Danke did not immediately respond to an emailed request for comment from the Post.

Phoenix Tree’s shares shot up by almost a third in pre-market trading on Wednesday morning local time, after Chinese media outlet Thepaper.cn reported that 5I5J Holding Group, the owner of Danke’s rival Xiangyu, is in takeover talks with Danke.

The stock had skyrocketed by 75 per cent to US$2.40 overnight on Tuesday for reasons that were not clear at the time. The share price has tumbled by 83 per cent since it listed on the New York Stock Exchange in January.

Hundreds of worried landlords and tenants gathered at the company’s Hangzhou office on Sunday and Monday to demand the overdue rent and compensation they say they are owed. There were similar scenes at Danke’s Beijing and Shenzhen offices over the weekend, according to local Chinese media reports and photos circulating on social media.

Danke’s crisis has put the practice of rental loans under the spotlight. Many tenants – mostly young people who have just graduated from college – are faced with the gloomy prospect of having to pay thousands of dollars worth of rental loans owed to WeBank, a virtual bank, even after they were evicted from their homes.

The crisis suggests China has a long way to go in its push since 2015 to develop a mature rental housing market as a cure to sky-high property prices. As more of the population gravitates to cities, an estimated 252 million tenants will make up a 3 trillion yuan rental market by 2025, according to the China Rental Housing Association.

“The online rental platform industry has developed pretty wildly over the past five years,” said Zhang Bo, chief analyst at Shanghai-based 58 Anjuke Real Estate Research Institute. “The most important thing now is to strengthen the regulation of the sector.”

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Widespread risky practices in the industry are the root of the problem, while the Covid-19 pandemic simply accelerated it, Zhang said. Before Danke, more than a dozen smaller operators have shut up shop this year.

Rental loans are among the more troublesome aspects of the industry, analysts believe. Under this model, operators like Danke encourage tenants to pay a year’s rent in advance in return for discounts or other cash incentives. Then the platform arranges for the tenant to take out a bank loan that is paid monthly. Meanwhile, they pay the landlords every quarter. Taking advantage of the time gap, the companies are able to access a pool of cash to fuel further expansion.

Xiao Jingyi, 25, who has lived in a 16 square-metre bedroom rented through Danke since June 2019, is furious that she could lose 16,000 yuan (US$2,440) in rent and rental loan now that her landlord has ended the contract with the company after a missed payment. If she does not repay the loan, she believes her social credit could be damaged, affecting her ability to purchase a house or car in the future.

“I trusted the company because it’s listed in New York,” said Xiao, who works in private tutoring in eastern China’s Hangzhou city, after leaving her home in the adjacent Jiangxi province three years ago. “If platforms as big as Danke could go down, then I really don’t have any confidence in big city life anymore.”

Danke reported a net loss of 1.2 billion yuan during the first quarter of this year, wider by 51 per cent than the loss it made a year earlier. Its net loss for the whole of 2019 stood at 3.4 billion yuan.

Danke ranks after Ziroom and Xiangyu in terms of the number of units it operates, according to the Qianzhan Industry Research Institute. Ziroom said its operation remained steady and healthy in a Weibo post on Tuesday.