Airbnb nears approval in room-starved Japan with tighter restrictions

AIRBNB, Inc. is finally getting the green light to do business in Japan after years of operating in gray areas of the law.

Prime Minister Shinzo Abe’s cabinet approved rules on Friday that limits home-sharing by private citizens to 180 days a year, according to the final draft of the legislation. The bill, which also leaves room for local authorities to impose their own restrictions, is now submitted for deliberation and approval by Japan’s parliament.

Airbnb, which just closed a $ 1- billion funding round that valued the company at $31 billion, has found a more receptive audience in Japan, compared with the clashes it had with municipal governments in New York, Barcelona and its home town of San Francisco. A tourism boom has cut into the supply of available hotel rooms and helped make the archipelago Airbnb’s fastest-growing market. Overseas visitors will probably continue to set records as Japan prepares to host the World Rugby Cup in 2019 and the Olympic games the following year.

“What’s important is that there will now be clear rules governing home sharing,” said Mika Yamamoto, public policy manager for Airbnb in Japan. “The impact on people will vary depending on their position.”

The new legislation, which still needs to pass Japan’s Diet, distinguishes between those who share their own dwellings and absentee landlords, anticipating that the latter are more likely to be the source of friction in neighborhoods. While Airbnb doesn’t break down its 48,000 listings in Japan by type, a search on its site shows hundreds of houses available for rent, as opposed to rooms in occupied homes. About 90% of hosts that aren’t present on the premises said the 180- day restriction would make their businesses unfeasible, according to a survey by the Japan Association of New Economy last year.

Airbnb, like its ride- sharing counterpart Uber Technologies, Inc., has faced resistance from local authorities. Still, Japan’s home- sharing limits are relatively lenient, compared with 90 days in London and 60 days in Amsterdam. Still, for some hosts in Tokyo, the new rules may force them to choose between giving up a second source of income and committing to becoming a full- time rental property operator. Until now, high occupancy rates in popular neighborhoods such as Shibuya and Asakusa made it possible to make a profit on rented apartments, prompting people to take a second or third lease. The legislation would require a landlord’s permission and an operating license.

The regulations are already giving pause to Mark Chao, who rents out seven listings in Tokyo and Kyoto via Airbnb. The 39-year- old entrepreneur with a full-time job in IT owns about 40% of his properties and leases the rest. Mr. Chao said he is putting on hold plans to buy a resort property in Hokkaido, to see how the rules play out.

“It really depends on how strictly they intend to enforce it, because I can think of several ways around the restrictions,” Mr. Chao said. “But if you follow the rules, the rental model is basically dead.”

For those hosts that decide to stick with it, the good news is that demand will only continue to grow. More than 24 million overseas tourists visited Japan in 2016, topping the record for a fourth straight year, according to the nation’s tourism organization. Airbnb accommodated 3.7 million of those visitors, according to the company. The number will hit 35 million by 2020, Goldman Sachs Group, Inc. estimates.

Airbnb is also looking to be more than just a home-sharing platform, setting targets in luxury tourism, airfare aggregation, group payments and guest- management. In November, the company announced it had a flight-booking tool and an itinerary-planning feature in the works. Last month, it bought Luxury Retreats, Canadian manager of high-end rentals and services. The company began selling unique travel experiences last year. Among the packages offered in Tokyo, renters can take a tour of anime shops, do sake tasting or learn to make sushi. — Bloomberg