Managing short-term rentals must account for owners, tourism and locals

If I ask you to say the first thing that comes to mind when I say “short-term rentals”, what would that be? Short-term rentals, or STRs for short, have become increasingly popular worldwide, thanks to platforms like Airbnb and Booking.com.

STRs pose a lucrative investment for property owners and at the same time, often provide cost effective accommodation for travellers and tourists.

Why is this relevant? one may wonder. Cyprus possesses some key characteristics which create perfect conditions making STRs a good source of income.

To start with, Cyprus has become an attractive destination for digital nomads, who do not need to permanently live here, so renting a property short term is ideal for them.

Secondly, a big percentage of tourists has shifted from traditional hotel accommodation to either cheaper options or more local inclusion.

Thirdly, development is on the rise and that is partly because investors wish to invest in real estate, not for their own use but to have a steady income stream.

The rise of STRs has prompted governments to introduce legislation and regulations to balance the interests of hosts, guests, traditional hospitality sectors and local communities. It is imperative to take a deeper look into the legislative framework for short-term rentals in Cyprus and what the situation is in other major European cities.  

Legislative framework for short-term rentals in Cyprus

Cyprus, although a bit late, has followed global trends in regulating STRs, aiming to bring structure to a market that was largely unregulated and, in most cases, illegal.

Pursuant to the Regulation of Tourist Establishments Law (Amendment) 9(I)/2020, that came into force in 2020, all short-term rental operators need to register with the Deputy Ministry of Tourism.

The goal of this regulation is twofold, on the one hand it imposes certain requirements that the property needs to fulfill, such as facilities offered and health and safety equipment (smoke detectors, fire extinguishers and proper ventilation) and on the other hand making operators subject to tax laws, including VAT (if applicable), income tax and other local levies.

Furthermore, all operators must register with the Deputy Ministry of Tourism, receiving a unique registration number (UIN). This number must be clearly displayed on the listing and all accommodation search websites now require the number of this licence, otherwise funds are not released to the operator. Platforms are obliged to provide the government with all data regarding the number and value of transactions for tax calculations.

Does all the above sound good? I would not be so eager to respond yes.

Major concerns have been raised about the impact of STRs on housing affordability and availability, especially in markets such as Limassol, where rental prices have risen to historical heights, thus making housing less affordable for locals.

What happens in major European countries?

While Cyprus is working to regulate its short-term rental market, many European countries have already established complex frameworks to manage the surge in STRs.

Paris has one of the most heavily regulated STR markets in Europe. Owners in Paris can rent their homes on STR platforms for a maximum of 90 days per year for primary residences and if the limit is exceeded owners face fines of up to €50,000.

There have been discussions about introducing new measures, with one of the key changes being the reduction of tax relief on income from rental of furnished tourist accommodation. Previously, benefits were 71 per cent, but now they will be reduced to 30 per cent.

Amsterdam is limiting rentals to 60 days per year, introducing a tourist tax, allocating serious resources to combating violations.

As per Berlin’s regulations, secondary residences are limited to a maximum rental period of 90 days per year. Although a primary residence has no rental period limit, permission from the district office needs to be granted if the owner can prove that the private interest outweighs the public interest of preserving the living space.

In the case of Barcelona, where it is mandatory to have a permit for STRs, the government has announced rather bold plans which will lead to a citywide ban on all short-term rentals by 2029. The city announced that by November 2028, no more new licences will be issued, and existing permits will not be renewed.

Rome, on the other hand, seems to have adopted a more lenient approach. If an owner hosts more than three properties, this constitutes a business operation and therefore must be registered in the relevant register and pay business taxes. However, requirements such as the registration of the accommodation and informing the regional tourism body, still apply to operators of less than three properties.

Key takeaways

While major European cities are slowly heading towards significantly limiting the operation of short term rentals, in some cases even going as far as banning STRs completely, Cyprus has only recently started taking this matter seriously.

The Cypriot government needs to strike a balance between economic benefits stemming from STRs and the need to protect housing availability and affordability and maintain quality standards.

Cyprus can learn from these European models as it continues to refine its STR regulations, particularly as the demand for short-term rentals grows in its tourist-heavy regions. Finding the fine balance between tourism promotion and safeguarding local communities will be key to the success of the sector in the long run.

Evi Pilavaki is the Chief Legal Officer at BBF, with a long, proven record in the legal profession and extensive knowledge in real estate and investment deals. Pilavaki holds a rich educational background, including a Bachelor of Law (LLB) and a Master’s degree (MA) in International Criminology from the University of Sheffield. Most recently, she received her MBA (Master’s in Business Administration) from the University of Limassol (UOL), formerly known as CIIM.

In her role as the Chief Legal Officer at BBF, Pilavaki provides invaluable legal consultation to all departments of the BBF Group. She coordinates with legal representatives in Greece, Portugal, the UK and Canada, where the group has offices or projects. Pilavaki is also responsible for reviewing and identifying risks regarding internal and external transactions of the group and managing the legal aspect of plot acquisition. She deals with investment structures and JVs, as well as reviewing all legal documentation related to sales. Leading by example, Pilavaki manages a dedicated team of six professionals, fostering a collaborative and inclusive work environment