What’s new: In response to a nationwide rental housing crisis, authorities in the eastern Chinese city of Nanjing ordered that apartment rental intermediary companies deposit rent payments in supervised accounts when tenants pay at least three months’ rent upfront.
Rental companies will also be required to deposit risk reserves proportionate to the scale of their business into the supervised accounts, according to a notice published by Nanjing’s Housing and Real Estate Administration Bureau. The measures are intended to protect tenants and landlords from financial problems dogging the rental middleman industry.
A staff member at the Nanjing housing bureau told Caixin that the proportion of risk reserves has not yet been determined, and it may take another week or two before detailed rules can be worked out.
If tenants pay upfront rent of less than three months, it’s up to the tenants whether to deposit payments into a supervised account. Money in supervised accounts will be transferred to rental companies monthly.
The background: The new requirements were imposed after Danke Apartment, one of China’s largest online apartment rental platforms, collapsed, leaving thousands of tenants facing eviction even though they paid months or even a full year of rent and landlords claiming they weren’t paid.
The failure of Danke’s controversial business model sent shockwaves through China’s massive rental market and sounded alarms over the online rental industry’s debt-fueled growth. Danke and its competitors rent flats from landlords on long-term leases and then sublet the properties to tenants after making renovations.
These companies are supposed to make money on the premiums they charge tenants over the rent they pay landlords. But to attract tenants and landlords, many companies like Danke have been offering higher rents to landlords than they collect from tenants.
Like many of its industry counterparts, Danke has yet to make any money despite rapid business expansion. It ran into financial difficulties this year amid the pandemic, underscoring the sector’s struggle with thin profit margins and risks stemming from debt-driven growth.
Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com).
Related: Cover Story: How Chinese Apartment Rental Giant’s Business Fell Apart
