Beijing’s bid to regulate rental fees will bolster leasing market, analysts say

A proposal mooted by Beijing’s housing authority to regulate rental fees could boost the long-term leasing market in China’s capital, as heightened supervision would reinforce the rights and interests of tenants, according to analysts.

Beijing’s Municipal Commission of Housing and Urban-Rural Development issued a draft measure on Tuesday, which requires housing rental companies that collect rent for more than three months at a time to deposit part of it into a third-party escrow account. Tenants will be allowed to monitor the account using a unique number tied to their contracts.

The draft proposal is open to public consultation until March 5 and applies to “housing rental businesses in the city that are engaged in the leasing or subletting business”.

The escrow accounts are for holding deposits only, and do not allow for overdrafts, unless otherwise stated.

The proposed measures serve to “support” Beijing’s housing rental regulations, which came into effect in September 2022, according to Xu Yuejin, deputy director at the China Index Academy, a real estate research firm.

It will also help to standardise relevant tasks and protect the tenants’ rights and interests, he added.

The regulations are aimed at regulating housing rental activities in the city, safeguarding the legal rights and interests of the tenants, and promoting the healthy development of the housing rental market.

Commercial banks authorised by Beijing’s housing fund management centre will be in charge of setting up and supervising the escrow accounts, the city’s housing department said, adding that it encouraged the use of the digital yuan for such transactions.

The Beijing Real Estate Agency Association, an industry body, will be in charge of settling disputes between tenants and rental companies, and assist tenants in retrieving their deposits and rent, according to the proposal.

“While we see instances of rental market supervision across the country, Beijing’s measure is the first of its kind as it specifically targets the rental fees, and this shows how much regulatory authorities care about this sector,” said Yan Yuejin, director of Shanghai-based E-house China Research and Development Institute.

The document also touched on dispute prevention and settlements, which could be tied to a crisis in China’s long-term rental apartment industry in 2019, Yan said.

“Even though the measure did not specifically mention long-term apartment rentals, this is effectively a policy targeting this segment.”

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Beijing’s long-term rental apartment industry was once the poster-child of the country’s housing rental industry, providing young urban professionals with furnished apartments and amenities at affordable price points.

In terms of business model, long-term rental apartments operate similarly to WeWork, the now bankrupt co-working office space provider. Operators and platforms rent apartments from landlords on a long-term basis, renovate them, and then sublet them to tenants.

The industry went through a period of debt-fuelled expansion in the mid-2010s, before online home platforms like New York-listed Danke went bankrupt because of financial difficulties in 2020. Between 2018 and 2020, more than 100 long-term apartment operators went bust, according to local media reports.

Overall, Beijing’s latest policy measure sends “a very good signal” to the property market, especially to the housing rental market, Yan said.