Online strategies loom as game changer in China home market

Developers like Vanke start to explore the brave new world of e-commerce as market slowdown on mainland forces a rethink of the basic sales model

PUBLISHED : Tuesday, 23 September, 2014, 11:44am
UPDATED : Wednesday, 24 September, 2014, 3:33am

For all its disruptive power in transforming the retail and services sectors, the internet has been a tame beast in the property industry. Developers have been content to harness the web for marketing initiatives, but have left largely unexplored the potential of e-commerce to overhaul the traditional way that homes are bought and sold.

However, a downturn in the mainland property market is forcing a rethink of the basic sales model, with leading developer China Vanke among the early movers. It has teamed up with the country's biggest internet companies - Alibaba and Tencent - in a bid to generate new business in a market weighed down by tight financing and high inventories.

Vanke, the largest developer by contract sales, last month entered into a deal with Alibaba-owned Taobao, under which users of the country's biggest shopping website will be offered discounts on home purchases. They range from 5 per cent to 10 per cent of the purchase price, to a cap of two million yuan (HK$2.5 million), depending on the project. The promotion involves 23 Vanke developments in 12 cities, including Beijing, Shanghai, Hangzhou and Chongqing,

Property experts said that while e-commerce is unlikely to revolutionise real estate in one stroke, it could open a new channel for developers to reach more potential buyers, and increase transparency and competition within the market.

"This is the internet era. We must accept it. Eventually, the business is supported by groups of people, including those playing games and chatting online," said Country Garden chief financial officer Wu Jianbin. "Anywhere there are groups of people, there will be business opportunities. So property sales can also go online. We shouldn't resist it.

"I think Vanke's cooperation [with e-commerce companies] presents no problem in terms of direction of the development trend."

In the first week of the Vanke promotion, which ends on September 30, 450 homes worth a total of 600 million yuan were sold, according to a Taobao statement.

Under Vanke's pact with Tencent, a new financial product has been created to encourage Tencent users to buy the developer's homes.

While the development of Vanke's online initiatives is still at an early stage and such channels are not used across the whole group, ratings agency Fitch expects the developer's savings on its selling, general and administrative expenses to partly make up for the discounts of 5 per cent to 10 per cent.

Taobao said last month it planned to extend the promotion to other Vanke developments in more cities and partner with other major residential property players - such as China Forte, Centaline Property Agency, Country Garden and China Poly Group - in special promotions.

Wu said Country Garden still needed to research the benefits of selling property via internet promotions.

"Property is different from retail. Property assets, once built, cannot be moved, and their value is huge. It possibly costs savings of several generations from a family to buy a home. It can be difficult to buy a home simply by viewing a picture or video online," Wu said. "But it can be a good marketing tool. Developers can give the commission to individual brokers or homebuyers instead of agencies. This is workable."

In the online era, the more well-known companies would enjoy higher clicks by prospective buyers, Wu said.

Regina Yang, the head of research and consultancy at Knight Frank in Shanghai, said it was a good opportunity for internet giants to enter the real estate market.

The development of the new digital pathways was a step in the right direction, even though Vanke's current promotion is relatively limited, she said.

James MacDonald, head of Savills Research China, said property purchases were in a different league to buying "a piece of clothing or a new phone".

"Each property is unique and has to be viewed first hand in order to truly understand it. That said, e-commerce and new technologies have proved to be disruptive in other industries, and this new avenue for sales could engender more options for purchasers and increase transparency and competition within the market," MacDonald said.

Alan Chiang, DTZ's head of residential for Greater China, said the old-fashioned ways of selling homes had been stubbornly resistant to change, but new pressures would be felt. Following Vanke's lead, developers' cooperation with internet leaders could bring them a new client base.