(Yicai Global) Dec. 2 -- Leading Chinese long-term apartment rental platform Ziroom Life Enterprise Management will no longer offer new loans to university graduates, China News reported today, raising alarm bells that it might be getting into financial difficulties like its rival Danke Apartment.

From Nov. 27, the Beijing-based firm has ceased opening new accounts on its Haiyan Plan, which offers loans to university graduates to rent accommodation without the need for a deposit, according to a notice on the Ziroom app.

Those users who have already signed up will not be affected and can still make payments as normal, the newspaper report said, without giving any reasons for the suspension of the service.

Ziroom, which is backed by major real estate brokerage Lianjia, offers long-term apartment leases to mainly white-collar workers. On signing a contract with a tenant, the company can apply to take out a bank loan worth a whole year’s rent. The tenant then repays the realtor in monthly installments.

This operating model allows companies like Ziroom to not only take a large cut from the actual rent charged but to also collect a huge amount in prepayments to fund rapid expansion. However, it can become very risky when there are not enough new tenants to keep up its capital flow.

Beijing-based Danke, for one, has hit hard times recently by overextending the ‘rental loan’ model. Last month operator Phoenix Tree Holdings was not even able to pay its staff wages. The agency has been growing at a rapid rate, with a 46.8 percent jump year on year in its portfolio to 419,000 apartments this year, and so have its debts. Last year it racked up losses of CNY3.43 billion (USD522.6 million) with a debt-to-asset ratio of 95.78 percent.

Fearing that bankruptcy looms, a number of landlords and tenants asked last month to terminate their contracts early, according to the Economic Observer.

The proportion of tenants taking out rental loans from Danke dropped to 67.9 percent in the first nine months of 2019 from 91.3 percent in 2017. Ziroom, which according to the latest data from last November manages one million properties, claims its rental loan ratio is less than 30 percent.

Editor: Kim Taylor