10 Jul 2017
Lianjia (链家), otherwise known as Homelink, China’s largest property site, has been suffering – along with the rest of Chinese real estate – through a long, economic winter created by government cooling measures and municipal regulatory crackdowns.
With consumer confidence flagging, Homelink yesterday announced a series of commitments for rental users of its platform. Among these was the extension of the company’s “accurate property history” designation (which is backed by an enormous proprietary property information database) to rental properties.
Lianjia expands proprietary database to rentals
“Zhen fangyuan” (真房源) or “accurate property availability” isn’t a term which is heard a great deal outside of China, but it’s a big deal in a consumer market in which distrust of one’s fellow buyers and sellers is deeply-held.
Lianjia’s investment in the accurate property history designation has been considerable. In 2008 it began building a proprietary database of housing information in Beijing, calling it the “Building compendium” (楼盘字典).
The database, which represents an investment of more than 450 million RMB ($66 million U.S.) and which requires 1,000 dedicated members of staff, now covers 36 cities and 75 million properties nationwide, including between 90 and 97 percent of properties in Lianjia’s home market of Beijing.
The “accurate property availability” marker had been a major selling point for Lianjia. This has, however, been undermined by recent Beijing municipal government crackdowns on the mis-representation of commercial land as residential by property developers. In May, Lianjia closed 87 outlets in Beijing, citing “compliance reasons”.
The rental market has long lagged behind in China, as the country’s massive property development conglomerates have typically turned a blind-eye to the market. In 2016, rentals represented just seven percent of total property transactions.
Lianjia is closely connected to these property developers, especially after recent investments from Sunac China Holdings Limited (融创中国) and China Vanke (万科) (more on this below), and the turn to the rental market reflects the wider shifting priorities of these giants, which have recently promised to renew their commitment to the rental market.
Lianjia’s rental business is taking on the likes of 58.com’s (NYSE: WUBA) Haozu.com (好租) platform. The company’s Beijing site currently lists 17,685 rental properties.
Lianjia secured two massive investments earlier this year, from property developers Sunac China Holdings Limited and China Vanke. Both acquired a stake of around six percent for 2.6 billion and 3 billion RMB, respectively (which we reported on here). These investments set the market valuation of Lianjia at an incredible 41.6 billion RMB ($6 billion U.S.), 51.4 times its net profit for 2015.
At the time, the two investments were regarded as a possible overvaluation of Lianjia, which has been a loyal agent and even business partner for its property development backers in the past.
In the last couple of months, Sunac China has re-entered the news after spending 130 billion RMB on new acquisitions. In early May the Tianjin-based property developer acquired an 80-percent stake in the Tianjin Xingyao Wuzhou (天津星耀五洲) property development project for 10.2 billion RMB.
This was considered remarkable until yesterday, when Sunac China agreed to buy hotels, land and projects from Dalian Wanda Group Co. (万达集团) for a stunning 63.2 billion RMB ($9.3 billion), China’s largest ever property deal.
Considering the “funny money” flowing out of Sunac right now, it’s safe to say that Lianjia’s valuation is more than a little artificial. With the company supposedly eyeing a Hong Kong IPO in the near future, all eyes will be on whether the markets agree.
Sunac China’s founder and chairman is Sun Hongbin (孫宏斌), the world’s 474th richest man, according to Bloomberg.
Ping An Haofang offers interest-free down payment loan on rentals
In another move designed to buoy confidence in the Chinese rental market, leading property site Ping An Haofang (平安好房), subsidiary of insurance giant and Bitauto majority shareholder Ping An Insurance (平安中国), announced a new product targeting rental users.
The product is called “Hao Yuefu” (好月付), and offers interest-free loans covering down payments on rental properties.
There is no indication from Ping An at this juncture that the service is connected to Qianhai Zhengxin (前海征信), its dedicated personal credit services subsidiary. Qianhai Zhengxin does facilitate car and home loans, however. So, it’s likely to be the source of this credit somewhere down the line.
What makes this interesting, therefore, is that this announcement comes less than a week after the Chinese government (perhaps thankfully) reneged on its commitment to allow big conglomerates like Alibaba (Sesame Credit), Tencent and Ping An to issue credit scores based on their own internal data held on members of the public (see here and here).
(Yet another site which extends credit. In other words, creates money. An activity which was the exclusive domain of licensed banks for decades, if not centuries, until the internet came by. All around the world, the number of sites of all kinds which extend credit is exploding. One can only hope the supervisors of the local banking sectors know about all these activities and have authorized the credit extension with the customary banking licenses. If not, we are heading for a massive “unrecorded credit bubble”, a loss of control over the money supply, and another financial crisis. In recent weeks it has become clear that sites – including marketplaces, classifieds and other e-commerce sites – will (to a large extent) be the new banks of tomorrow. They’ll be involved in the money flow, will extend credit and enable peer-to-peer payments. Either off their own bat, or in partnership with banks. Auto verticals are already “bundling” and selling off their auto-credit books, to get fresh capital for another round of car-credit extension. The carousel is picking up speed. One can only trust the supervising authorities are prepared for their new job; that they are able to judge professionally which sites (applying for banking licenses) should get it, and which not; which sites will go about creating money (extending credit) in a responsible manner, and which sites’ algorithms (built to decide whether an internet user should be extended a $20,000 car loan based only on his surf behavior on the internet) can be taken seriously – and whose not. Should this be allowed in the first place? Should sites be allowed to re-sell car loans, which intuitively feels like assets ten times less reliable than the assets the “famous” junk bonds of U.S. banks were backed with? These are valid questions. Even though the U.S. has been issuing subprime, asset-backed securities (ABS) on auto loans for long (check out Standard&Poor’s latest report on the health of the sector.) But, they also issued junk bonds on home loans. We know what happened, and we don’t have to walk the same road twice – editor.)