Realty Giant KE Remodels Itself With $1.2 Billion Renovation Purchase

Leading residential property agent KE Holdings Inc. has agreed to buy Shengdu Home Renovation Co. Ltd. for up to 8 billion yuan ($1.24 billion), in one of its biggest purchases to date and the first major one since the death of its founder in May.

Founded nearly two decades ago in the eastern coastal city of Hangzhou, Shengdu provides home renovation services in seven provinces and municipalities, KE said in its announcement late on Monday. KE owns the Lianjia residential real estate agency chain as well as the newer online Beike. It added its own home renovation services product, called Beiwoo, to its lineup in 2019.

“As we deepen our understanding, we have developed an even stronger belief in the vast growth potential of China’s home renovation industry,” said KE Chairman Peng Yongdong, who also uses the name Stanley Peng, in a letter to employees announcing the deal. “This is an industry in serious need of high-quality service. As more Chinese families pursue better living conditions, client satisfaction will become the main reason that justifies the continued existence of the entire industry.”

China’s residential real estate market is both one of the world’s largest, and also one of its newest, with a history only dating back to the second half of the 1990s. In that short period, home ownership has become a must for most Chinese, especially young couples just starting out. As part of that, people are often willing to spend lavishly on putting their own stamp on their properties through major renovations, even though the quality of work often varies widely.

At the same time, real estate developers and property agents like KB are looking to diversify their revenue streams as the national property market slows due to both market forces and restrictive government measures aimed at controlling prices. KE’s new purchase represents a step into such home-related services, while many of China’s property developers are boosting their presence in the more stable business of property management services.

“The proposed acquisition of Shengdu is based on our shared understanding and passion to reach the ‘Point B’ destination of the home renovation industry through a mutually recognized path,” Peng said in his letter. “To move forward, we will strengthen vertical integration by deepening the standardization in home renovation products, services and professionals.”

The acquisition is one of the largest ever for KE, which uses the name Beike Zhaofang in Chinese, since it raised $2.1 billion in its New York IPO in August last year. Its shares more than tripled at one point after that and currently trade at about double their IPO price. The stock fell 10% on Tuesday amid a broader selloff for U.S.-traded Chinese shares over concerns about a potential clampdown on such listings in the future.

The deal would also mark KE’s first since the death in May of co-founder Zuo Hui after an “unexpected worsening of illness,” the company said in an announcement at the time, without providing more specifics. Days later the company named Peng, also a co-founder, as its new chairman. Peng had previously been an executive director who was the company’s CEO.

Zuo was among a generation that came of age during the early years of China’s reform and opening-up period that included the introduction of private enterprises and a more market-oriented economy.

A computer science graduate of Beijing University of Chemical Technology, Zuo founded the first Lianjia real estate brokerage shop two decades ago in Beijing. After studying the multiple listing service system for residential real estate in the U.S., Zuo developed an agent cooperation network, consolidating information on real estate transactions, attracting collaboration from different brokers and creating a fair competition platform.

As of the end of 2020, a total of 46,900 brokerage companies and 493,000 agents were listed on Beike, the company’s online real estate platform, according to the company’s annual report.

Denise Jia contributed to this report

Contact reporter Yang Ge (geyang@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)

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