For the world’s most profitable company, Proptech


Founder Beike Zhaofang Zuo Hui (Getty; iStock)

Founder Beike Zhaofang Zuo Hui (Getty; iStock)

Beike Zhaofang, Beijing’s online real estate platform, struck the New York Stock Exchange on August 13 with a gargantuan “pop,” as they say on Wall Street – despite all the tensions between the United States and China.

Through its parent company KE Holdings, a Chinese housing agency backed by SoftBank sold 106 million shares for $ 20 during its initial public offering, while trading on the first day opened 75 percent above the offer price and the day would end up as much as 87 percent.

This led to an even bigger uproar than Twitter had ever seen on the first day of trading in 2013, and according to investment adviser Renaissance Capital, it was the biggest pop day of the first day for a billions of dollars in the United States this century.

After two months of trading, Beike’s stock price continued to rise sharply, with a market capitalization of $ 75 billion in mid-October, making it the world’s most valuable real estate technology company. Compared, CoStarThe market capitalization is approximately $ 35 billion.

Despite the Trump administration’s trade war and attempts to crack down on WeChat and TikTok, as well as increased control by some Chinese companies listed in the United States, Beike and many others have continued to raise capital in the states without difficulty, offsetting high bank banks on Wall Street during.

The impressive performance of Beike shares is a clear sign that investors are buying in Beike vision – one that is driven by the growth potential of the Chinese housing market and ambitions to rediscover the country’s still underdeveloped and somewhat chaotic brokerage landscape.

Beike and KE Holdings did not reply to requests for comments.

“Beike’s successful debut” reaffirms the benefits of listing in the United States, the world’s deepest capital markets, “Renaissance Capital writes of the company’s IPO,” especially for large and fast-growing Chinese issuers. “

Sesame, open up

With 2.1 trillion renminbi (more than $ 300 billion) in business completed in 2019, Beike is China’s second largest online internet market, after the leading Alibaba Group.

And e-commerce giant Jack Ma is fast becoming one of Beike’s most serious competitors.

Last month, Alibaba launched Tmall Haofang, which in Chinese means “good home”, a real estate channel within Tmall’s popular cross-border B2C platform. Alibaba has entered into a partnership with a publicly traded Chinese real estate agency and big data provider E-House.

In August, Alibaba invested $ 107 million in E-House, increasing its stake in the 20-year-old company from 2 to 8 percent.

“In China, the infrastructure for housing transactions and the services market has been largely underdeveloped.”

Prospekt Beike Zhaofang

The move was seen as the start of the next phase of Alibaba’s long-running competition with owner WeChat Tencent, Beike’s largest external shareholder with a 12 percent stake.

At a time when pandemic and geopolitical tensions are complicating cross-border business, observers note that China’s domestic real estate market represents a safer opportunity for the country’s technology giants to grow.

“Alibaba and Tencent are huge in scope and must continue to engage with new businesses to fill the gap and sustain high-speed growth,” said Meng Shen, director of the boutique Beijing investment bank Chanson & Co., said the trade publication Mingtiandi.

The idea of ​​technology giants like Google and Amazon to go into a market dominated by companies like Zillow, Douglas Elliman, Redfin and Realogy would certainly seem appealing in the US.

But the brokerage landscape in China is very different.

“In China, the infrastructure for the housing and services markets has been largely underdeveloped,” Beike notes in his IPO prospectus. “For example, the lack of industry-wide inventory similar to the multiple listing service in the United States makes it difficult for customers and housing agents to easily access reliable and authentic property listings.”

The absence of a framework for exclusive listings in China has led to a fragmented market with low productivity and high agent turnover, while false or duplicate listings are still widespread according to the online brokerage platform.

However, the market opportunity is also huge, with Beike Industry Consultancy (CIC) reporting by Beike, which is widely cited, to increase the country’s urban population by another 150 million in the next decade.

For now, Beike still has the upper hand over competitors like Tmall on several fronts, said Robert Cowell, an analyst at ShanghaiResearch stock market research firm 86Research.

“Beike is a market leader in terms of customer experience, data usage and brokerage software,” said Cowell.

Lianjia line

Beike Zhaofang – which means “shell fishing” – started as Lianjia, a traditional residential brokerage company founded in Beijing in 2001 with only 37 employees. Lianja is now one of several brokerage companies on the Beike platform that sell and rent.

In June, Lianjia had about 7,700 brokerage offices and more than 134,000 agents in 29 Chinese cities. According to its prospectus, Beike as a whole has 260 real estate brands, more than 42,000 stores and more than 456,000 agents in 103 cities.

