New investment boom of property marketplaces?

Last year, a good friend of ours, who wanted to build a property marketplace (“à la Opendoor style”) in a country of 200+ M people, asked us: “Which company in China does something similar?”

We actually drew a blank. The omnipresent Lianjia probably is the best proxy but their model is not exactly the same (and relies on a very heavy offline element).

Otherwise there is a large number of listing and classified services, which suffered a big crackdown earlier this year as many were listing fake and even fraudulent information.

It seems that after the Housing.com scandal, only Opendoor is getting some serious investor traction in the huge market of property marketplaces. PropertyGuru, Singapore’s leading property portal, was rumoured to be seeking an IPO a few years ago, but it did not materialise.

This might be changing as 2018 draws a close:

In November, UAE based Property Finder raised a US$110 million round. In early December, Brazil’s QuintoAndar announced a US$65 million Series C round.

Even above-mentioned PropertyGuru in Singapore announced a US$144.25 million funding round in October 2018.

Are these pure coincidences or is there any underlying link between these splashes of money?

Both QuintoAndar and Property Finder secured about 6 times the funding amount raised in the previous round.

Look deeper and a broader strategy at work emerges.

Real estate of opportunities

Before getting to that one must realise that both QuintoAndar and Property Finder are not early stage companies.

QuintoAndar has been on a tear since launching in 2015, with operations across many cities including São Paulo, Rio and the capital Brasilia. This year they claim to have an average of 2 property visit bookings per minute, a 300% year on year increase.

In Brazil, expensive housing prices, evolving millennial mindsets and prohibitive red tape hassles have fuelled the demand for more efficient real estate rental and sale processes. QuintoAndar is one of the many (and arguably the most aggressive) trying to address these key consumer pain points of the large and fast growing Brazilian market.  

We heard that the organic growth has reached a limit for the portal and additional fuel, plus long term partnerships with local brokerages, are needed boost further growth and capture the market potential. This needs more capital injection.

Property Finder, is a little older, founded in 2007. It has been profitable for the past four years. It prides itself for generating six million monthly website visits across 8 markets in the Middle East and North Africa (MENA).

While its core market Dubai may be cold for property, it sees exponential growth prospects in Egypt, Turkey and Saudi Arabia. Developers there have traditionally relied on outdoor media and the market has not been very transparent in the last few years.

That’s now changing. They are moving online, relying more on data, and measuring ROI of advertising on online portals. It is now the most popular property mobile app and claims to have an impressive 65% market share in the region.

So two mature operating property portals, perceived market leaders with established products and proven demand characteristics looking to accelerate.

This is exactly what growth equity firms look for as they lie somewhere between early stage VCs and controlled buyouts by PE firms.

Enter General Atlantic. The leading global growth equity firm providing capital and strategic support for growth companies. They also happen to be the investors behind the two property portals.

The property market in Brazil and the Middle east are alluring areas projected to be a major growth engine. They fit the bill which explains the above two recent post-series B thematic investments in General Atlantic’s portfolio.

Do not forget that General Atlantic is also an investor of Opendoor.

The investments will help them consolidate market leadership in Brazil and MENA, accelerate its expansion plans.

More property investments

Closer home, Singapore-based PropertyGuru has been around in the Southeast Asian region for 11 years. They have reported profitability and positive cash flow, strong period of organic growth in the last 3 years, and a 25 % growing revenue year on year.  

These are the CEO’s words but on ground users are not quite happy with PropertyGuru. Below is an example of one such disgruntled person in a leading local tech forum:

Yikes.

PropertyGuru did sue one of its local competitors 99.co this year for copyright infringement only to be dismissed by the court finding no merit in their accusations. 99.co has said that the “causes of action are unfounded, and they are merely PropertyGuru’s attempts at stifling fair competition among market competitors“.

Regardless, it can’t be denied that PropertyGuru is a market leader in five countries across Southeast Asia and control probably at least half of market share.

After years of trying, PropertyGuru is slowly figuring out how to win business in markets outside Singapore, where the dynamics between buyers, sellers, brokers and developers can be drastically different compared to Singapore’s mature agent network.

Most of these markets are still in nascent stage for property marketplaces, with more growth coming from the growth of the market size itself.

It is therefore no surprise that KKR, one of the biggest private equity firms decided to place their bets on it. Thinking more about it, finding an established business that’s a market leader in its industry with promising prospects in Southeast Asia is challenging which makes Propertyguru an easy choice.

With its new $145 million dry powder PropertyGuru is completing the buyout of Vietnam’s leading property portal Batdongsan.com.vn, thus clasping its top position in yet another market.

PE firms also typically think about exits and with (renewed) murmurs of an IPO around the horizon for PropertyGuru, it might happen soon making the proposition all the more attractive.

Bigger plan?

We believe that the investment tide is a part of a bigger narrative.

Apart from QuintoAndar and PropertyFinder, General Atlantic has also invested in various other leading real estate companies around the world

• Open door (US): General Atlantic co-led a $325 million financing round in 2018. Opendoor, currently operating in 10 markets, aims to expand to 50 markets by the end of 2020 with this financing.
• Ziroom (China):  They raised $622 million in 2018. GA was one of the investors.  Ziroom, is a leader in branded apartment rentals, now holds the top position in China for rental services. To stay there, Ziroom needs to hold on to its scale advantage while deftly managing capital expansion.
• Hemnet (Sweden): General Atlantic along with a few others acquired a majority stake in Hemnet, Sweden’s leading online real estate classifieds platform.

While it is natural for growth and private equities to be thematic in their approach and develop a core competency around a vertical once they do well in it, are they one their way to build a global empire in real estate?

In the case of KKR too, it was their third high profile investment in SEA in such a short time. They have invested in leading Indonesian ride-hailing startup Go-Jek and Philippines-based fintech firm Voyager Innovations. Are we seeing a Softbank approach?

KKR has already taken sides in the Southeast Asia tech battle. With large capital at their disposal and rigour around their diligence, it will be interesting to see how they maneuver the landscape. Excuse us while we get our popcorn ready.