(Yicai Global) Aug. 20 -- Whether long-term rental apartments have contributed to the recent surge in rents in Beijing and other first-tier cities has became a hot topic this weekend. Hu Jinghui, vice president of B.A. & 5I5J Group and head of 5I5J's research arm, resigned shortly after criticizing Ziroom, Purple Wutong (Beijing) Assets Management and other long-term rental housing operators for driving up prices. 

Beijing's housing and urban-rural development commission and other regulators have held talks with directors of major rental companies including Ziroom, 1zu.com  operator Xiangyu and Purple Wutong, which operates Danke Apartment. Hu held a press conference yesterday after resigning.

China has finally managed to rein in commodity housing prices in first-tier cities after issuing tough real-estate curbs. However, the battleground has now shifted to the rental housing market. 

Competition has become fierce between rental flat operators to snap up rental properties.  Ziroom and Danke Apartment have been offering high prices to compete for rental properties, leading to a 20 percent rise in rents in just 10 days, one online commentator said at NewSMTH.net, a student discussion forum of Tsinghua University, in a post that has been widely circulated on the social networking platform Moments of Tencent Holdings ubiquitous WeChat messaging and third-party payment app. Rumors that intermediaries have pushed up rents are swirling.

Raising the Roof on Rents

Supply, demand and seasonal factors have combined with the flow of a huge influx of capital into the long-term rental housing market to power the recent surge in rents in first-tier cities, Hu told media in a teleconference on Aug. 17. Long-term rental apartment operators such as Ziroom and Danke Apartment are offering prices 20 percent to 40 percent higher than market to compete for rental properties, which they will refurbish before re-leasing, further pushing up prices and disrupting home owners' mindsets and the rental market, Hu said.

5I5J soon released a statement saying that the above comments represent Hu's own views and not the company's.

The Beijing Municipal Commission of Housing and Urban-Rural Development and the city's banking, finance and tax regulators jointly called a meeting with directors  Ziroom, 1zu.com, Danke Apartment and other leading rental operators on Aug. 17 after media reports that some individual rental service providers have been pushing up prices to vacuum up vacant flats. 

These agencies made clear at the meeting that rental companies may not engage in vicious competition to grab rental properties at above-market-price offers using bank loans and other financing channels. They may also not entice landlords into terminating leases early by offering higher prices.

Hu announced his resignation as vice president of B.A. & 5I5J Group on WeChat Moments on Aug. 18. Beijing's housing officials called him and thanked him yesterday, he said at his press conference on Aug. 19. Long-term rental market irregularities will be even worse than peer-to-peer lending platform defaults, Hu stressed, recommending that Beijing impose a 10 percent tax on empty units.

First-Tier Fears

Shenzhen, Beijing, Guangzhou and Shanghai witnessed an annual rise of 30 percent, 22 percent, 22 percent and 16.5 percent, respectively, in rents last month, according to housing price tracking website creprice.cn run by market analyst CityRe Data.

5I5J Holding Group is developing its rental business to hedge risks stemming from its brokerage business, it told investors at an interaction platform under the Shenzhen Stock Exchange yesterday in response to questions whether Xiangyu, an apartment rental platform under 5I5J, has tried to snap up property listings at high prices and has thus contributed to higher rents.

Ziroom, a long-term rental apartment brand owned by HomeLink, raised CNY4 billion in A-round financing led by Warburg Pincus, Sequoia Capital China and Tencent Holdings earlier this year, public information shows. 

The deal, one of the biggest of its kind ever in China's long-term rental apartment sector, values the company at over CNY20 billion (USD2.9 billion). Ziroom had more than 700,000 units under management in the first half and aims to operate over 1 million by year's end, said Xiong Lin, its chief executive.

Opinions are divided over whether long-term rental housing operators have snatched property listings for high prices. However, most such operators are running at a loss in China, with a leading player losing more than CNY500 million in both 2016 and last year, Chinese news outlet the Economic Observer quoted an insider as saying.  

Editor: Ben Armour