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A Danke banner hangs on the New York Stock Exchange Building in January, celebrating the initial public offering of the Chinese online residential rental company. Photo: Shutterstock

Chinese tenants, landlords left dismayed by Danke debacle after US-listed firm fails to pay up, leading to evictions

  • Danke, run by New York-listed Phoenix Tree Holdings, has been accused of not paying landlords, leading to contract cancellations and greater scrutiny of start-ups
  • Authorities from Beijing to Guangzhou have had to scramble to keep the situation from escalating into social unrest after news of a young man’s death

For Henry Wang and thousands of other young tenants across China, the business model pitched by one of China’s largest rental specialists seemed to be exactly what they were looking for – a win-win arrangement in which they were offered a decent place to live at an affordable price in a major city, while increasing the rental profits of property owners.

It seemed too good to be true – right up until the moment his landlord showed up and told him to get out.

“The landlord came [on December 6] with several men and tried to evict us from the flat, with obvious intimidation implications,” said Wang, an IT worker in Shenzhen, just across the mainland border from Hong Kong.

Danke, which is run by New York-listed Phoenix Tree Holdings, ran into financial problems and failed to pay landlords across China, leading to the cancellations of contracts with the firm and the sudden eviction of countless tenants.

The company had played rental agent for nearly half a million tenants – it operated more than 415,000 flats in 13 cities as of the end of March, according to its latest quarterly report.

Danke runs a business model similar to that of WeWork, but for residential property instead of office space – it rents apartments from landlords on a long-term basis, renovates and splits them into smaller units and then sublets them to tenants. But the economic impact of the coronavirus has helped upend this business model, as there are not enough new jobs for young people to maintain the company’s capital flow generated by renting new flats.

To encourage tenants to buy into the deal, Danke had made a deal with WeBank, China’s first private online-only lender, backed by internet giant Tencent, to offer loans for full-year rents. WeBank had extended 161,845 loans to Danke tenants as of December 1 as part of the company’s “rental loan” model.

Tenants took out loans to prepay a year’s worth of rent, and the loans from WeBank went directly to Danke. Now, tenants say they are left with debt to pay off, while landlords say Danke did not forward that prepaid rent to them. Danke has not replied to an emailed request for comment from the South China Morning Post, while attempts to contact the company via phone were also unsuccessful.

WeBank has said that it would help renters resolve the loan dispute, and that their social credit scores would not be affected for the time being.
Either we leave and give up the prepaid rent, or the landlord doesn’t get his rent and lets us stay
Henry Wang

In Wang’s case, Danke had converted a three-bedroom flat into five separate units, which were leased to four separate tenants and a family of three – seven people in total – with rents ranging from 2,000 yuan (US$305) to 3,000 yuan a month, much of it paid months in advance, he said.

“Though the room was a subdivision and small with no private toilet, I still liked it and thought it affordable and flexible,” Wang said, adding that the company’s failure to pay landlords their share has resulted in a “double failure”.

“Either we leave and give up the prepaid rent, or the landlord doesn’t get his rent and lets us stay,” Wang explained.

Wang’s landlord showed up at his door three days after the high-profile death of Zhong Chunyuan, a 20-year-old jobseeker from Huizhou, Guangdong province, who is believed to have jumped to his death from his 18th-floor flat in Guangzhou in the small hours of December 3, after setting fire to the flat.

Local media reports and widely circulated social media posts have indicated that Danke had not forwarded Zhong’s rental payment to his landlord, who was in the process of evicting him.

Zhong’s death quickly cast a spotlight on young Chinese who have fallen victim to the failures of various business start-ups.

In addition to Danke, more than 170 Chinese tech start-ups have attracted billions of dollars worth of investment capital to cash in on the plight of those who cannot afford to buy apartments due to skyrocketing property prices in urban areas. Many of these firms utilise a business model similar to Danke’s.

The industry has been booming, buoyed by the fact that China currently has 168 million renters – or 12.1 per cent of the population. And the number of Chinese renters is expected to grow to 200 million in the next decade, according to the government-funded Shanghai E-House Real Estate Research Institute.

At least 10 people in their twenties and thirties, friends I know directly, or friends of friends, have been affected by the financial problems of Danke
Li Wei

Now, the operational failure of Danke represents not only a financial scandal, it has also given rise to social stability questions, and authorities from Beijing to Guangzhou have had to scramble to keep it from escalating into social unrest.

During a recent visit by the Post to the building where Zhong used to live, the block was sealed off and visitors were not admitted. Attempts by the public to organise a vigil for Zhong have also been thwarted by police.

Li Wei, a white-collar worker from Guangzhou, was among those who forwarded the news of Zhong’s death on social media. She said she had intended to mourn the loss of someone so young under such dire circumstances. What she did not expect was that several of her friends would respond to her post by saying they, too, were victims of the Danke debacle, either as tenants or landlords.

“At least 10 people in their twenties and thirties, friends I know directly, or friends of friends, have been affected by the financial problems of Danke,” she said.

Li’s affected friends include one who works for a film and video production company in Shanghai, a civil servant in Guangzhou, and another who works in advertising in Beijing – all of whom are young migrants whose dreams of using Danke to rent flats below the market rate have been shattered.

For its part, Danke said in mid-November that it was not bankrupt and would not “run away”.

But the company line has served as little comfort to landlords who entered into agreements with the company, only to suddenly be told that they would not be paid.

In first-tier cities, including Beijing and Shenzhen, many young tenants and landlords have come in direct conflict as a result of the ordeal. There are reports of landlords changing locks on flats and cutting off utilities, while some tenants have refused to leave and even called the police.

“Danke now requires landlords like ourselves to drive away tenants. Only if the tenants leave early can we lease [the flat] again,” said Long Xiao, a Guangzhou landlord who signed a five-year contract with Danke in July 2019 and let the company turn her three-bedroom flat into four units.

“The media and the public are just focusing on the suffering of new graduates, but what about the losses of landlords? We are also victims … but still have to pay the mortgage,” Long said.

When Long entered into the arrangement, she “thought it was such a good deal, with a US-listed Chinese start-up backed by Chinese tech giants”.

“I signed it, even though I knew nothing about the tenants except their gender and age,” Long said. “Now I have received only 12 months’ rent in the past 16 months … Two girls continue to live in one of my apartments and refuse to move or pay me, so my losses continue to mount.

“Actually, I had sensed the risks in February when the company declared that it would withhold all rental payments for a month because of the epidemic. But terminating the lease would have forced me to pay more than 60,000 yuan (US$9,173), so I could do nothing, but I have worried every day since then.”

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