- Real estate agents pay the owners more money than the actual rent.
- Everyone tries to earn some hot money and pull out.
- Many LRAs have disappeared since 2019, leaving behind them endless problems.
On August 9, Mrs. Wu from Hangzhou authorized a real estate agent to rent her apartment to a tenant for $880 per month. On August 28, the agent told her that his company was abandoning Hangzhou and that he had resigned the same day. Mrs. Wu has only received the rent for August. She got in touch with the tenant and was informed that he had paid upfront almost $6,000 for a whole year’s rent to the agent plus deposits. That is, the agent company charges the tenant less than $600 a month while paying the owner almost $900. Something doesn’t add up here.
Since 2015, the Chinese government has been promoting the idea of “houses are meant to be lived in.” A new business called “long rent apartment” (LRA) began to shine.
The original business model of LRA is relatively simple. LRA collects apartments from property owners and makes them look more exquisite and cozier. Then, they rent these apartments to tenants for at least one year (hence the name “long rent”) at a competitive price, most of which will be given to the owners. Obviously, LRA lives on commissions. However, LRA’s profitability seems both low and slow for the society nowadays.
After several years of evolution, a new business model arises. Now, LRA charges the tenants for a whole year’s rent plus commissions and deposits before they move in. Instead of giving this money to the owners right away, LRA pays the owners by month. This means that LRA holds a lot of cash that they have no rush in returning.
With this amount of cash, they can invest in other areas for interests. Even worse, they sometimes pack their rental contracts up as an ABS and sell it on financial markets, which reached over $9 billion in 2018. As more competitors join the game, it becomes harder to gain apartments from the property owners, which leads to the story that we see above. LRA starts to pay the owners a lot more each month than the actual rent.
Everyone knows that this business model won’t work forever. Still, more and more LRAs appear. They just want to earn some hot money and exit. But in the end, the day will come when the chain starts to break.
Youke, Chaoke, Yuyi, Leka, Woke, Deyu, Zhongze, Dingjia, Guochang… There is an endless list of LRAs that have gone bankrupt since 2019. Once an LRA falls, the money is gone too. It means the tenants and the owners are in a dilemma: the tenants have paid upfront many months’ rent, while the owners have only received a part of it. Usually neither part wants to give in, which in some case has led to violent results.
First P2P (another similar business model that has scammed a lot of people), then LRAs. The society never gives the younger generation a break.