China’s largest property startups are rapidly catching up with their US counterparts, but despite growing opportunities, entering the market remains a challenge for western companies, according to a report by MetaProp.
The Deep Dive: PropTech in China report explores how the country has developed into one of the major hubs for property innovation in the world along with some of the trends that will shape it in years to come.
Chinese unicorns are challenging US dominance
Following a surge of startups in the last decade, China has equalled the US in the number of property unicorns – startups valued at $1bn or more – with 10.
The largest of these is Lianjia, an integrated housing platform valued at $13bn. Having started as a brokerage service, Lianjia now combines 42,000 offline stores with an online platform – Beike – that includes an AI-powered housing recommendation system, financial solutions such as credit scoring, VR viewings and home renovation services.
Although China has as many property unicorns as the US, the average valuation of these startups is considerably smaller at $3bn, compared to $5bn among American unicorns.
Most funding has gone to a few big players
The slowdown of the real estate market since 2012 and the prevalence of mobile internet have triggered a boom in property startups in the mid-2010s. Some 56% of China’s property startups were founded between 2014 and 2016.
However, half of Chinese property startups (171) are between Angel and Series A rounds of investment. “While many proptech startups were founded to help the real estate developers transition into service providers, most of the funding went to a few startups to build a national footprint,” the report says.
Entering the Chinese market as an outsider is a struggle
The Chinese government’s top-down push for innovation and new infrastructure has been a driver of the sector’s growth domestically, but, combined with an unfamiliar customer base, it has also restricted the growth of companies from outside China within the country.
The report singles out Uber as a cautionary tale: between regulatory challenges, a failure to appoint a local CEO and outpaced growth from competitor Didi, Uber lasted just two years in China before exiting the market.
Matterport is used as an example of how to expand effectively. The company secured a Chinese real estate agent as a customer and had a global agreement with Cushman & Wakefield, both of which helped it to scale in the local market. When it entered China, Matterport built a local distribution network and a product that supports Chinese, enabling a better user experience for its customers.
The key to success in the Chinese market is a localised understanding of the market combined with a region-specific strategy. Metaprop suggests startups find investors in China; build strategic partnerships with local property developers and tech players; recruit a local team; conduct regulatory due diligence and continually differentiate themselves from agile local competition that are quick to learn and adapt.
The rise of super apps
Products such as WeChat – which has 1bn monthly active users – and AliPay provide a blueprint for the growth of ‘super apps’, all-in-one platforms that grow from a core function. After building a user base through its main purpose – such as mobile payments, messaging or food delivery – the app integrates a constantly growing number of services, all of which benefit from the sheer volume of data it has on its customers.
Recently, property has jumped on the super app trend in an effort to create one-stop shops for renters or homebuyers. For example, Ziroom, China’s largest apartment rental platform, offers rental services, roommate searches, maintenance, utility management and smart device integration. But alongside these, the platform also offers a dating service, social events and gym classes.
A consumer-focused future
MetaProp expects Chinese startups to be among world leaders in consumer-facing property innovation, physical retail innovation and 5G applications. China has the largest e-commerce market in the world, with 37% of all shopping done online in 2019. By comparison, the US e-commerce market, pre-pandemic, had a market share of 10%. Meanwhile, the Chinese government has committed $1.4tn to an infrastructure plan that includes the development of 5G networks, data centres and AI.
E-commerce giant Alibaba is an example of how companies are changing the shape of retail, combining physical assets with online channels and data analytics. Alibaba has launched several products to achieve that kind of integration, including smart home products that can order items from Tmall, its e-commerce platform.
In September, Alibaba launched an online housing brokerage platform, Tmall Haofang. The platform will host online showrooms from real estate developers, allowing buyers to view buildings on Tmall. For Alibaba, as for the sector more broadly, growth, consolidation and a blurring of physical and digital space will shape the years to come.