ministry of Tourism. It was so clearly illegal and unconstitutional (he tried to change the basic and fundamental law regarding the ownership of all private property in Panama with a simple resolution) they had to backtrack, and cancel their own resolution immediately. Now, they are going to try to do it through a law in the National Assembly. It's not a mistake that this article appeared on a Saturday - they were hoping you would not see it. If you sleep at the switch, you will wake up one day, and it will be illegal to rent your apartment to anyone in Panama City for less than a year. Mark my words...

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Underground Hotels - A Practice That Is In Fashion | 7 comments | Create New Account
The following comments are owned by whomever posted them. This site is not responsible for what they say.
Underground Hotels - A Practice That Is In Fashion
Authored by: Anonymous on Saturday, January 21 2012 @ 02:00 PM EST

Many condo administrations forbid renting units for less than six months. I wonder how many short-term condo rentals are in violation of condo association rules.

Underground Hotels - A Practice That Is In Fashion
Authored by: Anonymous on Saturday, January 21 2012 @ 10:24 PM EST

I want to add one more argument to this. In addition to agreeing with everything said above.

Look at it from the "tourists" side. Some tourists (many I would say) hate staying in a hotel. I know personally, I would never visit someplace longer than maybe 2 or 3 days, a week most, if I couldn't rent a condo. Who wants to stay in a hotel months at a time? Like I said, anything over a week or 2 is too long.

A condo is so much more comfortable. Add to that people who have special dietary needs. Eating out gets EXREMELY difficult and stressful (especially in a foriegn language), and after a while (a very short while) it just gets tiring and you want to eat your own normal food.

In addition to hurting the home owners, and absolutely killing the resale market (which it is definately going to do. Who is going to buy a second home or investment property knowing they are unable to rent it out?), a new law like this is going to put a SERIOUS dent in tourism. It will also put a serious dent in companies who need to send representatives for 2 or 3 months.

Underground Hotels - A Practice That Is In Fashion
Authored by: Anonymous on Monday, January 23 2012 @ 09:15 AM EST

Just the kind of math I love doing myself. Let's knock $10 million off for those 15 suites and 8 master suites. $50 million divided by 363 rooms comes out to about 138,000 a room, an industry standard in the USA. The 340% surplus in hotel rooms is what caught my eye. You guys are in for yours in ROP in the next few years. Where did all the money come from that built all those highrises in Panama City these past 10 years? Certainly not Panama. And how highly leveraged are the properties? There will be bankruptcies and fire sales in real estate like you've never seen.

Underground Hotels - A Practice That Is In Fashion
Authored by: susangg on Monday, January 23 2012 @ 10:29 AM EST

This is exactly the kind of banana republic behavior that keeps Panama out of serious contention as a first world business center - politicians rewarding their $$$$"friends"$$$$$ by trying to put the "friends'" competition out of business. All the propaganda about "Panama is open for business" doesn't mean a thing when this kind of crap is going on. Panama is not "open for business" when the government, instead of letting tourism thrive in a free market environment (where the tourists, not the government, decide where they want to go), uses its power to choose the winners by putting property owners offering a legitimate service out of business.
There is only one legitimate complaint that could be made about condo and back yard cottage rentals: That they are creating unfair competition with hotels and other registered accomodations because they are not required to collect and forward the 10% tourism tax. The response to that is a no brainer: Let them register and start collecting the tax. The government wins (more tax $$), the hotels (and any other tourist accommodation that is already registered wins (no unfair competition), and the property owner doesn't have to worry about fly by night crooked pols trying to put them out of business. Win-win. Of course, that's win-win by first world standards. Which apparently aren't the same as banana republic standards.
As I read the tourism master plan law (which was adopted late in 2008), anyone providing tourism accommodations of any type is not only allowed to register but is required to do so. Previously to that, you were not permitted, much less required, to register with the tourist board unless your property fell into one of several established categories of accommodation (which did not include condos or cabins if there were less than three). That law was changed. What the government should do, instead of trying to close down properties that cater to a willing and satisfied market, is initiate a "register your tourist accommodation" project, with amnesty and incentives to get everybody registered and paying taxes. That's what one would expect from a government that claims to be "pro business."

Underground Hotels - A Practice That Is In Fashion
Authored by: Anonymous on Monday, January 23 2012 @ 01:52 PM EST

This is a real threat, but is very hard to enforce. Paris has a similar law - it's illegal to do short-term rentals (less than 1 year) anywhere in Paris. Yet there are literally hundreds of vacation rental companies on the internet with thousands of apartments in their portfolios, and thousands more apartments listed by individual owners on vacation rental sites like VRBO.com.

My brother runs a vacation apartment rental business in Paris, but the corporate office is in the states, all the payments are collected outside of France, and the individual apartment owners are mostly foreigners. He hires people to meet the guests, clean the apartments, do repairs, etc., but has no business office anywhere locally to attract the attention of the authorities.

So unless they hire a bunch of enforcement agents and are willing to spend time chasing their tails all over the city, it's going to be hard to shut it down in Panama.

Some professional association like a Bed and Breakfast Association, or Innkeepers.org might be helpful in keeping this proposed legislation derailed.

Lets compromise
Authored by: Anonymous on Monday, January 23 2012 @ 01:54 PM EST

I think that you are completely right about this coming down to a definition of what is a "tourist", and that the hotel industry should have been more careful in their expansion. But I also think it is important to point out that there are certain standards that hotels have to meet in order to serve tourists that apartment rentals dont. Hotels are trained to serve tourists and cater to their interests, and also put in effort to connect their clients to tour operators, restaurants and activities that help to boost the tourism industry--it is part of the tourism network. If we allow hotels to be cut out of that, the whole industry may suffer. Who knows what kind of service people are getting from apartment rentals? Moreover, who in panama is going to be comfortable buying an apartment or condo if they are going to have different strange and foreign neighbors every day/week? I think there is enough room to accomodate both sides and give each room to function in the rental/hotel market, but obviously the reason this is happening is because a clear line between apartment rentals and hotels has not been previously established. I hope a reasonable compromise is reached between both sectors.