I solved the problem by following instructions from here:
Lessons Learnt:
When using an external drive for owncloud data:
- Setting the external path as data directory don’t work - not via
config.php,maintenance:install, web interface install or any other means. - Setting up a local external storage don’t work.
- Symbolic links don’t work.
Only the mounting the external path to /var/www/owncloud/data as suggested by the instructions above works.
Do consider making this part of your FAQ in case administrators run into the same problem in future.