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Analysis: Why Alibaba ditched new property venture

Antitrust regulators focus on corralling vast market influence of big tech players

Alibaba pulled out of an online real estate trading platform that just launched in September 2020.   © AP

Amid mounting pressure from antitrust regulators, e-commerce giant Alibaba Group offloaded its entire stake in a real estate trading platform, retreating from a new business for which it once held high hopes.

Alibaba divulged a plan on April 29 to transfer its 85% stake in Tmall Haofang, a real estate trading platform it launched in September, to partner E-House (China) Enterprise. In return, Alibaba would increase its holdings of E-House shares to 22.57% from 13.26%, further strengthening its position as the second-largest shareholder of one of the country's biggest property agencies.

The restructuring marks a major retreat by Alibaba from the online real estate business, as it agreed to completely exit from Tmall Haofang's business operations following the transaction.

Alibaba made a high-profile foray into real estate in July by investing 1.86 billion Hong Kong dollars ($239.4 million) in E-House and outlining an extensive partnership in online and offline property businesses. In September, Tmall Haofang was launched with an initial investment of 5 billion yuan ($771 million). Alibaba held 85% and E-House 15%.

Alibaba made the move under increased scrutiny of its sprawling businesses by antitrust regulators. The company last month was fined a record 18.2 billion yuan for violating antitrust laws by forcing vendors to choose between its services or those of its rivals.

The fine did not mark an end of the antitrust crackdown. Instead, regulators continue beefing up scrutiny of big tech companies' allegedly anti-competitive practices with fresh investigations of food-delivery giant Meituan and an e-commerce joint venture between Alibaba and state giant China Minmetals Development.

Although Alibaba never linked its retreat from Tmall Haofang to the stepped-up antitrust enforcement, the deal is a rational choice for Alibaba.

Tmall Haofang has been a controversial business for Alibaba since its beginning. Supporters said the business could succeed by leveraging Alibaba's massive customer base and resources. But skeptics said Alibaba did not have experience running real estate operations, and E-house was not a partner of strength.

Tmall Haofang has yet to set up a clear business model. Under the initial plan, Alibaba was to provide platform technologies and E-House was to acquire customers and promote sales. Real estate developers, brokers and financial institutions could all join the platform to provide housing and financial services. Tmall Haofang was set to challenge major online real estate brokerage KE Holdings.

Backed by Beijing Lianjia Real Estate Agency and Tencent Holdings, U.S.-listed KE's upbeat business performance has shown how the tie-up between a tech giant and real estate agents could boost growth, attracting companies including Alibaba to follow suit.

Despite the pandemic, KE's annual transaction volume reached 3.5 trillion yuan in 2020, up more than 60% compared with 2019. By comparison, E-House's transaction volume during the same period was only 513.4 billion yuan.

Tmall Haofang started a price war when it entered the market, cutting its commission fee to roughly 15% of what KE charged. The fee was inadequate to cover the platform's operating costs, but Tmall Haofang pledged to subsidize the business over three years.

Tmall Haofang's business development didn't go as expected, however, and the partnership between Alibaba and E-House was stuck at the initial stage, with E-House introducing developers to open stores on Alibaba's e-commerce platform to market their projects.

Tmall Haofang engaged in only the new-house business, not the larger pre-owned house trading business, which requires more complicated offline services. Meanwhile, increased supervision of internet financial services, especially targeting Alibaba's Ant Group, also made it more difficult for Alibaba to use its online financial services arm to fuel growth of the property business.

After Tmall Haofang's divestiture by Alibaba, its future with Alibaba remains unclear. Strict real estate market regulation will be the major challenge for Alibaba to use its services relating to customers, data, and financial resources to assist the venture.

But the antitrust campaign might also benefit Tmall Haofang because it will also restrain KE from seizing a dominant position. On Feb. 7, the State Administration for Market Regulation issued new guidelines putting internet companies using variable interest entity structures under the country's antitrust supervision, including KE.

With transactions topping trillions of yuan, China's online real estate market now faces greater competition and stricter supervision.

Niu Mujiangqu is a corporate news reporter at Caixin Media.

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Read also the original story.

Caixinglobal.com is the English-language online news portal of Chinese financial and business news media group Caixin. Nikkei recently agreed with the company to exchange articles in English.

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