China 45% vs US 6%, why share of real estate market leader so different ?



The largest brokerage network in China – – has a 45% Market share by volume. In contrast Realogy, the market leader in US, commands only 6% market share.

At the surface that looks counter intuitive. US is a far more organized market compared to China and conventional wisdom suggests that in a mature, organized market, industry leader consolidates his position over time. But why has that not happened in US? Conversely, how has a company in China been able to capture such a huge share of an unorganized market?

The answer lies in the first principle of real estate – Inventory is King. Not customer, but inventory! This is counter intuitive from a consumer internet perspective. Real Estate supply is unique in sense that every SKU is peculiar, non-replicable, and without a clear price discovery mechanism. On the other hand demand is transient, and evolving. In such an ecosystem, entity with access to the inventory commands disproportionate power – irrespective of bull or bear market.

This brings us to the original question – why is US real estate brokerage market fragmented while China Market has consolidated? In US, the inventory is in command of individual Agents through legal contracts with sellers, which grants them exclusive right to represent the home owner. This also allows them to transparently market the property online & to buy-side agents (through MLS). Brokerages gain market share by attracting the most influential agents to work for them. However, these brokerages offer no unique value for agents to stick with them. Consequently, agents, armed with home owner contracts, move from brokerage to brokerage or even go independent – keeping the market fragmented.

There are no exclusive mandates in China and the inventory access is Polygamous, i.e. multiple agents can work on the same property. That changes the market structure completely. Much like how it is in India, multiple local property brokers built their inventory strength in a small area based on their physical proximity. These small brokers did not possess any particular strength vis-e-vis each other on the demand or supply side, hence coexisted in a fragmented market. This opened a window of opportunity to create a large pan-city level brokerage with advantages over local brokers., identified this opportunity and used the mobile and internet technology advancements to penetrate into home owners network. Given home owners were not under any contractual obligation to work only with local brokers, they were ready to allow Lianjia access to their property as well. Lianjia, with its vastly superior marketing capabilities online (and even offline) was able to easily outdo local agents to generate much more demand for these home owners. Today Lianjia commands more than 80% inventory market share across top 28 cities in China and has more than 150,000 agents work on the Lianjia network on commission basis. It commands a 45% market share and growing.

There are critical lessons for Indian real estate players here. India has no dominant brokerage player, although the market structure is strikingly similar to China – No contracts, no exclusivity, high density markets. Its a multi billion dollar opportunity and the key lies in consolidating inventory and using a technology-driven agents network to service it.

Pallav Pandey

Author: Pallav Pandey

Passionate about building tech-enabled businesses in emerging markets. Excited to work with young companies in their journey from 0 to 1.

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