A bankruptcy claim by a real estate company in eastern China has once again highlighted a questionable business model under which housing agents and lending platforms collude to hoodwink tenants into taking out loans.

Dingjia Network Technology Co. Ltd., which runs a housing agency in Hangzhou, said last week that it was suspending operations due to “bad management resulting from no cash flow,” China Real Estate Business reported Thursday. The company now stands accused of misleading tenants by getting them to borrow one year’s worth of rent from online lending companies, with the assurance that this would save them from having to make a large down payment.

Rental contracts in China’s bigger cities usually require advance payments of up to three months, in addition to a refundable one-month deposit. In a city like Hangzhou, where rent prices have skyrocketed by nearly 12 percent this year, moving into a new apartment can be dauntingly expensive. This is where companies like Dingjia step in: They attract prospective clients with the one-month deposit, pay-per-month rent scheme, provided the tenants agree to pay through a specific online portal. The companies then automatically sign the renters up for loans without their knowledge or consent.

Zhou Weiyi, a lawyer at Deming Law Firm in Hangzhou, told Sixth Tone that the law doesn’t prohibit real estate agencies from collaborating with online lending platforms — unless they’re misleading tenants, which constitutes contractual fraud. He added that it’s also unfair to restrict tenants from choosing their rent payment method, adding that in such situations, both the property owner and the occupants could sue the agency.

Dingjia’s bankruptcy has affected some 4,000 tenants in Hangzhou, most of whom can’t get their deposits now, and are even at risk of losing their apartments altogether. Shanghai Yutuan Real Estate Management Co. Ltd., which will take over Dingjia’s real estate business, told Sixth Tone on Friday that it is willing to compensate the tenants and the landlords for some portion of their losses but declined to elaborate or give any additional information about the acquisition.

According to an analysis by financial news outlet Caixin, Dingjia’s ambitious expansion plans might have contributed to its insolvency. The company had vied for a bigger slice of the market by acquiring expensive properties, but it ended up with few tenants and empty apartments, hastening its downfall.

Dingjia is one of several housing agencies to have attracted national media attention by trying to make quick money through unscrupulous rental deals. In April, Beijing investigated dozens of housing agencies for deceiving tenants using similar online lending schemes.

Editor: Bibek Bhandari.

(Header image: A man inspects an apartment for rent in Shanghai, July 4, 2018. Shanghai Youth Daily/IC)