There are some very big, interesting and important numbers in the Chinese real estate market. Between them, portal companies KE Holdings, Fang.com, Leju and FangDD have lost 52 billion in shareholder value since the country's premier developer Evergrande almost defaulted on its debts last Autumn.
According to Chinese real estate expert Brett Hartley-Wilson however, 2021 was another huge year for the market and the impact of the Evergrande crisis was far outweighed by other external factors such as COVID.
In a wide-ranging interview, Brett, who has been working in Chinese real estate portals since 2015, told us about the state of Chinese real estate and of the country's largest real estate portal and brokerage company KE Holdings (parent of the Beike portal).
Online Marketplaces: So tell us, just how bad was the Evergrande crisis? Did it only affect the primary market or was the secondary market affected as well?
Brett Hartley-Wilson: I know there was a lot written about it but if you actually look at the facts and the performance of the market over the calendar year 2021, the amount of money spent in the market (GTV) hit a historic high of around 23 trillion Yuan ($3.6 trillion) which was the best ever result.
I think that the other external factors probably had a more profound impact than the situation around Evergrande.
OMP: Does the government work with portal companies such as KE Holdings to implement its housing policy?
BHW: The government sets the playing field and more importantly, they set the tenor and where the market as a whole should be focussing its energy... Whether that be getting access to finance, access to property or what qualifies as high-quality rental property then it's up to companies to figure out the best way to work within the regulations and the mood of the macro environment to push that agenda forward.
The percentage of Chinese who rent is below 10%. If you look at the country overall, there's not enough rental accommodation. So that's become a big focus of the government as well.
OMP: Talking more specifically about KE Holdings, could you give us an idea of how the company operates and what differentiates it from other players such as Fang and Anjuke?
BHW: Beike is unique in China in that it connects online and offline whereas other players in China are more similar to what we would typically see in the classifieds space - they distribute leads to agents on an advertising fee basis.
KE works a bit different, we connect brands to our portal on an exclusive basis and provide a lot of support and resources as well. We help brands out with the recruitment of agents, managing agent workflow and connecting with a whole array of different services. There's more depth to our model than what you would typically see in a classifieds style business.
OMP: I gather that there is an exclusivity element to an agent's use of your services, is that right?
BHW: To use an American example, you wouldn't be able to put your listing on Zillow and at the same time put it with Realtor.com.
OMP: We're talking here about a company which is just enormous... nearly half a million agents, net revenue is $2.8 billion every quarter. KE has just released its financial results. What is the outlook and what has the reaction been to the results?
BHW: I don't think the company would ever want to benchmark itself against one set of numbers. It's more about the direction of travel - can we bring enough agents into the network to create economies of scale? And once the agents are in, can we make them do their work better? Can they provide better customer service? Can they stay longer in the industry? These are big problems for housing markets in developing economies. A rising tide [and increased professionalism among agents] lifts all boats, and that includes revenue.
OMP: Obviously a lot of real estate portal companies in developing markets love working in the primary sector but maybe the tide is turning in some of these markets and the secondary is becoming more and more important. Is that what you're seeing in China?
BHW: New property is around 60% and second-hand is around 30% with rental being around 10%. KE is a little above that [second-hand percentage], as we do around 50% of our sales volume in the second-hand market. We're a bit ahead of where the market is overall in terms of the structure. That's also because we focus on China's top cities where there isn't typically as much new property as there would be in smaller markets.
OMP: There seems to be a huge opportunity that KE Holdings sees not only in the transaction of buying and selling a home but also in the transactions that take place in the home. Could you tell us a bit more about that?
BHW: A problem faced by all players in the real estate space whether they be a classifieds site, an offline brokerage or a service-based online model is that typically a family will only buy and sell a home every couple of years... that's a very long time-lapse between meeting each client. So a key priority for us and something we're really focussing on is can we interact with our clients more often to offer them good services.
That extends to the typical services like moving, cleaning, household services and on top of that, the company sees a big future in furniture and interior decoration. In any real estate market that's going to be the second biggest part of the pie and in China it's a really fragmented, hard to use space for consumers.
OMP: What exactly has the company been doing to get into this really big new revenue stream?
BHW: One thing KE has that no one else in China has is a very significant volume of homes captured in VR. Across the whole platform, around 70% of all our listings are captured in VR using our own VR tool and that really allows you to layer other services like renovation or furniture on top of homes.
Let's say I'm looking at a home I like and I end up buying it. Through a digital space, I can layer on an interior design solution that I like and then put furniture in as well. KE is going to provide that using a mix of its own supply chains and third parties which are part of the ecosystem too.
If you stretch that theory out, within any given home in China there are around 20,000 items, so there's a lot of stuff within the home which, apart from renovations and furniture which are a great starting point, can be digitised. That's the journey we're heading on now?
OMP: How do you see the real estate market in China evolving and how do you see KE Holdings evolving with it?
BHW: I think the journey is very similar whether you're in China or Southeast Asia or even India or Pakistan. It's generally a journey from a market with very few rules and standards to one with more transport rules and standards that apply to everyone.
The other part of it is fewer first-time buyers and more upgraders and with that, the market will become more sustainable and predictable.
In terms of the company, I think it's going to become a broader and deeper ecosystem with more services. Over the breadth of the platform, going deep as well and really helping agents deliver services to consumers instead of just being a kind of referral widget where people can enter their phone number or email and then be contacted by someone.