As China’s young people get priced out of property, a new startup idea: ‘tiny apartments as a service’

I can haz more space?

China’s young people are getting priced out the property market by a mix of rising prices and fewer affordable homes. The average price per square meter in Beijing towards the end of last year was RMB 33,378 (US$5,400), which means even a first-rung-on-the-property-ladder home with just two bedrooms will cost about US$400,000 to US$500,000.

The average white-collar salary in Beijing is about US$1,122 per month, so at current income and property price levels it’d take someone 37 years to save up for a US$500,000 two-bedroom apartment.

So where there’s a gap in demand, there’s a startup. Or several startups. In China, this need for rental apartments to fill the space where people cannot purchase their first home is being filled by new companies renting tiny serviced apartments for long-term contracts.

But in a pricey rental market, the emphasis is on tiny. This new breed of studio apartments is basically the size of a hotel room – but with a kitchen squeezed in. They’re what Americans would call “efficiency apartments” or “single room occupancy.” The British, with typical grit and bluntness, call them bedsits. The British term feels much more apt than fancy terms like “serviced apartments” or “studio apartments,” since in the absence of a sofa, you’ll have to sit on the bed to watch TV.

Imagine Raskolnikov’s cramped room in Crime and Punishment – “no more than six paces long” – with limegreen bedsheets and IKEA furniture.

A room of one’s own

A couple of Chinese startups in this space have already raised hundreds of millions of dollars in VC funding in order to expand to more cities. Last week, Warburg Pincus put US$200 million series B funding into Mofang, which already has 10,000 rooms for rent, reports Sina Tech. Last year, one of China’s top entrepreneurs got involved in a rival startup. Xiaomi founder and CEO Lei Jun put a RMB 100 million (US$16.3 million) series A round of funding into You+ International Youth Apartments to create a housing project catered towards white-collar tech workers and entrepreneurs.

More are popping up – like CYPA Life, MogoRooms (aka “Mushroom Apartments” in Chinese) – and investors are signing up.

While the prices for these cramped rentals aren’t that cheap relative to wages – the Mofang one pictured above in Shanghai is RMB 1,665 (US$270) per month – they are at least a self-contained space, and that’s a step above the shared apartments usually rented by young white-collar workers in major cities. Plus, these new startups understand the tenants they’re going after, and sell the service with slick online marketplaces with the efficiency of Uber or Airbnb. The company owns an runs the entire building.