The company’s founder, Zuo Hui, came to the Chinese capital of northwestern Shaanxi Province to study computer science at a local university, and after pursuing the real estate business, he spent ten years trying to establish himself in insurance marketing.

Zuo also brought with him first-hand experience with some of the problems faced by some tenants and buyers in the Chinese housing market.

“I graduated from college in 1992 and bought my first apartment in 2004,” he said on the panel in 2017. “In the 12 years in between, I’ve rented ten different apartments and I know what it’s like to be in a big scammed.”

According to a CIC report, by 2009 Lianjia had become the largest real estate brokerage in Beijing.

Zuo’s next step was to convert his business online.

In 2008, the company created its Housing Dictionary, a database of verified listings that has grown to 226 million properties in more than 300 cities by 2020. In 2010, Zuo brought in Peng Yongdong, IBM’s chief strategy and development consultant, to serve as the broker’s CEO.

Peng is now CEO of Beike, while Zuo serves as its chairman.

New “playing field”

Since 2014, Lianjia has begun to expand beyond its home base in Beijing and buy competitors from across the country.

At this time, the brokerage company also began to attract investors. Tencent made its first investment in the company in 2016 and international venture capitalists such as Softbank’s Vision Fund, Sequoia Capital and Gaw Capital participated in further rounds of funding.

By 2018, Lianjia had established offices in 29 cities across China, and the company took its next big step by expanding its services to the open Beike platform and reorganization of its corporate structure under the new holding company KE.

“As the brokerage industry in China continues to evolve, consumers see brokerage brands as a strong signal of service quality,” Cowell told 86Research. “As such, Beike is the principal.” [first-party] the Lianjia brand was able to consolidate more than 15 percent of the existing Chinese domestic market. “

According to Zuo, the extended platform would allow brokers to collaborate on transactions to improve service quality, similar to MLS in states. In particular, Beike’s agent cooperation network would serve to “promote a culture of transparency, cooperation and mutual success” in the industry, he noted.

However, some competitors were skeptical.

As Lianjia will face other brokers on a platform he controls, critics have argued that the company is trying to be “a player and a referee.” A group of large brokerage firms has formed an “anti-Beike alliance”, promising to resist its unconventional and anti-competitive tactics.

Zuo rejected these claims and responded by expanding the analogy.

“We are building a playing field in the hope that more and more people will come to play the ball and the rules will get better and better,” he told local media in 2018.

A year later, the 21st century Chinese franchise defective from the anti-Beike alliance, brings the platform a big victory. The move signaled to brokers across the country that the material benefits of joining Beike could outweigh fears of unfair competition.

“This influx of new connected brokerage firms is helping Beike consolidate.” [market] share in large cities and expand into lower-level cities, ”remarked Cowell.

Cross – border disputes

At the same time, other challenges were growing globally as Trump’s trade war with China shook financial markets.

Just a week before Beike’s revolutionary market entry, the Trump administration submit a plan this would require all US-listed Chinese companies to comply with financial audits by US regulators or be forced to be removed from the list.

Similar legislation passed both chambers of Congress earlier this year with the support of both parties, and California Democrat Representative Brad Sherman told the Wall Street Journal that “this is not a measure against China. This is a provision on investor protection. “

In light of recent debacles such as the one listed on the Nasdaq Happy coffee – a one-time competitor to Starbucks, which was unveiled this spring and generated more than $ 300 million in sales – concerns about Chinese companies’ accounting practices have some basis.

And as the White House put pressure on applications like TikTok and WeChat due to national security concerns, the move became another point of contention as relations between the two countries deteriorated.

Some Chinese companies have already begun to retreat.

This summer,, “Craigslist of China” and competition owner Beike Anjuke, completed A $ 8.7 billion deal go private and remove from the NYSE. Alibaba was founded by a secondary statement in Hong Kong last fall, partly as insurance against US decommissioning measures and its fintech subsidiary Ant Financial, precedes the US with double listing in Shanghai and Hong Kong.

However, in addition to geopolitical rhetoric, almost as many Chinese companies – more than 100 – were listed in the United States during Trump’s four years in office as Barack Obama’s eight years in Washington, according to data from the research firm Dealogic. In the third quarter alone, seven Chinese companies, including two electric vehicle manufacturers and two training companies, launched IPOs in the United States. according to Renaissance Capital.

Unlike companies with multinational business interests, such as TikTok and Tencent, the fact that Beike’s business is included in China’s borders could help protect it from global uncertainty.

However, the company admits that this could change.

“If we plan to expand our business internationally in the future,” notes Beike’s prospectus, “any adverse government policies in international trade, such as capital controls or tariffs, may affect demand for our products and services, affect our competitive position or hinders business in certain countries. “

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