Mainland China didn’t yet have a billionaire back in 2000 when Beijing entrepreneur Zuo Hui struck upon the then-novel idea of selling homes to individual buyers. It was a bold move, as the average GDP per capita was around $1,000 and a government policy that allowed private property ownership had been launched only two years earlier. “At the time, there weren’t many people buying their own homes,” says Zuo, 49.
Today, China is the world’s largest residential property market, as measured by gross transaction value (GTV). Despite the pandemic, total sales of both new and existing homes in China are forecast this year to be $3.5 trillion, up 3% from last year, according to research consultancy CIC in Hong Kong.
Zuo’s KE Holdings is sitting smack in the middle of many of those transactions. In the company’s lingo, it is China’s “leading integrated online and offline platform for housing transactions and services.” While the global real estate industry is often split into distinct silos—brokers, developers, contractors, listing sites—KE is close to a one-stop shop. It has a network of 42,000 sales offices, with over 450,000 agents across the country. Its Housing Dictionary is China’s largest site by listings of residential properties—with over 220 million in its database, including maps showing details such as the location of hospitals, schools and shopping.
KE works with developers to launch and market their new projects. It offers contracting and renovation services. It even has virtualreality technology to allow virtual property viewings, with 420 million views last year.
And it dominates its markets. KE, based in Beijing, is China’s largest housing transactions and services platform by GTV. Last year, KE’s GTV was $318 billion—up 85% from 2018. For the six months to June—covering the worst months of pandemic in China—its GTV hit $198 billion, up 49% year-on-year. Some pundits have dubbed KE the Alibaba of China’s residential property market.
Today, China is the world’s largest residential property market, as measured by gross transaction value
However, the company, which operates only in the mainland market, remains unprofitable due to spending on rapid expansion. Last year, it lost $326 million on $6.9 billion in revenues. (To be sure, in the first half of this year, the company recorded a profit but that was also true in last year’s first half.)
In August, Zuo, who is KE’s chairman, launched an IPO of the company, raising $2.4 billion, and listed its ADRs on the New York Stock Exchange. Listing at $20, the ADRs have more than tripled, to around $75. And Zuo is worth $20.6 billion—up almost tenfold since last year’s list, when he was at $2.23 billion. Zuo has also jumped from No. 145 on last year’s list to No. 15. A second KE executive, CEO Peng Yongdong, 40, also became a billionaire, due to the big jump in KE’s share price. KE’s strong showing likely also pleased major KE investors Sequoia China Capital, Softbank and Tencent.
Zuo says he chose the U.S. for KE’s listing because that’s where he figured he’d get the most value for this company. “Capital markets [in the U.S.] ultimately still look at an organization’s growth and the business itself,” he says. Despite uncertainty around U.S.-China relations, Zuo remains confident, saying the outlook is “still ok.”
Zuo has come a long way. He earned a degree in computer science in 1992 from what’s now called Beijing University of Chemical Technology—training that would help later when he went online with KE. After graduation, he then took a series of sales jobs in insurance and other industries. In 1998, Beijing introduced reforms that encouraged individual ownership of property. In 2001, Zuo founded Beijing Lianjia, at first just a traditional brokerage.
As a pioneer in the nascent real estate market, Zuo had an early-mover advantage, and was able to grow Lianjia into one of China’s largest brokerages. In 2008, Lianjia launched Housing Dictionary, and with the information it gathered, KE now has an enormous database on China’s residential market. In 2010, Zuo started Yiju Taihe, which offered property-related financial services. Four years later, he reportedly made his first online foray with a system that linked brokers, but wasn’t available to the public. By 2018, Zuo’s Lianjia had offices and agents in 29 cities across China. That year Zuo also launched Beike, its flagship online platform and created KE Holdings, into which he put Beike, Lianjia and Yiju Taihe.
There are still a lot of opportunities we can explore in China.
Two trends, Zuo says, should continue to propel KE’s growth. One is the pandemic, which helped boost traffic to KE’s Beike site. “We were initially worried [about Covid fallout] but found that customers now spend more time at home and pay more attention to having a comfortable home,” he says. With rising incomes, Chinese buyers increasingly are seeking fancier digs. In top-tier cities such as Beijing and Shanghai, 40% of all transactions in the last two years were buyers upgrading from their existing home.
An even larger secular trend is the ongoing modernization of China’s real estate market. Despite its size, the market remains fragmented and inefficient. For example, just 26% of all new residential sales are hanAn even larger seculardled by brokers, compared to 70% in the U.S. (most developers of new homes in China handle their own sales). China also lacks a multiple listing service, which creates transparency in the U.S. market, resulting in many broker ages having outdated, incorrect or even false information about the properties they advertise.
“The housing transactions and services industry lacked industry standards, infrastructure and professional service providers with experience and tenure, resulting in unhappy housing customers,” Zuo noted in a letter included in the KE’s IPO prospectus.
In comparison, KE has been promoting efficiency and transparency. Beike vets all listings for accuracy, and penalizes those found posting bad information. The KE site can also automatically flag properties that appear to be mispriced for their location. Brokers are rated just like Uber drivers, complete with customer reviews.
One of Zuo’s biggest innovations is the Agent Cooperation Network (ACN). “ACN, from its inception, is similar to the multiple listing service, or MLS, in the United States,” said Zuo in the prospectus. But ACN, he notes, is like MLS on steroids. KE breaks real estate transactions into discrete parts, and different brokers can take one or several roles. One broker might handle showing the property to potential buyers, while another might aid in the closing. Each gets a split on the commission based on their contribution in the transaction.
KE does have competition—including from Alibaba. In July, Alibaba partnered with KE competitor E-House to create an onlineoffline residential property platform similar to KE’s model. Yet KE’s substantial lead over rivals is a major competitive advantage. KE can be “a bigger dog than the next big dog,” says Sam Crispin, greater China regional director for Cushman & Wakefield in Hong Kong.
Zuo appears unfazed by any challengers— and remains focused on dominating the China market. Sequoia China Capital’s Neil Shen describes Zuo as “hardworking and very tech-savvy.” To stay ahead, Zuo—with his computer science degree—spends heavily on research and development to improve KE’s capabilities. Last year’s total R&D spending was over $200 million, more than double the 2018 figure, and about 30% of the funds raised in the IPO—roughly $630 million—will help pay for more R&D.
With China’s new and existing home sales forecast by CIC to hit $4.1 trillion by 2024, Zuo says he has no plans to look abroad for new business. The market at home, he says, has more than enough potential. “There are still a lot of opportunities we can explore in China,” he says.