The Consumption Upgrade in Renting: What These Companies Sell Is No Longer Location or Price

Tenants "willing to pay" are becoming a new force, making renting — and the businesses built around it — more standardized and mature.

Young people who move to Beijing, Shanghai, Guangzhou, and Shenzhen for work mostly share the same feeling: renting an apartment is really hard.

It is a process of constant compromise. A place that's conveniently located, clean, and reasonably priced is the ideal. But even after viewing ten apartments, you may never find one that checks every box at once.

According to the 2015 Beijing Rental Living Report released by Dingding Zufang, 7 million people in Beijing live in rented rooms — a third of the city's permanent population, roughly the size of Hong Kong.

Open Baidu Maps and you'll find that Beijing alone has nearly 2,000 real estate agency storefronts helping this enormous population find housing — close to the number of McDonald's locations in all of China.

Beyond that, there are classified-listing sites like 58.com and Ganji.com, and even Douban. The Douban group "Beijing Renting (No Agents)," founded in 2010, now has 70,000 members, with more than 300 active threads drawing comments every day. Members trade rental information under tags like [urgent], [urgent rental], and [seeking listings].

To work out where renting is worth the money, the Zhihu user "Shi Letian" scraped 9,000 rental listings online and built a series of price heat maps showing how a neighborhood's location, density, and rent relate. The map ran in an answer titled "Where in Beijing Offers the Best Value for Renters," which drew more than 1,300 upvotes.

None of this has made apartment-hunting any easier.

Like most young people fresh out of college and new to Beijing, Wang Xuan wanted to strike a balance between his modest income and not-so-modest rents when he started looking for an apartment this past February. After searching online himself and spending two days viewing nearly ten apartments, he found the whole process "exhausting and troublesome."

In the end, he chose a Ziroom Youjia unit outside Beijing's Fourth Ring Road — the second bedroom in a three-bedroom apartment — for more than 2,760 yuan a month. That is a third of his after-tax income; a privately listed room of the same size in the same area would run 300 to 500 yuan cheaper.

"It is a bit pricey, but they (Ziroom) are very different from what you find on Douban — the rooms are cleaner, and that matters a lot to me."

Persuading people to spend more money to rent a satisfactory home faster is the business Ziroom Youjia is in.

"All of China is in an era of rapid consumption upgrading, and tenants are demanding more in terms of quality and service," Ziroom CEO Xiong Lin told QDaily.

Ziroom belongs to Lianjia, Beijing's largest real estate agency, and launched in 2011. Once it has acquired a listing, Ziroom Youjia renovates the unit; so far it has renovated 200,000 rooms in Beijing.

JD.com is keeping up with the shift too. Two years ago, JD Baitiao began lending to young people to solve the problem of paying one month's deposit plus three months' rent up front, turning rent into a monthly payment.

There are plenty of other new models built around renting — You+ Apartment and Danke Apartment, which lease whole buildings and convert them into studio apartments, and purely internet-based services like Dingding Zufang, which markets itself on "verified listings."

Companies in the rental business are changing our impression of real estate agents. Their job is no longer just to fix information asymmetry — they are now the side providing the service. They want to solve the hassles of renting, and to get you to pay more.

To Live Better, You Need to Spend More

How much more does it cost to live in a Ziroom Youjia unit? We ran the numbers on Wang Xuan's case.

Under Ziroom's rules, on top of rent Wang Xuan pays an additional charge called a "service fee," equal to 10% of the total rent — 276 yuan a month.

In return he gets free cleaning every two weeks, repairs, and internet, and every tenant is assigned a "service butler."

After signing his lease through Ziroom's app, Wang Xuan used JD Baitiao to turn rent that would normally require one month's deposit plus three months up front into an installment loan. This is a partnership Ziroom and JD.com began in 2015: JD.com pays a full year's rent and service fees on the tenant's behalf, and the tenant repays it monthly — rent as a monthly payment.

By the calculation on the JD Baitiao site, if Wang Xuan clears 12 months of rent at once through Baitiao, the extra interest is 99 yuan a month — about half the rate of a typical credit-card installment plan. At this point the tenant is paying 375 yuan on top of rent. If we figure Ziroom's price is 200 yuan above what a nearby private landlord asks, Wang Xuan is paying 575 yuan extra in all.

Behind the Higher Price, What Services Do You Actually Get?

Ziroom Youjia's staff are called "butlers." This nearly 4,000-person team is split into groups responsible for acquiring listings, renovation, and service.

Acquisition butlers find landlords looking to lease out their properties and sign 3- to 5-year contracts with them, after which Ziroom holds the right to renovate the unit. This is the hardest job in the whole process — one Ziroom Youjia butler told QDaily that the commission for closing each deal is 1,000 yuan.

