EYESHENZHEN  /   Opinion

Fragile Danke

Writer: Winton Dong  |  Editor: Jane Chen  |  From: Shenzhen Daily  |  Updated: 2020-12-07

Danke Apartment, one of China's largest shared housing platforms, has recently been busy quelling rumors of looming bankruptcy. Danke, or eggshell in Chinese, was originally supposed to mean cozy homes for young people, but is now seen as signifying the fragility of its business.

Since October this year, rumors of bankruptcy have prompted thousands of renters to line up outside of Danke's offices across the country to terminate their lease contracts before they expire. Failing to pay homeowners, despite having already collected rents from the tenants, Danke's financial crisis has also caused fierce conflicts and lawsuits among homeowners, renters and concerned third parties all over the country. A young tenant in Guangzhou, who had reportedly paid Danke a full year's rent with a loan, jumped to his death last week after the landlord ordered him to move out of the apartment because Danke had failed to pay the rent for two months.

Founded in 2015, Phoenix Tree Holding, operating under the name of Danke Apartment, shares houses targeting young professionals especially in big cities. Generally speaking, it takes a dormitory-like approach to housing by slicing up fully furnished apartments to provide homes for young people who are newcomers in cities. As a young and promising company, the Internet-enabled asset manager Danke was able to bring new technologies into an industry which had previously conducted most of their businesses offline, attracting global investment. Major investors of the company include big names such as Tiger Global Management and Ant Financial.

After four years' breakneck development, Danke had managed nearly 430,000 housing units in major Chinese cities including Beijing, Shanghai, Shenzhen and Guangzhou as of 2019. Danke filed an application with the U.S. Securities and Exchange Commission for an initial public offering (IPO) in October 2019 and was quickly given a green light. On Jan. 17 this year, the company rang the New York Stock Exchange opening bell in celebration of its IPO. According to its filing documents, money raised from its IPO would be used mainly for market expansion, housing renovation and brand promotion.

Danke's rapid expansion in recent years is in accordance with China's policy to develop a digital economy and rental housing in major urban centers as one of the main objectives for the central and local governments. Besides Danke, the huge renting market prospect also lured many other players such as property developers, real estate agents and hotel brands to join the competition.

When competition in the sector became even fiercer, companies like Danke accelerated their expansion in order to get a bigger market slice and to dominate the market. Then came a series of scandals concerning financial bubbles, excessive user data collection, hidden cameras and elevated level of formaldehyde in apartments.

Danke was also accused of ramping up rental prices by engaging in a bidding war to lock up the available supply of homes. With so many apartments in their hands and their high renovation and maintenance fees, Danke had to quicken its renting process, even at a loss. For example, Danke paid a homeowner 4,000 yuan (US$612) a month, but rented the apartment out at 3,500 yuan. With such a practice, the company was in great need of cash flow to offset its business losses. Moreover, in order to get more money back as quickly as possible, Danke offered discounts to renters who would pay half a year or even one year's rent at one time. Since most young people are not rich enough to pay such a large sum of money in one stroke, third-party financial institutions were introduced to offer loans to tenants.

With the involvement of financial institutions, the situation is now much more complicated especially at a time when the apartment rental industry is suffering from the severe attack of the ongoing COVID-19 pandemic. While many people lost their jobs because of the pandemic, the rental market in cities was greatly shrinking, thus leading to Danke's failure to pay homeowners and, in some cases, the tenants' failure to pay Danke or financial institutions on time.

The collapse of Danke offers us a lesson. Innovation is important for a country to forge ahead, but sometimes we may go too fast and even forget about our bottom line.

(The author is the editor-in-chief of Shenzhen Daily with a Ph.D. from the Journalism and Communication School of Wuhan University.)