3 Things to Know From KE Holdings’ IPO Letter to Investors

Lately, KE Holdings (NYSE: BEKE), the owner of an integrated online and offline platform for housing transactions and a real estate brokerage business, listed its shares on the New York stock exchange.

In the IPO prospectus, Zuo Hui, the founder and chairman of the company, wrote a letter to investors.

In this article, I’ll highlight three important takeaways (from the letter) that investors should know about before investing in the company.

Do the right thing, even if it’s difficult

One of the first points that Zuo has pointed out is the idea of doing the right thing.

He explained that the real estate transaction industry in China has three characteristics: 1) complex with a long value chain and a lack of infrastructure; 2) low service efficiency and a poor experience for both customers and service providers, and 3) a large yet still fast-growing market.

Amid these industry characteristics, most players resolved to take short-cuts while neglecting the long-term benefits of improving service efficiency and customer experience.

KE Holdings, on the other hand, has a culture of doing the “right” things over “quick success”, even if doing so would result in significant short-term economic losses.

It has cultivated such a mindset in its management team and will continue to operate in such a manner after its IPO.

Transforming the real estate industry with big data and the internet

The next important point that Zuo highlighted is the current state of the industry, which he described as “pre-industrial” – an industry lacking industry standards, infrastructure, and professional service providers, resulting in unhappy customers.

This, however, can improve through the use of the internet and big data. Here, KE Holdings aims to build the industry standards of service protocols and digitalised infrastructure, focusing on three aspects.

These are standardised housing data, improving the professionalism of service providers, and standardising transaction process.

As the leading platform in China – with the largest market share by gross transaction value – KE Holdings is suitably-positioned to propel the digitalisation of this industry.

Agent Cooperation Network (ACN)

KE Holdings pioneered the agent cooperation network (ACN) – an operating system underpinning its infrastructure – to redefine relationships among industry participants.

With ACN, KE Holdings achieved many benefits, which include fostering information and resources sharing among service providers, assigning cooperative roles of agents to achieve cross-store and cross-brand collaboration, and also creating a network for agents, stores, brands, and other service providers to get connected and engaged on the platform.

The outcome is a better collaboration among agents (rather than competition), higher-quality services to customers, and better trust from customers and agents, as well as mutual trust among agents.

Is KE Holdings a buy?

According to KE Holdings’ prospectus, China has the largest housing sales market – in terms of existing and new home sales – and home rentals in the world.

The gross transaction value for this industry reached RMB 22.3 trillion (US$3.26 trillion) in 2019 and is expected to grow at a compound annual growth rate (CAGR) of 6.6% through to 2024, thanks to factors like continued urbanisation, demand for higher quality housing, and more.

KE Holdings, with its leading position in this industry – through Beike and Lianjia – will benefit positively from the industry growth.

Hence, investors may want to learn more about the company given its good prospects.