Housing rental market needs stricter supervision

Danke Apartment, a company that takes apartments on lease/rent from owners to rent them out to people has been in the news for all the wrong reasons.

Those seeking to rent apartments have paid the rentals, but the apartment owners have not received their payment in months. While the former insist on living in the apartments, the latter want their apartments vacated.

The problem has to do with Danke's business model. The housing company rents out apartments at rates higher than those prevailing in the market. They pay apartment owners a monthly rent, while collecting annual rents from those renting the apartments, using the surplus money to expand their market. As not everyone can afford to pay annual rents, Danke makes them sign a loan contract with some banks.

The model should have been working like a well-oiled machine, but obviously things have gone wrong somewhere.

Even if the apartments were to be vacated, the company would still have to pay monthly rentals to the apartment owners, or risk facing a bad credit record. The apartment owners might have to drag the company to court for getting back their own apartments for which they have not received rentals for months.

So far, there has been no official response from Danke on the issue. There is very little the authorities can do to help, for the losses are there for all to see. They can at best help divide the losses. What is needed is stricter market supervision to prevent such cases from recurring. The involvement of banks and loans have made the risks even higher. Given how unsustainable Danke's business model is, it is time financial supervision departments consider making stricter financial rules forbidding such risky practices.