In Depth: China’s Apartment Middlemen Lose High-Stakes Bet That Rents Will Only Go Up

1. One of China's largest centralized rental apartment companies, Mofang Apartment, has recently been unable to pay rent on its properties, leading to the loss of management rights at several locations in key Chinese cities. The company and its subsidiaries, facing rent arrears that exceed 600,000 yuan ($87,380) at some sites, have been terminated by some landlords who have taken over the affected properties and asked tenants to sign new leases. This reflects the broader challenges in China’s centralized rental sector, with other major players like Port Apartment, operated by China Vanke, also closing numerous properties. [para. 1][para. 2][para. 3][para. 4][para. 5]

2. The core business model of companies like Mofang is the “master lease” system, where firms lease properties long-term from landlords and then sublet individual units, aiming to profit from the rent spread minus operating and renovation costs. This model thrived during China’s real estate boom, when rents climbed steadily and the sector enjoyed government and financial support. However, the underlying assumption that rents would perpetually rise unraveled post-pandemic, as rents declined, occupancy rates fell, and the market saw an influx of government-subsidized apartments, making it hard for firms tied to long-term, escalating leases to compete. [para. 6][para. 7][para. 8][para. 9]

3. Since 2022, companies using the master lease model have lost control of numerous properties as income fell short of rental commitments. Industry insiders estimate that some firms have seen their property portfolios shrink by up to 50%. The financial strain was further reflected in mass layoffs and the closure of entire departments at firms like Mofang, which has struggled to adapt to the downturn. [para. 10][para. 11][para. 12]

4. The centralized rental apartment sector began forming around 2010 and expanded rapidly after a 2015 government push to develop the rental market and alleviate housing stock. With government support, equity funding in the sector soared from 600 million yuan in 2014 to 11.6 billion yuan in 2019. Mofang grew rapidly, expanding from managing 50,000 units in 20 cities in 2019 to over 76,000 apartments by the end of 2022, making it the third-largest company in the industry at the time. The focus on growth led firms to borrow heavily; Mofang alone at its peak carried nearly 2 billion yuan in loans. [para. 13][para. 14][para. 15][para. 16][para. 17]

5. The Covid-19 pandemic dramatically altered the market—rents in major cities dropped 20-30% from 2020 highs, but firms remained locked into escalating long-term lease costs. Occupancy rates, once above 95% for Mofang, fell to 70-80%. The threshold for breaking even is about 80% occupancy. As rental income declined, paying down debt and refinancing loans became increasingly difficult, causing companies to sell assets or attempt (unsuccessfully) to go public. Many tried to renegotiate rents with landlords, but those unable to do so exited the market. [para. 18][para. 19][para. 20][para. 21][para. 22][para. 23][para. 24]

6. Government policies to rapidly expand subsidized apartment supply since 2021 have undercut companies further. Shanghai's subsidized units grew from 49,200 (31% market share) in 2021 to 269,200 (56%) in 2025, and similar surges occurred in Beijing and Shenzhen. As subsidized housing—often with rents below market—became prevalent, average rents in cities like Shanghai fell sharply (from 195.6 yuan/sqm in 2021 to 149.6 yuan/sqm in 2025). By the end of 2025, subsidized units made up more than 45% of the market in 11 of 15 tracked cities, with another 193,000 units expected in 2026, putting further downward pressure on rents. [para. 25][para. 26][para. 27][para. 28][para. 29][para. 30]

7. Mofang and others see the need for a new business model. Inspired by Singapore, some Chinese firms are shifting toward an asset-light management approach, where state entities own the apartments and private companies provide management services for a fee (20-30% of rental revenue). Mofang has launched joint projects with state-owned partners in Shanghai, with more similar ventures planned. However, short management contracts (3–5 years) raise concerns about sustaining service quality and long-term viability. [para. 31][para. 32][para. 33][para. 34][para. 35][para. 36]