Apr. 20 (NBD) -- The profit model of the long-term apartment rental sector was brought into the spotlight with the release of a report saying an apartment rental service provider backed by a lending platform suffered capital chain rupture. 

The industry is currently at the stage of meager profits, Jin Guangjie, founder and CEO of Shanghai-based apartment rental service operator QK365.com, told NBD. Only operators that have efficient operations, standard management and stable growth can make their way to final success and win the favor of investors. 

Financing on the fast track 

The long-term apartment rental industry is seeing a large inflow of money, driven by China's green light to asset-backed securitization related to rental properties as well as tenant-favored policies. 

This week, QK365.com announced it has completed the Series C round equity financing, which was jointly led by a private fund managed by Morgan Stanley and consumer sector-focused private equity firm Crescent Point. To date, the company has received more than 100 million U.S. dollars in equity financing in total.

In January, Ziroom, a long-term house rental brand of China's largest real estate brokerage company Lianjia, said it has secured 4 billion yuan (636 million U.S. dollars) in a series A financing round led by Warburg Pincus along with Sequoia Capital China, Tencent and Sunac. After the financing, the company saw its value reach 20 billion yuan (3.2 billion U.S. dollars), becoming the most valuable long-term house rental operator in China. 

Meanwhile, the introduction of asset-backed securitization products related to apartment rental is accelerating. 

According to NBD's incomplete statistics, in March alone, the total size of such new financing products approved by the Chinese government surpassed 10 billion yuan (1.59 billion U.S. dollars).

Photo/Shetuwang

How to become profitable 

At present, few long-term apartment rental companies have become profitable. 

According to the 2017 annual report of Hong Kong-based investment holding company Landsea Green Group Co., Ltd., its long-term apartment rental brand Landsea Apartments, with 2,010 rooms under its operation, netted revenue of around 8.3 million yuan (1.3 million U.S. dollars) and reported a net loss of about 44.2 million yuan (7 million U.S. dollars) last year. 

Ziroom, which currently manages 500,000 rooms, said to NBD that the company is now profitable in Beijing. But overally, expanding its presence nationwide remains the top priority, therefore, it is still in the phase of investment. 

QK365.com's Jing Guangjie also told NBD the brand is struggling to break even and is planning to increase its number of managed rooms from 70,000 to 120,000 at the end of this year. In his view, 120,000 rooms is the breakeven point to long-term apartment rental service providers. 

The margin in rents is now the major way of making money, Liu Hui, founder and CEO of Plateno Group's apartments brand Wowqu, said in an interview with NBD. Operators are now under enormous pressure as whopping housing prices and relatively steady rents lead to high operational costs. 

To achieve profitability, in addition to improving brand premium and increasing operational efficiency, apartment rental firms should build themselves into platforms to provide tenants value-added products such as butler services to expand revenue sources, Liu suggested. 

Yan Yuejin, research director at Shanghai-based E-house China R&D Institute, agreed with Liu on this count, adding that once the platform effect comes into play, long-term apartment rental operators can grow services like cleaning and internet finance based on vast tenant resources, which can dramatically increase their profit-making chances. 

Jin Guangjie, however, held a different view. He said that it is not easy to build platforms at present, and more work should be done to improve operational management and to create core competence.  

Email: lansuying@nbd.com.cn