KE - Q3 2024

Transcript

Operator (participant)

Hello, ladies and gentlemen. Thank you for standing by for KE Holdings Inc.'s Third Quarter 2024 Earnings Conference Call. Please note that today's call, including the management's prepared remarks and question-and-answer session, will all be in English. Simultaneous interpretation in Chinese is available on a separate line for the duration of the call. To access the call in Chinese, you will need to dial into the Chinese language line. At this time, all participants are in listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host, Ms. Siting Li, IR Director of the company. Please go ahead, Siting.

Siting Li (IR Director)

Thank you, Operator. Good evening and good morning, everyone. Welcome to KE Holdings' or Beike's third quarter 2024 earnings conference call. The company's financial and operating results were published in the press release earlier today and are posted on the company's IR website, investors.ke.com. On today's call, we have Mr. Stanley Peng, our co-founder, chairman, and Chief Executive Officer, and Mr. Tao Xu, our executive director and chief financial officer. Mr. Peng will provide an overview of our strategies and business developments, and Mr. Xu will provide additional details on the company's financial results. Before we continue, I refer you to our three-part statement in our earnings press release, which applies to this call, as well as we will make forward-looking statements. Please also note that Beike's earnings press release and this conference call include discussions of non-GAAP financial information, as well as non-GAAP financial measures.

Please refer to the company's press release, which contains a reconciliation of the non-GAAP measures to comparable GAAP measures. Lastly, unless otherwise stated, all figures mentioned during this conference call are in RMB. Certain statistical and other information relating to the industry in which the company is engaged is to be mentioned in this call has been obtained from various publicly available official or unofficial sources. Neither the company nor any of its representatives has independently verified such data, which may involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such information and estimations. For today's call, management will use English as the main language. Please note that the Chinese translation is for convenience purposes only. In case of any discrepancy, management statements in their original language will prevail.

With that, I will now turn the call over to our Chairman and CEO, Mr. Stanley Peng. Please go ahead, Stanley.

Yongdong Peng (Chairman and CEO)

Thank you, Siting. Hello, everyone. Thank you for joining Beike's third quarter 2024 earnings conference call. In the third quarter, we continue demonstrating our dynamic and sustainable growth momentum. Despite challenges in the market, each of our business segments delivers solid results. GTV for our existing home transaction business reached RMB 477.8 billion in the third quarter, up 8.8% year-over-year. According to estimates from data disclosed by the housing bureaus and housing associations of the third quarter cities, the total number of online registered transactions for existing homes grew by about 21% year-over-year in the third quarter, while the number on Beike platform grew by 44% year-over-year. For reference, for new home transactions, GTV on Beike platform increased by an impressive 18% to RMB 227.6 billion in the third quarter, while new home transaction GTV for CRIC top 100 developers declined 29% year-over-year.

In the third quarter, our home renovation and furnishing and home rental services revenue grew year-over-year by around 33% and 118%, respectively. At the end of Q3, a noticeable shift in policy also boosted our solid market rebound. In this market cycle, one thing we have become increasingly certain about is the importance of thinking long-term. We are going to deeply understand the power of our long-term perspective. For our organization, survival and development are our core imperatives. Among these, our foremost priority is to survive, enduring, and surviving. Therefore, our focus is not just on how to navigate the next year, but on how to become a company that can survive for 30, 40, or even 100 years. The greatest threat to our company's longevity are rigidity, bureaucracy, and loss of vitality to grow and innovate. To truly last, a company needs two things.

The first is integrity, doing the right things and creating value for society, and second, creativity. Every step we take today is guided by these principles. Doing the right things, even if it's difficult, and fostering creativity. This is how we'll become a company that stands the test of time. Let me share how we are putting this vision into action. For any large organization, the biggest threat is the lack of growth. The priority of business growth strategy we put in place this year has yielded remarkable results. In terms of scale, at the end of the third quarter, we have increased the number of active stores on our platform by 14.6% year-over-year, with a net addition of almost 6,000 stores compared with the same period last year. We now have more than 46,800 active stores.

The number of our agents also grew to over 420,000, which means we added 24,000 agents since the third quarter of last year. Our strategic collaborations in the new home markets outgrew all top-tier developers. In August, the number of transactions from our strategic project developers accounted for 26% of our total new home transactions. We also made strides in improving store and platform operating efficiencies. In the third quarter, the average revenue per store on our platform, excluding Beijing and Shanghai, surpassed levels from the same period in previous years. The support ratio of platform staff to frontline agents also reached a record high. We also maintained robust risk control and strive for higher service quality. The right mechanisms are also crucial for fostering organizational creativity. In the third quarter, we officially established a small leadership committee as an innovative step toward rethinking large organizations' governance.

It's a governance system that ensures forward-thinking and our long-term outlook. After a year of failed implementation, the committee is now officially in place. It consists of the leaders of our main business lines, as well as the heads of our finance and HR departments: Xu Wangang, Li Fengyan, Wang Yongqun, Xu Tao, and Zhu Dong. The committee will report directly to me, and it's tasked with carefully considering and planning the company's key strategies and initiatives. Its goal is to ensure collaborative leadership, clear accountability, and continuous self-reflection by design. This model brings together diverse perspectives to help us make better decisions and strengthen our unity as a team. In the future, we will continue to refine and promote the innovation of our company's governance mechanism to further strengthen our leadership framework. In addition, we are officially appointed the CEOs of our new initiative businesses.

