Coronavirus Puts Long-term Rental Platforms Ziroom and Danke in a Tough Spot

Chinese apartment rental platform Ziroom was involved in a series of controversies amid China’s developing COVID-19 crisis. Recently, several media reports have accused the company of taking advantage of vulnerable groups and evicting tenants from Hubei.

According to a February 17th report from China Weekly News, tenants from Hubei province were forced to move out of their rental apartments in Beijing after the Lunar New Year holidays. The affected tenants were asked to switch to other apartments with higher costs. A regional manager from Ziroom said the changes were made because of the tenant’s place of origin. Ziroom further threatened their customers with locking them out of their apartments in case they do not comply.

Furthermore, Ziroom was also reportedly asking all its customers to update their travel history, personal health status, and dates of returning from the holidays, all of which would normally be considered private information, and irrelevant to signing a rental contract. In addition, numerous tenants complained that the apartment rental company was increasing the prices for new contracts, as rent increased from the initial 10% to 30%. As the COVID-19 virus started to affect more parts of the country, tenants started to have more disputes with the company over fees and services. The company allegedly continues to charge service fees despite all regular services such as room cleaning being suspended due to strict local quarantine requirements.

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Xiong Lin, the CEO of Ziroom, attempted to ease the tensions on social media stating in Weibo that increased rental prices were “rare cases”. Facing even more intensive blowback on social media, Ziroom retracted the comments shortly after they were posted.

Ziroom is not the only rental platform whose reputation was mired in controversy because of the COVID-19 outbreak. Danke apartment also faced rental fee and customer relation management related issues. Danke asked its landlords to waive one month worth of rent, in order to offset the losses brought on by the prolonged quarantine. Unhappy with the request, Danke landlords started evicting tenants brought by Danke from their apartments. Tenants who signed contracts with Danke Apartment, rather than the actual landlord, pay their rent annually rather than monthly. Therefore the eviction could turn into a disaster for both the tenants and landlords.

From a legal perspective, landlords do not have the right to go after tenants who have contracts with Danke. Rather, they should seek compensation from the rental platform. But the conflict do not seem to have a clear resolution, and all parties involved are bearing losses from China’s ongoing public health crisis.

The coronavirus outbreak brought serious challenges for all apartment rental companies. According to Bloomberg, Airbnb will put on halt all Beijing rentals for two months. But for long-term rental companies such as Ziroom, the challenges are even more critical.

Ziroom and Danke act as intermediaries signing contracts with landlords and subleasing their apartments to tenants for a slightly higher price. These companies need to invest to refurbish the apartments, offer room cleaning and maintenance services to attract tenants, and in case of economic uncertainties, ensure that all parties comply by the original contracts.

Profits and cash flows of rental companies like Ziroom and Danke are seriously affected by the ongoing coronavirus outbreak. While the period of time after Lunar New Year was supposed to be the time for people returning to work to seek new rental apartments and sign leases, people had to change their plans because of the virus. Facing shortages of new tenants and clients, both Ziroom and Danke are taking controversial steps targeting their existing tenants, and are suffering from the backlash of these immature policies.

Chinese media reports suggest that the majority of the companies in the apartment rental industry are suffering from significant losses. Danke’s cash flow numbers are concerning in particular. Danke, an NYSE listed company, reported a net loss of $41.5 million in 2019. In November, the occupancy rate for the company’s apartments dropped below 80%, a number significantly lower than the golden line of 90%, a key number to being able to make a profit in the business.

While Ziroom is trying to save its public image, the company also needs to come up with feasible solutions to both address the cash flow issues and the public relation matters. Following the controversies, Ziroom decided to offer discounted rates for new tenants to sign leases and even waive rents and fees for tenants in Wuhan.

It is not the first time that Ziroom ran into PR issues in its daily operations. From toxic chemicals to hidden cameras discovered in Ziroom properties, and to ex-employee stealing customer data, the company has survived several crises in the past years. However, with the coronavirus halting the company’s ability to make money, Ziroom, together with other long-term rental platforms, will now have to try even harder to keep things under control.