The Collapse of Eggshell Apartment Explained | Generated by AI
Question: How did the collapse of Eggshell Apartment (Danke Apartment) in China happen?
Answer:
Eggshell Apartment, known in Chinese as 蛋壳公寓 and in English as Danke Apartment, was a major long-term apartment rental platform in China. Founded in 2015, it quickly grew by targeting young professionals in big cities like Beijing, Shanghai, and Shenzhen, offering renovated and affordable rental units.
Business Model
The company operated as an intermediary (“second landlord”):
- It leased apartments from property owners (landlords) on long-term contracts, often paying higher-than-market rents to secure properties.
- It renovated and furnished the units, then sublet them to tenants at lower monthly rates or with discounts for upfront payments.
- A key feature was encouraging tenants to pay annual rent upfront, often through “rental loans” (租金贷) partnered with financial institutions (e.g., WeBank backed by Tencent). The bank would pay the full year’s rent to Eggshell immediately, while tenants repaid the loan monthly. This provided Eggshell with large upfront cash pools (up to 91% of tenants used this in early years).
This model allowed rapid expansion: from ~2,400 units in 2015 to over 400,000 by 2019-2020 across 13 cities. It went public on the NYSE in January 2020, raising funds amid high investor interest.
Reasons for Collapse
The collapse stemmed from a high-risk, debt-fueled model that became unsustainable:
- High-in, low-out strategy: Paying landlords high rents while charging tenants less led to ongoing losses (billions of yuan annually).
- Reliance on rental loans and upfront payments: Used to fund expansion and operations, creating a Ponzi-like dependency on new cash inflows.
- COVID-19 impact (2020): Pandemic lockdowns reduced occupancy rates as migrants returned home and cut costs. Rental income dropped sharply.
- CEO investigation: In June 2020, founder Gao Jing was detained (reportedly unrelated to business), halting further fundraising.
- Cash flow crisis: Unable to pay landlords, while still collecting (or having collected) from tenants. This led to massive debts (~3-6 billion yuan owed to landlords, tenants, banks, and contractors).
By late 2020, Eggshell faced bankruptcy rumors, denied them (“not bankrupt, won’t run away”), but operations crumbled.
Consequences
- Landlords: Stopped receiving rent; many evicted tenants by changing locks, cutting utilities, or direct confrontation.
- Tenants: Many had prepaid (via loans) but were forced out, left homeless in winter, still owing bank loans. Some tragic incidents, like suicides, were reported.
- Social fallout: Widespread protests, clashes, viral complaints on Weibo. Thousands affected, highlighting vulnerabilities of young urban migrants.
- Aftermath: Company services halted by late 2020; delisted from NYSE in 2021 for failing to report finances. Parent company blacklisted in China. Exposed risks in the long-term rental sector, prompting calls for stricter regulations on rental loans.
The incident became known as the “broken eggshell” (破蛋壳), symbolizing fragile promises in China’s booming but risky sharing economy startups.
References:
- Danke Apartment: The ‘broken eggshell’ that left young Chinese homeless
- Cover Story: How Chinese Apartment Rental Giant’s Business Fell Apart
- New York-listed Eggshell has a great fall
- Tens of thousands face eviction after Chinese rental company collapses
- Crippled Rental Platform Danke Faces Delisting From NYSE