Airbnb Taking Flight in Israel - Just Don't Let the Taxman Know

More and more Israelis are subletting spare rooms and apartments to tourists through sites like Airbnb, and not declaring the extra income.

Before hearing about vacation rental website Airbnb, Haim (not his real name) was in search of a roommate to share his two-room central Tel Aviv apartment to help pay his NIS 5,000 a month mortgage. He first learned about the website from a friend who used it to rent out his two apartments.

“I had two main concerns,” says Haim. “First, about strangers entering my apartment and touching my things and maybe even stealing; and second, that I won’t get enough bookings to help cover the mortgage.” A year later Haim, sees things in a different light. He rents out the spacious room for 45 to 60 euros a night depending on the season, and the room is occupied some 26 nights a month. “If I continued renting it out to Israelis I would have received NIS 3,000 a month,” he says. “Now I’m putting twice that in the bank, or more.”

Like Haim, most of the people interviewed for this story asked to remain anonymous – and with good reason: They aren’t reporting their extra income to the tax authorities, and those who only rent their apartments don’t want their landlords to find out they’re subletting.

The Israel Hotel Association is aware that the short-term rentals market is eating into their income, and there has already been an attempt to lobby for the enforcement of tax laws in this field. “Websites are full of offers for accommodating tourists in apartments for various timeframes, from a single night to a month or more,” association director-general Shmuel Zurel wrote to Tax Authority chief Doron Arbely in February.

“We hold no grudge against the operators of these lodging operators: We only ask that the competition be on even terms, that is, while Israel’s hotels are subject to strict business registration rules and submitting tax reports and taxes by law, nothing similar applies to apartment renters.”

The Tax Authority responded that over the past year emphasis has been put on enforcing the payment of taxes on apartment rentals, including apartments used for vacations, as part of its overall approach to dealing with tax evasion.

A growing market

Short-term apartment rentals seem to be on the rise. Popular vacation rentals website Airbnb says 80,000 overnight stays in Israel were booked through its website in 2012, and that since then the number of listings has grown from 3,000 units to 7,000. The number of guests staying in Airbnb apartments in Israel this month has risen 415% from last August, it claims, with tourists hailing from 80 countries. It isn’t only Tel Aviv that is feeling the boom. Airbnb alone has 1,000 rooms and apartments listed in Jerusalem and 470 in Haifa, alongside the 5,000 in Tel Aviv and the surrounding area.

Airbnb is just one of many platforms used by Israelis. Another is Tellavista, opened in 2010 by brothers Roee and Nadav Ziv, with 4,000 listings – 1,500 of them active. The website has seen the number of bookings double over the past year.

Roee Ziv says Tellavista encourages people to abide by the law. “You need to differentiate between two major types of rentals: Investment vacation apartments rented out on a weekly or monthly basis – a business for all purposes, and apartments rented out occasionally when the occupants go away for vacation or a short time and do what’s known as a sublet,” he explains. “We encourage the institutionalization of vacation apartment rentals: It’s a phenomenon that can’t be ignored.”

Hotels no doubt have reason to be concerned about the boom in apartment rentals aimed at tourists. In the first half of the year overnight stays by tourists at hotels dropped 7% from the year before. This might have been explained as the aftermath of last November’s Gaza war, except that incoming tourism figures for the same period showed just a 1% dip from the same period in 2012. Those tourists must have stayed somewhere.

Not everyone is completely gung-ho about the trend, however. Property management company Household, owned by Oded Avrahami, opted out of the short-term home rental business. “The whole subject of taxes and liability insurance scares me, so I stopped,” he says. “Short-term apartment renting is essentially an irregular use of property since an apartment by definition serves as a residence, meaning I’m meant to live in it or rent it out for a period of over three months. As soon as I rent it out for a shorter period, I become a tax offender. Also, if one of the renters falls in the shower and sues, the insurance won’t cover me because third-party insurance is only valid in the case of a residence and doesn’t cover short-term rental or business activity.”

Airbnb insures owners for up to $1 million for any damage caused to furniture and fixtures. The company recently said it has only fielded 400 claims of property damage out of 3 million guests who booked accommodations through its website.

The people we interviewed had experienced nothing of the sort. “Relations between the host and guest differ completely from those at a hotel,” says Haim. “Guests care about you – you’re sort of a friend – even though we give them hotel-like services.

But unlike at hotels, guests are uncomfortable bothering you if something breaks, and they care about the fixtures and furniture. Knowing that I’ll be cleaning up after them, they try to make sure everything stays clean.”

Another drawback is that Airbnb takes 3% of the proceeds while at Tellavista the rate varies from 3% to 6%. Owners also need to make sure the apartment is cleaned before guests arrive and that all bedding and towels are laundered – just like a hotel.

Homeowners who don’t want the hassle involved with upkeep and dealing with guests can pay management companies to do the job. “Our company now manages 300 apartments in Jerusalem and Tel Aviv for their owners who are mainly located abroad and use them for short intervals – mostly French, Belgians, and Americans,” says Yoni Shapira, owner of Home4trip. “We see a double-digit rise in the number of reservations each year.”

“European and American tourists are better than Israeli flatmates. They feel like guests. They wash and dry the dishes right away and put them back, don’t allow themselves to make a mess or be noisy, and most of the time they’re not even there,” Haim says.

Noga from Herzliya, is another Israeli who has managed to take advantage of the growing demand for short-term rentals, even though she doesn’t have a spare room or second apartment. Noga rents out her entire house while the family vacations abroad once or twice a year, which means they can extend vacations from four or five days to at least 10. “Putting up tourists in my house pays for our vacation,” she says.  

Haim has himself branched out, and is now renting out the apartment of a friend who is abroad for a 25% commission, as well as another belonging to a doctor who uses his apartment only twice a month. “Everyone’s doing it,” he says.

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