Alipay uses credit rating system for greater efficiency in rental sector
China has spared no effort to stimulate big cities' home rental markets in a bid to help ease the housing crunch, while “bad user experience”, an “age-old problem” that has long hindered the sector from more robust development, remains unsolved.

Many tenants have complained about dishonest agents, or being driven out by landlords before the contract expired. On the other land, landlords also worry about dealing with unreliable tenants who would pay the rent late or even damage the house. Now, Alipay, Alibaba's third-party online payment platform proclaims to have come up with a solution that will “basically” address the problem.

It is reported by the China Newsweek that the problems of offline rental services are being addressed by Internet finance and credit rating system. Alipay has recently uploaded one million lodging houses for rent onto its platform in eight cities including Beijing, Shanghai and Shenzhen, spearheading the so-called “home rental on credit” model. Following its steps, it's reported that China Unionpay has also announced to brave into the market by constructing it own system.

The core idea behind the new model is to compile a credit database for all rental homes, tenants and landlords registered with the Alipay platform. When the financial arms of Internet companies enter the market, some observers expect to witness the same kind of transformative effect as the e-commerce has brought to the retail industry.

Wang Bo recalls his unhappy memory about home-renting 15 years ago. Back then, he was suddenly asked by his landlord to move out because the house he was living in was to be sold. Although the contract had not expired, the young man decided to move out of goodwill. To his dismay, after leaving, Wang soon found out his landlord was actually not selling the house but rented it to someone who paid a higher rent.

“The trade is essential because it concerns many people's lives. The problems that haunt the trade must be resolved through innovation, which is in the gene of Internet companies,” Wang Bo, now the general manager of Ant Financial Services Group's innovation and intelligent services department told the China Newsweek.

On October 10, Alipay of Alibaba's Ant Financial Services formally initiated its home rental business, advertising “monthly rent payment with no deposit”. Before this, the practice had been tested in Shanghai for over half a year.

“Only 15 percent of our flats required no deposit, but they accounted for 80 percent of deals we made,” said Wang, noting the result proves the renting on credit model to be popular.

“For many young people, this would considerably relieve their financial burdens. And on the other hand, there was not a single complaint lodged about furniture or the home getting damaged.” Alipay is now making the bargain available to all users scoring 650 or above in its Sesame Credit system.

Meanwhile, it is planned that by the year-end, the new function of Alipay would finish compiling credit records for all existing tenants, landlords and agents.

Alibaba is not the first Internet company to brave into the home rental sector, while it might be the first one to be capable of making a difference. Yang Xianling, the director of the Lianjia Research Institute, told the China Newsweek what the industry needs is actually not Internet traffic, but a set of standards for products and services online and offline.

Mobile payment in China began to gain popularity from 2014 and now it has permeated into every corner of the big country. Through its boom, Internet companies like Alibaba have accumulated huge databases of credit information to make commercial apps like shared bicycles successful.

Now, the Alipay home rental function is intended not to work with individual landlords but businesses dealing with long-term rental apartments, and this poses the challenge of balancing both parties' interests.

For Alipay, the mission is to continue to collect as much credit data, while for realtors, they need to evaluate if the mode would affect their cash flows and curb corporate expansion.

Agencies focusing on long-term apartment rental have been struggling to survive. Burdened by high costs of acquiring homes from individual landlords and combining online and offline resources, the start-ups have been running on thin profit margins. (Eggshell Apartments), a start-up established in January 2015, is now operating over 50,000 flats in cities including Beijing, Shanghai and Shenzhen. “For any platform, all we care is the platform's traffic,” said Gao Jing, CEO of Eggshell apartments are to be uploaded onto the Alipay platform, through which the agent hopes to find more high-quality tenants at lower costs.

However, although the rental on credit could help raise efficiency in the long run, analysts worry that in the short term, the monthly payment with no deposit could affect the liquidity of rental agents.

According to Yang Xianling, the purpose of requiring a deposit is to avoid contract default. Instead of asking for no deposit, he suggested Alipay to manage the money well in bid to protect the interests of both tenants and landlords.

While in Gao Jing's perspective, the “monthly pay” may bring more pressure on agents' cash flow. “If I paid a season's rent to landlords while tenants only pay me by month, the liquidity of the company would soon be drained,” Gao Jing said, noting that in this case, the company would have no money for expansion.

It is expected the room for the growth of long-term rental apartments is huge, considering it currently merely occupies two percent of the market. All agents are vying for more housing resources, more expansion and thus bigger market share.

“So, behind the monthly pay, there must be consumer financial services to transform the rent into installment loan,” said Gao Jing. With the consumer financial solution, financial agencies would make three months' advance payment after charging certain amount of interest.

Wang Bo confirmed with the China Newsweek that the Alipay solution features both credit and consumer finance under which agents still collect a quarter's rent while tenants just need to make monthly payment.

He insisted that making money is not the reason for Alipay to initiate the business. “We want to first help the offline agencies to upgrade their Internet sources. If the platform could later prove itself to be of considerable market value to the apartment operators, they would be willing to pay. We'll let the market make the call,” he said.

Home rental is a fast-growing sector. Based on the data from the Ministry of Housing and Urban-Rural Development, 160 million people in China are renting houses in the cities, accounting for 21 percent of urban citizens. The Lianjia Research Institute earlier released a survey, predicting that by 2030, the rental market size would amount to 4.6 trillion yuan compared to 1.1 trillion in 2016.

Since this year, the government has rolled out a series of policies to encourage the development of the home rental sector, through speeding up the building of rental homes in populous cities and entitling tenants the same public services as enjoyed by home owners.

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