Long-term rental apartments bursting mines is more serious than the consequences of P2P online loans causing millions of financial refugees.
A court in Shanghai issued a consumption restriction order on December 9, and the CEO of Eggshell Apartments was restricted from spending money. Real estate insiders earlier asserted that the bursting of mines in long term rental apartments is more serious than the consequences of P2P loans causing millions of financial refugees.
On December 9, according to information on China’s open execution information website, the Shanghai Minhang District Court issued a consumption restriction order to Purple Wutong, a company owned by Eggshell Apartments. According to the order, because Ziwutong failed to fulfill its obligations to pay as determined by the effective legal documents within the period specified in the enforcement notice, the court imposed consumption restrictions on Ziwutong and its legal representative Gao Jing from implementing high consumption and consumption not necessary for life and work as required by law.
As the head of the long term rental apartment industry, eggshell apartments were listed in the US in just 5 years due to the strong support from Ant Group and other organizations. However, the industry model of “highly dependent on market activity and liquidity” and the impact of the pneumonia epidemic in Wuhan this year have fully demonstrated the vulnerability of eggshells, which collapsed recently and caused a great storm.
With the escalation of the eggshell apartment explosion, landlords and tenants are at odds, and eggshells are staying out of it. In Guangzhou, a freshly graduated eggshell tenant, who could not stand being trapped by “rental loans” and a tough eviction by his landlord, set fire to his room in the early hours of Dec. 3 and then jumped to his death. In an interview with mainland Chinese media, his family said they would sue the eggshell: “We would love to know what happened to him during this time, from five o’clock to three o’clock in the morning, whether the landlord had approached him again, argued with him, or provoked him, causing him to think about it all at once.”
The tenant traded his death for an icebreaker in the impasse. Under pressure from public opinion, Wezuo Bank, which works with eggshells, issued another announcement, offering a different plan than the previous one that allowed eggshell tenants to extend the remaining principal amount of their loans interest-free. The announcement said that the direct debt-debt relationship between the bank and the tenants would be converted into a debt-debt relationship between the bank and the eggshell apartments. The bank will use the prepaid rent owed to the customer to offset the customer’s “rental loan”, after which the bank will settle the loan.
Eggshell not only involved a large number of tenants, landlords and suppliers, but also many financial institutions. In the case, Tencent’s Weizhong Bank was also targeted, and some tenants complained to the China Banking and Insurance Regulatory Commission about the irregularities in the rental loans they had made with eggshell.
The characteristics of the industry determine the vulnerability of the fast-growing eggshell apartments, and it is only a matter of time before the mines burst.
Long-term rental apartments are an emerging industry in China’s real estate market in recent years. Long-term rental apartment operators rent out owner-occupied houses, renovate them, furnish them with furniture and appliances, and rent them out to people in need in the form of single rooms. Long-term rental apartments in China are mainly divided into two types: “centralized” and “decentralized”. The centralized type is mainly operated in the traditional commercial real estate mode, using self-owned land development or building renovation; the decentralized type is mainly extended from the leasing agency business, relying on the integration of the head of household housing to redecorate and manage, similar to a “second landlord”.
According to the official media China Economic Weekly, the main profit model of long term rental apartments is “low income and high rent”, which is similar to the role of “second landlord”. Although there are some projects that try to increase their profits through “financial games” such as “rental loans”, they are wandering on the edge of the red line of policy and regulation. Without finding a healthy and sustainable profit model, a large number of long term rental apartment projects are using financing to run around and then use the beautiful data to do the next round of financing, or even complete an IPO.
Hu Jinghui, former vice president of large Chinese real estate agent My Love Home, held a media communication meeting on August 19, 2019, saying, “I am shouting across the air to the government to control long-lease apartments.”
Hu Jinghui reiterated to the media, “I said the long-lease apartment burst, must be more powerful than the P2P burst, this is not at all true.”
At that time, Hu Jinghui said that there were already long term rental apartment institutions in Shanghai with financial problems, and if the major institutions in the market continue to develop irrationally as they are now, this year and next year (2019-2020) will be the year when a large number of long term rental apartments will close down. Once the capital chains of large-scale long-lease apartments break down, there will be evictions of tenants by owners, and millions of people will be left homeless, with more serious consequences than P2P mines.
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