Once a deal is struck, Ziroom starts paying rent to the landlord, and the team that outfits the unit follows a standardized process: contacting suppliers of materials and labor, then spending 7 to 20 days turning the unit into an apartment with a uniform decor style and standardized furniture and appliances. According to Ziroom's published quote to landlords, renovating a bare-shell three-bedroom unit and fitting it out with a full set of appliances costs Ziroom around 73,000 yuan.

An inspection butler checks every item in the setup and runs a round of deep cleaning, after which the unit — listed room by room — goes live on Ziroom's app and website, ready to rent.

Finally, Ziroom's leasing butlers take prospective tenants to view units, sign leases, and hand over the keys. In this high-demand market, leasing turns out to be the easiest job. One butler told QDaily that the commission for renting out each room is only 100 yuan — a tenth of what acquisition pays.

Once a tenant moves in, the "service butler" team takes over and stays with them until they move out. Butlers also inspect the unit when the lease ends.

Service work involves a huge number of details. The service butler's role is something like the front desk at a hotel, the one who answers your call when a pipe bursts or an appliance fails — a relay point for problems. After taking the call, Ziroom staff generally don't come themselves, but arrange for the relevant repair company to handle it.

By this point Ziroom is no longer just a real estate agency — it plays the role of asset manager plus rental-service provider. "The day you move into the apartment is the day the service begins," said CEO Xiong Lin. They define themselves as "an internet company that provides high-quality rental services."

There Are Also Apartments That Lease Whole Buildings and Sell Community

Ziroom Youjia's 200,000 units are scattered across neighborhoods in Beijing, Shanghai, and Shenzhen, which makes management harder. What if you gathered all these units into one place?

The upgraded version of Ziroom Youjia is "Ziroom Yu," which began operating in 2012. Instead of stray rooms in residential buildings, these units are converted standalone factory buildings.

They go through a similar process before being listed for rent; a single building can hold more than 100 fully furnished units at once. The difference is that Ziroom Yu's tenants are more concentrated, and Ziroom hopes to build an "offline community."

It was Lei Jun who brought this kind of apartment into wider view.

In 2014, Lei Jun invested 100 million yuan in You+ Youth Apartment. You+'s selling point is communal space and a "tight-knit community atmosphere" that lets young people "communicate better" with one another.

More and more startups are copying the business. A search for "apartment" on IT Juzi turns up 175 companies.

Li Yan, who works at an internet company in Shenzhen, rented a You+ Apartment unit this past January that she reckons is only about 10-some square meters, for more than 2,500 yuan a month — while a "villager house" nearby, a one-bedroom five to six times the size, would cost just over 1,000 yuan. But she is very happy with her choice, saying the room is "clean and tidy, and the higher price is acceptable."

Among the several youth-apartment tenants we interviewed, though, most had less than positive things to say.

Yang Yi, a Ziroom Yu tenant, finds his unit near Beijing's Huagong subway station too far out of the way. Worse, in his view: because the building was converted from a factory, the room's orientation and layout are both flawed. The bed, suspended in mid-air, is uncomfortable too — "like a train sleeper berth."

Location is the fundamental weakness. Leasing an entire residential building for conversion is nearly impossible — someone will always push up the rent. These companies end up finding whole vacant buildings for lease far from city centers, often old factories.

Yang Yi moved out of his Ziroom Yu unit after three months and into a large residential compound nearby. His reasoning: his 3,500-yuan, 30-some-square-meter room wasn't worth the money, and neither was the service.

"The so-called service fee is very unreasonable. The cleaning, shuttle bus, and internet are next to useless to me — the internet, for instance, is incredibly slow," said Zhang Yi.

For tenants, the extra rent is supposed to buy complete and efficient service. For Ziroom, it means an enormous management cost.

The Renting Experience Has Been Upgraded, But So Has the Cost of Managing It

Ziroom no longer treats Ziroom Yu as a near-term priority. In 2013, Beijing had 4 Ziroom Yu buildings. Three years later, only two more had been added. Other youth apartment brands haven't expanded quickly either.

Companies in the rental business still haven't found a reason for anyone to pay more than 3,000 yuan for a 30-square-meter unit in an out-of-the-way location. Ziroom Youjia's renovation quality varies, by comparison, but its premium is also lower. Today Lianjia has brought the upgraded rental business back to Ziroom Youjia.

Users are willing to pay more, and Ziroom pockets the spread — on the surface a reasonable business with a virtuous cycle. But once tenants are paying a management fee, they start asking for more.

Zhang Meng, a Ziroom Youjia tenant in Wangjing, has been unhappy lately. Her apartment's heating system was old and broken; she complained and shivered through the cold for two or three months while the butler never fixed the problem as promised. Before that, she'd had a landlord break his contract with Ziroom, forcing her to move out.

"We haven't built a single room, but we manage China's largest youth community. More than 200,000 people — keeping that community running smoothly is not a simple matter." That is how Xiong Lin explains the problems Ziroom Youjia tenants run into.

According to data Ziroom provided, the company's stock of listings grew more than 200% in 2015, and this year its tenants may exceed 1 million. To cope with the management pressure that comes with growth, Ziroom wants to shift management work that once needed people into technical solutions.

