Cuenca hotel owners complain of unfair competition from owners of short-term rental properties, many of them expats; SRI says it is investigating

Hotel owners have complained before about unfair competition from the growing number of daily and weekly rental properties in the Cuenca market, many of them owned by expats and foreigners. Now, they say the situation has reached crisis proportions.

According to Cuenca’s hotel association, the city’s hotels and hostals are being hurt from competition from unlicensed rentals. Photo credit: El Mercurio

According to Daniel Hernandez, president of the Azuay Hotel Association, most short-term rentals offered through the Internet, often on international websites such as Airbnb, are unlicensed and should be shut down.

“Hotels and hostals are licensed to operate and pay fees and taxes, while the owners of these rentals are working off the books,” Hernandez says.

Ecuador’s Internal Revenue Service (SRI) agrees and says it has started to pursue property owners who operate short-term rentals but are not registered with the agency.

“There are so many of the rentals today that they are making it hard from some hotels to stay in business. And they are competing for the same tourists and travelers that we are,” says Hernandez, whose group plans to meet with city and tax officials to discuss enforcement of business operation and tax laws. “These informal operators can be located easily through Internet searches of websites, forums and blogs. They are easy to identify.”

He says that rentals can unfairly accommodate larger groups and often charge as little as $10 per day per person, because they don’t have the overhead costs of hotels. “This is stealing our business and it is not right and it is time that we all play with the same deck of cards.”

Hernandez says that now is the perfect time for government to begin enforcing the laws. “These are hard times economically and the government needs money,” he says. “If they use their licensing and taxing authority, they make more money.”

According to a local rental property manager, new SRI policies will probably affect some expat and foreign owners of daily and weekly rentals. “They are looking on the Internet to identify people who are not registered with the SRI,” says Graciela Quinde of Rentals Cuenca, which rents primarily to foreign visitors and expats. “They believe that many of the rental owners are not working legally.”

Quinde says most small rental property owners would not owe taxes but says they must register with the SRI and provide reports of business activity. “This takes time and paperwork but I believe it is worth it for the peace of mind of knowing you won’t get in trouble with the government.”