To see how popular home-rental listing sites have become, look no further than website Airbnb. The online room-rental service is now reckoned to be worth $2.5 billion, after raising $150 million in financing last year. That puts the five year-old start-up on a par with HomeAway, another home rental service, which is listed on Nasdaq.
Of course, it didn’t take long before a similar concept took off in China too. The country’s most prominent short-term accommodation site TuJia has also managed to attract investors, raising Rmb400 million in financing after being in business for less than a year. Ctrip, China’s leading online travel company, was a major investor. HomeAway also purchased a minority stake and translated over 2,000 overseas listings for posting on TuJia, says 21CN Business Herald.
Like HomeAway, TuJia allows users to post ads for apartments, targeting those who want to rent them, primarily for a vacation. The company says that it now has over 400,000 holiday rental homes in 65 Chinese cities, as well as 45 overseas locations. The site mainly focuses on mid-range to high-end properties.
TuJia’s chief executive Luo Jun told NetEase Tech that renting a house for holidaying is gaining popularity with discount-minded Chinese consumers. Typically they are looking for a decent place to stay for much less than the price of a hotel room.
For example, a high-end home rental on the tropical island of Hainan will cost about Rmb1,200 ($190) per night, well below the Rmb5,000 or more for a five-star hotel in a nearby resort.
The business model also appeals to Chinese travellers who do not want to pay for hotel restaurant dining. Chinese tourists, as many hotels have found, often prefer to cook their own meals in their rooms (as highlighted by a recent incident in the Maldives, for more on which see WiC185).
Unlike Airbnb and HomeAway, which are essentially online marketplaces that connect homeowners with likely renters, TuJia takes the process a step further. It signs contracts with landlords and its staff visit houses before customer stays, often giving them a minor makeover.
The downside is that TuJia’s business model is more capital intensive. But Luo says there’s a reason he adopted the model. “Outside of China, the trust level is very high. So it is not like customers will arrive at an address and find out that the house is missing. But this could happen in China. So that’s why, at the moment, we are operating with the B2C model,” Luo explains.
Perhaps it also explains why customer satisfaction seems to be higher with TuJia. Almost 97% of those staying at a house operated by TuJia have recommended the service to their friends and relatives, according to the company’s own statistics. TuJia also gets to split some of the rent with landlords, instead of just taking a small commission from the transaction, says Securities Daily.
While TuJia is the largest of these new services, it isn’t the only one. A domestic rival is Beijing-based Xiaozhu.com (which oddly means “little piggy” in Chinese), which is a short-term rentals site like Airbnb. Similarly, Mayi.com (meaning “ants”) has also secured about $10 million in financial backing.
Analysts say the market size for short-term private rentals is expected to grow rapidly from Rmb490 million ($78 million) in 2012 to Rmb2.9 billion in 2014. That’s still small fry in international terms.
And while online bookings for short-term accommodation on sites like HomeAway and Airbnb now account for 37% of total online bookings for hotels in the US, Luo admits that the share in China barely reaches 1%.
“People are still not used to the concept. Consumers today still want to stay in hotels,” he told 21CN Business Herald, adding that China also needs more properties at the quality end of the market.
“In terms of architecture and environment the houses [in China] are just not good enough,” Luo suggested.
© ChinTell Ltd. All rights reserved.
Exclusively sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.