In 2012, Ziroom's website began taking rent online; by 2015, its mobile app could handle booking, viewing appointments, signing, and payment all at once. In the renting process, you never see a paper contract.

The app also handles repair requests and cleaning. Tenants enter what needs fixing at a designated point, and the system dispatches the order to a vendor's technician. Most problems don't require a "service butler" to show up.

The most recent update came in the second half of 2015: Ziroom's newly renovated units (so-called "3.0 rooms") all got smart passcode locks, letting tenants change the code themselves in Ziroom's mobile app instead of hunting down a manager after forgetting their keys.

There Are More Ways to Upgrade the Rental Business

Ziroom isn't the only one thinking about how to make you live better — more agencies and internet startups are doing the same.

Dingding Zufang, also a Lianjia subsidiary, has run an online rental platform since 2014, with "zero commission, verified listings" as its core pitch, aiming to solve the problem of agency websites advertising a low price online and then raising it once you show up.

Niu Huanqiang, Dingding Zufang's senior marketing manager, told QDaily that to make sure every listing genuinely exists and is really available, they vet every piece of submitted housing information. Specifically, Dingding checks a listing's location, building number, floor plan, and floor area against the property database Lianjia has built up over the years.

After the online check, Dingding sends someone to inspect the unit in person and verify that the furnishings and renovations are real. Once photos and the rest of the process are done and the listing is confirmed genuine, it goes live. Dingding currently charges tenants no agency fee, and has the landlord pay five days' rent instead. Rent through an offline agency in Beijing and the tenant generally pays the agency a month's rent.

But Dingding's "commission-free" model didn't carry over to Shanghai. Starting in 2015, it has charged landlords and tenants each a 35% agency fee there, though landlords can get a discount of at least 33.3%.

107 Jian goes further in cutting out human labor. Founder Wei Wei started the company in 2014, and stressed to QDaily again and again that 107 Jian is not a "broker": he says all of its listing information comes from individual landlords, filtered through "smart screening plus manual review."

Every step after that — viewing appointments, signing, the transaction, moving out — happens online. Unless a serious dispute breaks out between landlord and tenant, 107 Jian's staff never appear in the physical world. The extra services 107 Jian offers include free moving, free repairs, monthly installment payment (with interest), and deposit escrow, and it also takes rent by credit card. "We're more like a companion and a guarantee."

Mogu Zufang first wanted to be Shanghai's Ziroom Youjia, renovating units the same way from 2014. A year later "Mogu Apartment" had 10,000 units, but it had also pivoted into a "platform," gathering similar long-term-rental apartment brands on its own site. Co-founder Long Dongping told QDaily that running its own apartments brought rapid growth: "Going from 1 to 100 is easy. But at three thousand, five thousand, ten thousand units, you may need a strong management and settlement system."

By Long Dongping's account, they are now more like "a platform similar to Trip.com Group," a "purely internet model." More than 2,000 long-term-rental apartment brands work with them, together offering 200,000 renovated units.

A more niche version of this upgrade comes from Shi Letian, the one who posted the heat map on Zhihu. This past April, answering "How to Upgrade the Style of a Rental on the Smallest Budget," he described how he made over a "hopelessly run-down old apartment" inside Beijing's Fourth Ring Road: painting the walls, buying furniture, and hauling it all in came to 3,431 yuan.

After his Zhihu fame, Shi Letian and several Tsinghua alumni founded "Zhufaner" together as co-founders. On their official site's price list, the cheapest job is 1,999 yuan and the most expensive service case runs past 30,000 yuan.

Spending several times the rent to renovate a room you don't own, just to live a little better, doesn't sound like something most people would accept. After NetEase News lifted Shi Letian's Zhihu post and reposted it without credit, most of the reaction was negative.

"In first-tier cities, especially among young people, a good number of them do accept the idea [of renovating a rental]," Shi Letian said. He believes the rental market hasn't fully taken off yet, and that there are still people willing to pay more to improve where they live.

These tenants willing to spend more are forming a new force, making renting — and the businesses built around it — more standardized and mature.

Complaints still exist — some about the floor plan, some about the price, and even more about roommates.

But some long-standing problems are being solved: "one month's deposit plus three months' rent," for instance, and having to filter out substandard living conditions on your own.

The new rental business has reduced uncertainty. Before this, whether tenants went through an agency or an individual landlord, they weren't dealing with an organization that provided service. Landlords' and agents' attitudes were unpredictable; they could nitpick and withhold your deposit when you moved out, and fraud during the apartment search was not uncommon.

This isn't to say a perfect deal never happens — you just need luck. When commercial companies start providing service, rather than stopping at agency work that exploits information asymmetry, they take on the uncertainty themselves.

What comes with the convenience is a bit more rent every month.

At the interviewees' request, Wang Xuan, Li Yan, and Zhang Meng in this article are all pseudonyms.