Tom Spender

KEEPING THE AGENTS HONEST

It was an RMB 500 (USD 75) dispute with his realtor as he was
selling his apartment that inspired serial Internet entrepreneur
Wang Huiwen — one of the founders of the popular social
networking site Xiaonei.com — to launch his latest online venture,
Taofang.com.
As Wang tells it, he had agreed with his agent that all sale fees
would be paid by either the buyer or the agent, so he became furious
when the agent insisted he would have to pay to have a document
certified.
“Even though it was a small amount of money I was very
angry,” says the 32-year-old Dalian native. “The agent didn’t keep his
promise. I threatened to cancel the whole sale. But the agent knew
that I wasn’t going to go all the way to court and pay legal fees to settle
the matter.”
Fuming, Wang called the property agent’s company complaints
hotline but didn’t find a sympathetic ear. He went online but found no
platform dedicated to such issues, though in a BBS forum he found
thousands of similar complaints. Some said they lost as much as tens
of thousands of RMB.
“I knew that I had to solve this problem, for myself and for
everyone. If my complaint can be found by the agent’s potential
customers then the agent won’t behave like that anymore,” he says.
So on April Fool’s Day (April 1) this year he launched Taofang.
com, which aims to make buying and selling property a more trans-
parent process. Property agents pay RMB 300 per month and in
return get a Taofang.com card with an ID number. A customer who
engages the agent can then log onto the website and rate the service
they have received.
So far, 2,000 agents in Beijing have signed up to Taofang.com
(which translates to “find a home”) and the revenue they bring in
means the company, which has also received some angel investment,
is on good financial footing for now.
“The market is chaos,” said Wang. “Those buying and selling
homes don’t know much about how it works because they don’t do
this very often in their lives. The property agent is the expert. They say:
“you have to pay this fee” and you don’t know if you should pay or not.
It’s easy for them to cheat a lot of money from you.”
The purchase of newly built and unlived-in houses and apart-
ments account for much of the trade in Chinese homes at the
moment, constructed to accommodate the millions of Chinese
moving from rural areas to big cities. But those homes will then be
bought and sold like properties anywhere in the world as the lifestyles
and priorities of their inhabitants change.
The resale or secondary market took off in China about ten
years ago, according to Wang. In 2009, the total sales commission
revenue made in secondary market sales in China was RMB 30 billion
(USD 4.5 billion), with RMB 7 billion of that total from sales in Beijing
alone.
The coming decade will see these figures multiply by a fac-
tor of ten, with total commission revenues of about 300 billion in
2020, according to Zuo Hui, general manager at Lianjia Property
Group. Over the same period, commission in Beijing alone is pro-
jected to double to RMB 18 billion. The total size of the secondary
housing market in terms of transaction volume in Beijing, Shanghai,
Guangzhou and Shenzhen combined is now already greater than the
size of the new property market, Wang says.
“This opportunity doesn’t exist in countries such as the US,”
explains Wang. “The secondary market has a long history there and as
a result, the relevant laws and regulations for the property brokerage
business are good enough to protect buyers’ legal rights well. But in
China there is a lack of well-developed mechanism that looks after
users’ interests. This is exactly where the Internet comes in.”
Wang and his 30-person staff of IT and sales executives are
headquartered in an as yet-unfinished complex of modern town-
houses on the outskirts of north Beijing. He wants to expand into
the big secondary housing markets in cities such as Shanghai and
Guangzhou, for which he says further investment will be necessary.
Yet property was not what first got Wang interested in the
Internet. Wang and his friends were initially excited by social
networking services (SNS) and together they launched Dodoyo.com,
only to close it in 2006 because it had failed to attract more than
30,000 users.
“We were novices and there were many myths about SNS,” said
Wang. “We thought our SNS site should be just for China and there-
fore different from Friendster, Myspace etc. But this was the wrong
way. Social networking has something to do with human nature and
the fundamental needs of human beings. We all have this in common
and so a Chinese SNS doesn’t need to be different. There were 30
Chinese SNS and they all fell victims to these myths. They all failed.
“We thought that just copying a website from the US was
humiliating,” said Wang. “Most of the guys into websites at that time
had a great education. We had to be different!”
At the same time, the team developed a plethora of other web-
sites, including a photograph-printing website and a hiking website
for enthusiasts of the great outdoors. All “failed” in Wang’s words –
but the team learned some valuable lessons along the way.
Wang and his friends also launched a website dedicated to the
secondary housing market in 2005, a precursor to TaoFang.com –
but at that time they found there was little enthusiasm for it among
property agents.
“There was already a secondary market but agents didn’t believe
the Internet had anything to do with them,” he said. “They didn’t want
to spend time and money on it. The timing was wrong.”
Wang’s enthusiasm for SNS was not dampened by his Dodoyo
experience so he decided to have another go – and this time he would
ignore the myths. The team – Wang Huiwen and his friends Wang
Xing and Lai Binqiang – launched Xiaonei.com (which translates
as “On campus”) in December 2005, sticking to a template that
resembled Facebook and plowing money into marketing.
Today, Xiaonei has been rebranded as Renren.com (which
translates roughly as “Everybody.com”) and has more than 100 million
active users across China and among overseas Chinese, and is set for
a lucrative IPO next year. But all this is happening without Wang and
the other members of its initial team.
Wang and his friends started Xiaonei with about RMB 30,000
plus what they could raise from friends. After just three months,
Xiaonei was approached by Oak Pacific Interactive (OPI) an Internet
company that was planning to launch its own SNS called 5q, and were
given an ultimatum: either they sell now or face being blown out of
the water as their rivals invest all the money they would have used to
purchase Xiaonei on marketing 5q instead.
“We were very angry but we just said: thanks but no thanks,
” said Wang. Six months later 5q hadn’t come close to surpassing
Xiaonei, but Wang and his friends were penniless. “We had no money
so we sold,” says Wang. “They [OPI] merged the two websites and put
the 5q operating team with us. I left after two months and all the other
Xiaonei guys left within six months. We were enemies. We couldn’t
work together.”
Wang says he and his friends netted “several hundred million
dollars” from the sale, but he estimates the company is now worth
about USD 2 billion, and when he and his friends cashed out they
completely walked away, without any options in the company.
“It’s a pity,” he admits.
These days Wang is content focusing his energy on his new
business. As most of his staff took time off during the October
national holiday, Wang was in the office every day. Despite his earlier
setbacks he still has enthusiasm for the online business that saw him
drop out of graduate school at the China Academy of Science seven
years ago.
“I work seven days a week,” he says. “If you are doing some-
thing you are interested in you don’t want a holiday.”
And with China’s real estate sector likely to continue to boom,
it’s likely that Taofang.com will keep him occupied for a long time to
come.

