China’s long-term rental housing market hits the headlines again a Yujian Apartment, a startup backed by Xiaomi founder Lei Jun this week received debt payment notices from a major bank, and is said to owe back rent to its landlords.
The Shanghai-based firm’s financial fail comes despite it having received venture funding from the Xiaomi founder as well as other big name investors such as K2VC and Ceyuan Ventures.
Yujian, which operates a network of around 20,000 apartments nationally is the sixth major rental housing enterprise in China to fall into financial distress so far this year, following Yozook, Love Apartment, Cres & Asia, Dingjia and Hao Zu Hao Zhu.
Now the Chinese government is setting up pilot projects to operate its own rental apartment management firms in eight provinces including Zhejiang and Anhui, after cases of toxic apartments, failing operators and rocketing rents create an image of chaos in the rapidly growing market for rental homes.
Rental Housing Platforms Facing Financial Troubles
On Monday, privately owned Huarui Bank issued a notice to Yujian, warning the rental housing operator to meet its commercial obligations, citing numerous complaints from owners of apartments from among Yujian’s network claiming that the residential startup had failed to pay rent on schedule.
A Weibo user named Zhao Zilong Zhi Yun Kan Pan who identified himself as a homeowner who had leased his apartment to Yujian posted on the Twitter-like service on Monday that the rental housing operator had failed to pay its rent on time.
Yujian has also made enemies on the tenant side with over 300 consumers having complained about Yujian Apartment failing to return rental deposits within the agreed 15 business days, according to data from the Shanghai Consumers Association, with the average time for rendering deposits said to reach three months.
By the time that this article was published, Yujian Apartment’s website had become unreachable.
Favored Borrowers Start to Look Like Bad Risks
In its warning letter, Shanghai-based Huarui, which had loaned the cash to Yujian for fit out expenses, urged the rental housing platform to properly deal with its business and pay back its loan on time.
Founded in 2014, Yujian Apartment claims RMB 6.8 billion ($980 million) in assets under management and was among the early players in creating branded rental apartments. Lei Jun, the founder and CEO of Xiaomi invested Yujian in two separate rounds in 2014 and 2015 through his Shunwei Capital and Ce Yuan Ventures.
During the last year, some of China’s biggest developers and several of the richest real estate investors globally have invested in China’s build-to-rent sector after the central government in August 2017 unveiled pilot programmes to build rental projects in suburban areas outside 13 major cities, including Beijing and Shanghai.
In July the Canada Pension Plan Investment Board (CPPIB) entered a $817 million joint venture with developer Longfor Properties to build new rental housing projects, and private equity firms including Warburg Pincus and Gaw Capital have invested tens of millions into rental housing operators competing with Yujian.
The authorities in Beijing have also encouraged lending to the sector with the largest state-run banks having pledged loans of more than RMB 3 trillion to the sector over the same period.
The rental housing push fits into an ongoing campaign to ease the country’s housing supply crunch and curb rising home prices.
Ziroom Implicated in Cancer Death
The rapid flow of cash into the sector seems to have created nearly as many headaches as it has homes, with Tencent-backed Ziroom having been accused in September of poisoning one of its tenants through poor remodeling practices.
The case of Ziroom’s formaldehyde contaminated home, which is suspected to have led to the leukemia death of its tenant, is one of many. In subsequent examinations, a third-party testing agency detected formaldehyde levels in a tenant’s apartment of 1.7 and 2.3 times above normal.
Rental Chaos Brings Govt Program
With its rental housing initiative generating mixed results, China’s Ministry of Housing and Urban-Rural Development (MOHURD) this week announced a trial program to operate its own rental housing programs in eight provinces.
According to the official announcement on Tuesday, the establishment of the new system is to “further improve the management mechanism of public rental housing, improve management and service capabilities.” In the new system, the government agency will try its hand at long-term housing management in Zhejiang, Anhui, Shandong, Hubei, Guangxi, Sichuan, Yunnan, and Shaanxi province in a program to be operated jointly with the Ministry of Finance.
Under the new initiative, the government will buy the homes and lease out the apartments via public platforms. The platform will also manage the individual flats as well as maintain the public facilities.