China 101 & Proptech

Published on
January 4, 2023
December 22, 2022

Even though China’s Prop-tech industry is relatively new, in 2021 the country had the largest prop-tech market in APAC. With a total of 12.5 billion U.S. dollar investment volume and CAGR of 23.7%, China is showing a steady growth in the space. In the past 10 years, the frequency and value for prop-tech investments have increased, with a peak in 2018. Between 2012 and 2021, 1,100 prop-tech transaction events took place in Greater China, with a cumulative transaction value of 67.9 billion U.S. dollars. An interesting fact is that before 2019 the highest amount in a single investment was 10 million U.S. Dollar, while in 2019 and 2020 the highest single investment amount was 100 million U.S. Dollar!

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The investment stage has shifted in the past 5 years from early stage to growth stage. From 2017 prop-tech transactions have accounted for 60% of total transactions. Before 2015, Seed + Series A rounds have been rising gradually, reaching a maximum of 20.6% and 36.4% respectively. After that, Series A rounds have accounted for only 19.2% of total transactions and seed rounds for 16.6%, while Series B and C gradually increased.

In general investments have plateaued over the last two years, because the investment market started to cool down early 2021, but maybe China’s new community development plan can make a difference.

Creating Communities, it is called… Proptech to be leveraged in China:

The Ministry of Civil Affair and the Ministry of Housing have put their heads together and issued a new notice. This notice, called the “integrated community development plan”, will bring some significant changes to China. At selected locations across the country the government is planning to build “integrated communities”.

These communities will be focused on low-income residents and elderly. Each community will include a community kitchen, a community kindergarten, health clinics, service centers and more. Community kitchens will provide home cooked meals for not more then 20 Yuan (2.78 US dollars) per meal. In some regions, Shanghai for example, the kitchens are already operational and serving as promised: nutritious meals, with decent portion sizes for a very low price.

Of course, there are some requirements to these communities: The minimum required area for a community service center is 30 square meters per 100 residents. Everything within the community needs to be within walking distance: Core facilities cannot be further away than a 10-minute walk. The different communities will be organically divided by major arterial roads. The plan is not intended to displace the population but is providing new ways to offer more and better services to the already existing communities.

Improvements in infrastructure are another big part of the plan. Drainage, central heating, and gas piping for starters are all due for a major upgrade. Imagine selling tech to the quantum of these projects, it's entire neighborhood blocks of building. The scale is simply mind-blowing.

The modernization of the communities and the improving of infrastructures will develop a more favorable climate for Proptechs. The digital strategies of Chinese real estate companies are top-down and largely dependent on government policies. Given the new infrastructures more developers will be willing to collaborate with tech firms, to reduce costs, create additional value-added services and meet growing digital needs.

What else do we know about the prop-tech climate in China?

Chinese customers have high acceptance of new digital solutions, new channels, and new experiences. However, they also have low loyalty towards specific companies, unless the solutions create real value and enhance the experience. Proptech startups face a large competition from large developers, internet giants and other big players in the field.

In summary, China seems to be an interesting market for Proptechs, but given the geopolitical climate it will be very hard for foreign players to participate in the market.

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https://assets.ey.com/content/dam/ey-sites/ey-com/en_cn/news/2022/09/ey-uli-gba-prop-tech-white-paper-en.pdf

https://www.us.jll.com/en/newsroom/jll-spark-announces-new-fund-for-china-based-proptech

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