LOOKING FOR A FEW GOOD MILLIONAIRES

About 200 Chinese attended a roadshow event in early October
at Beijing’s Diaoyutai hotel to hear a team of speakers pitch
them on investing into a multibillion dollar real estate project
in New York that would include an NBA basketball stadium, a railway
terminal and housing.
The developers of the Atlantic Yards project in Brooklyn —
which apart from Ground Zero is the largest real estate project
currently being developed in New York — are looking for wealthy
Chinese to invest around USD 250 million into the project.
The investors are each being asked to invest USD 500,000 into
the project, in exchange for which they will receive a US green card.
This is part of the US government-backed EB-5 program which grants
green cards to foreigners who make a USD 500,000 investment in
the US that results in employment of at least 10 people.
“EB-5 is just another method for raising capital,” says Gregg
Hayden, manager of the New York City Regional Center, which aims
to attract EB-5 investment to New York City.
Americans running New York’s EB-5 program have already
visited almost 30 cities in China and will continue touring the country
until shortly before Chinese New Year in 2011.
China and other Asian countries experiencing strong economic
growth are fertile hunting grounds for EB-5 investors, Hayden says,
because of increasing competition for places at the best schools and
universities coupled with a cultural emphasis on ensuring a good edu-
cation for one’s children..
Regional centers have sprung up all over the US to try to attract
investment from abroad and the US Congress sets aside 3,000 green
cards each year for foreigners investing through such centers. Under
the program, investors get their money back and a green card after
two years.
Though most EB-5 investments offer a return of about 2.5 to
2.75% in interest as well as the green card, Hayden says the Chinese
who invest in the Atlantic Yards will not earn any interest at all, only
the guaranteed green card.
“The investor on this particular project, to simplify the process,
is not getting paid any interest,” he says. “We have put them in such a
safe, secure position that they’re not earning any interest. If you look
at the spectrum of EB-5 projects, interest rates are paid according to
risk.”
The roughly 200 Chinese who attended the roadshow appeared
intrigued, with many asking questions of an American immigration
lawyer who was also present at the event.
“It’s a very interesting project,” said one attendee, who did not
want to be named. “I will have to talk it over with my relatives. The main
reason is for my children to get a good education for their future.”
Critics say the EB-5 program is being used by Forest City Ratner,
developer of the Atlantic Yards project, as a means of getting cheap
financing. According to Norman Oder, who runs the Atlantic Yards
Report blog, if the USD 250 million that Chinese investors are be-
ing asked to contribute at zero per cent interest came instead from
a bank loan, Forest City Ratner would have to pay tens of millions
of dollars in interest.
A spokeswoman for Empire State Development Corporation
— a body charged with stimulating economic development in New
York and whose executive director Peter Davidson addressed the
Chinese at the Beijing roadshow — told the New York Daily News
that Forest City Ratner turned to the EB-5 program to save money.
“If this financing was not available — or if Forest City Ratner
is not as successful as we hope in raising funds under this program
— then Forest City Ratner will need to raise funds from other
sources to facilitate build-out of the entire project,” Mitchell said in
an email to the paper.
But Hayden said the scheme has been heavily backed with
hundreds of millions of dollars by the governments of New York
State and New York City and is eligible for the EB-5 program be-
cause it will create economic activity. Asked what the US govern-
ment got from supporting the project, he said: “Economic activity
and increased tax revenues, for the creation of this real estate and
activity, in the city of Brooklyn, in the city of New York.”
Work has already begun on part of the project, with the bas-
ketball arena due for completion in 2012. It will house the New
Jersey Nets NBA team, which will be renamed the Brooklyn Nets
when the team moves to the new stadium.
Former basketball legend Otis Birdsong travelled to Beijing
for the roadshow. He said he hoped the Chinese would invest and
that he hoped to see them in New York.