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Deals | Long-term Rental Operator Danke Gongyu Raises $100 Million

Written by KrASIA Writers Published on   3 mins read

Long-term rental is expected to incubate China’s next unicorn.

Kr-Asia is all about actionable insights for entrepreneurs. And through this post, you’re about to find out:

  • How big is China’s long-term rental market? 

  • Why is long-term rental expected to incubate China’s next unicorn?

Danke Gongyu (蛋壳公寓), an internet-powered operator of long-term rental housing, has closed a $100 million Series B round in February. The financing was co-led by China Media Capital and Banyan Capital, with contributions from Youjin Investment Management, Vision Capital, BAI as well as the A-plus round investor Joy Capital. The company said it will use the money to optimize services, expand its business portfolio and build brand awareness for its products.

Launched in January 2015, Danke Gongyu targets young white-collar workers who are three to five years out of graduation, noted GAO Jing, founder and CEO of the company. Owners trust Danke Gongyu with their houses, which are re-decorated in a standardized way before getting listed on Danke Gongyu app. The average rent for a single flat is 2,600 yuan (about $412) a month. Danke Gongyu currently operates in eight large cities in China, including Beijing, Shenzhen and Shanghai, offering nearly 80,000 rental units in total with occupancy rate hovering at 95%.

Long-term Rental Operator Danke Gongyu Raises $100 Million
Image credit to Danke Gongyu.

China will eventually have 300 million renters, who will together create a 5 trillion yuan-worth of rental market, as per The Rise of Rentals, a report compiled by Lianjia (链家), a real estate agent giant. As the average home-buying age rises and property prices soar, the country is seeing an upward trend in rental demand, with increasing signs of upgrading consumption on lodging. Meanwhile, governments have continuously rolled out policies aimed at making homes for rent equally appealing as those for sale. Guangzhou, for example, enacted a policy in July 2017 that allows renters to send children to nearby schools, a right that was previously reserved for homeowners. The combination of rising demand and favorable policies has thus resulted in a boom of the long-term rental market.

Drawn by the prospect of growth, players swarmed in. There are already some 1,000 dedicated operators competing for share in the rental market, plus 30 property developers and 10 real estate agencies, as well as about 20 hotel brands that are diversifying into rental apartment buildings.

However, their market shares remain small. The largest player, Lianjia’s subsidiary Ziroom (自如), which has recently secured 4 billion yuan in financing, operates some 500,000 rental units, as opposed to a few ten thousand by the other top operators.

The Chinese long-term rental sector is still in its infancy. SHEN Boyang, Executive Chairman of Danke Gongyu, predicts that in three years, the long-term rental space will see the emergence of two or three “unicorns” worth over $10 billion with more than 1 million rental units.

Long-term Rental Operator Danke Gongyu Raises $100 Million
Image credit to Danke Gongyu.

Unlike apartment complexes, individual apartments are decentralized and non-standardized, and therefore more challenging to operate. Operators must be able to formulate different pricing and cooperation strategies based on landlords’ varying needs and risk preference, cope with rising management cost resulting from the physical distances between different apartments, and effectively allocate and match resources while taking into account time and locations. These call for efficient and sophisticated operation, which in turn requires a well-established IT system.

GAO Jing identified five key elements for the operation of long-term rentals: internet, supply chain, service, finance and execution. And one of the main leverages Danke Gongyu enjoys against competitors is its internet-based big data system. The company’s next step is to improve this system to help it better understand tenants and landlords and consequently develop more value-added services.

At present, Danke Gongyu profits mainly by imposing markups on rent, but GAO Jing positions the company as a comprehensive service provider that integrates the functions of asset management, service and finance. When the underlying rental business grows to a certain scale, companies will have to compete on services and finance.

Danke Gongyu is headquartered in Beijing and has a team of 1,500 currently, with core members from Nuomi (糯米), a group-buying website that has been acquired by Baidu. This means they have rich experience in operating internet business.

Read More about China’s innovative real estate management: Management SaaS provider Silin Community beefs up efficiency in the property management space

Writer: CHEN Shuya


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