In recent years, the concept of long-term rental accommodation becomes popular in many large cities of China. Companies that work in the long-term rental industry function as intermediary agents between the hosts (owner of the accommodation) and the tenant looking for place to live.
The rental intermediary agents obtain the properties to be tenanted (usually apartments) from hosts and then match with the guests, mainly the younger adults who look for career development in tier 1 or tier 2 cities but have no place to live. The rental contract is usually long-term, which usually means the tenants are required to prepay their rent for over a year. These rental agents typically pay the apartment owners on a monthly basis.
Such an operation creates a pool of capital since the intermediary agent receives the full year rent but the payment to the landlord happen monthly. The intermediary agent may decide to invest the fund in the capital pool to get additional profit.
The beginning of the fall
However, since 2016, due to greater competition, many intermediary companies continue to lower guests’ rental price and increase the promising payment towards the host, resulting in a narrowing profit margin. Their aim is to attract more tenants and collect more apartment resources. This business model depends on the capital pool investment generating high returns so that it is able to offset the narrow profit margin.
As the economy slows down (likely due to US-China trade war), this business model no long works as the capital pool investment no longer generate high returns, or sometimes even suffer losses.
From 2018 to the recent days, about a hundred intermediary companies have declared bankruptcy due to their cash flow’s drying up. One company that struggled is Danke Apartment, the second largest in the industry.
CCP virus delivered final blow
Nevertheless, the arrival of the Covid-19 (or CCP virus) pandemic this year destroyed the last hope that the industry will survive. The pandemic directly caused a wide range of default. Danke has no adequate funding to pay the apartment owners, and even unable to pay the salary to some employees.
Apartment owners who fail to receive the promised payment start to expel their tenants while tenants have no way to get their money back because their prepayments were already used to make unsuccessful investments, that had evaporated in losses. Some of these tenants took out a loan to pay for the prepayment when they signed the rental contract, these loans still need to be repaid after they got evicted from the property.
Property agents’ fault? Or the CCP’s fault
The media outlets within China (that are all controlled by the Chinese Communist Party, CCP) have blamed the misery of the evicted tenants on the rental intermediary agents. In reality, these are just symptoms of the failed CCP policies around uncontrolled money printing to sustain the property bubble within China. In fact, this is one way for the CCP to steal wealth from the honest hardworking middle class.
- BBC News (Chinese)
- EqualOcean (Media in CCP controlled mainland China)
- NBD (Media in CCP controlled mainland China)
- Sina (Media in CCP controlled mainland China)
Author: Gradient Boost
Disclaimer: The views expressed here are those of the authors and do not necessarily reflect the views of GNEWS.org.