Xu Wangang, who had already been serving as the CEO of Beihaojia, will now also lead our home renovation and furnishing business. Wang Yongqun will head for our home rental services business and also continue in his role as the COO of Lianjia. They will both report to me. These appointments reflect our committee's commitment to tackling future challenges and our focus on aligning resources to achieve greater synergies across the group. The development over the past few years of home renovation and furnishing and home rental services business have achieved several key milestones. In the first three quarters of this year alone, revenues from our home renovation and furnishing business surpassed RMB 10 billion across more than 45,000 projects. Revenue from our home rental services business approached RMB 10 billion during the first three quarters, with the number of rental units managed under Carefree exceeding 360,000.

I'm truly grateful to our excellent team for fostering these achievements. That said, we have more work to do. There are still many fundamental unresolved problems in the industry. We will iterate our scientific management and other capabilities to address the industry's underlying issues related to quality and commitment, among others. We hope that when people talk about this industry and our brand in a few years, they will say, "Your quality is exceptional." Today, we are at a pivotal moment in this undertaking. Over the next two years, we will strengthen our core capability to reach our vision. For our platform ecosystem, we are more committed than ever to working with store owners and store managers. They are the high-frequency players in this low-frequency industry. Our top priority is helping them achieve better returns. If they adopt a long-term mindset, our platform can achieve lasting growth.

In the third quarter, we introduced new operational mechanisms to support this goal. We launched a store points incentive program that rewards store owners for long-term platform loyalty, strong performance, integrity, and innovative business practices. This initiative is to significantly enhance store owners' satisfaction and allegiance to our platform. In Q3, we distributed around RMB 18 million in cash equivalent incentives to store owners in pilot cities. Take Shenzhen, one of our pilot cities as an example. Over the past two to three years, more than 1,000 new stores have joined our network in Shenzhen. While growing in scale, these new stores face three major challenges: insufficient emphasis on existing home transactions, slow progress in the new initiatives like home renovation and rentals, and weak collaboration across the platform with relatively high post-transaction customer complaint rates.

We tailor specific incentives within the store point system to address these issues and motivate positive change. Stores can now increase 20% extra bonus points for completing existing home listing transactions. They also receive two to three times bonus points for conducting non-housing transaction businesses. Stores are also awarded separate bonus points if they have been in our network for a long time and have a history of compliance and collaboration. Store owners can convert their points into additional benefits. In October, store owners in Shenzhen received a total RMB 2.49 million in equivalent incentives and 930,000 Beike Coins, with top single store receiving RMB 210,000 equivalent incentives. Notably, the platform's profit-sharing payouts to store owners boosted their income, offsetting the cost of renting a storefront. At the same time, we effectively addressed the three core problems.

Mostly existing home transactions began to recover and increased by 12% sequentially in September. Number of units leased out under carefree rent grew by 21% in Q3 compared with Q2. Across store existing home transactions reached 74.5% of total transactions, a record high. Of course, these metrics only indicate short-term achievements. More importantly, our goal is to use the store membership points system to encourage store owners to think long-term, share value with them, and provide a clear development path on the platform, driving growth for both stores and the platform. Moving on to our Lianjia, we have continued to advance its takeoff plan this year. Our decision to invest in Lianjia during tough market adjustments is also firmly rooted in our long-term vision. First, Lianjia is the cornerstone of our One Body, Three Wings strategy.

Maintaining Lianjia's solid fundamentals is crucial while we promote its expansion based on sustainable operations and ongoing efficiency. Lianjia also needs to lead the way in innovation and be the front runner in tackling industry challenges, reconstructing organizational capabilities, and advancing agents' professional development. The number of Lianjia's elite agents grew by almost 13% year-over-year, exceeding 110,000. The Lianjia agent attrition rate in cities, excluding Beijing and Shanghai, dropped to 4.4% at the end of September, down 0.4 percentage points from 2023. In addition, we also continue to lead the way in the large store model with the average number of agents per store across Lianjia nationwide, climbing to 19.2. As of September, nearly 3,800 Lianjia manager-level employees and above had trained in the Lianjia large store leadership development program. To sustain creativity, we will constantly map out new opportunities and possibilities for the future.

We cannot afford to wait until growth slows down to start innovating. Nor should we fall into complacency or simply defend what we have. Instead, we must plan ahead. We must be open to embracing new ideas and embrace the long-term strategies. That said, we won't make blind bets. Each segment in our industry is substantial, and entering any new venture requires an intensive decision-making process. Our approach includes extensive foresight, pilot trials by dedicated teams, and deep engagement through understanding, it is essential before taking any action. We don't rush. That's our underlying rationale for exploring Beihaojia's business opportunities. Lastly, we are greatly encouraged by the central government's recent positive statements and a series of coordinated policy measures to support and stabilize the property market. Since the end of September, the market reaction has been strong and far-reaching.

We are now seeing signs of market recovery with regards to both volume and prices. As we navigate through higher and lows, we must remain calm at the peaks, stay fast at the troughs, and grounded in reality in between. This is how we find true stability. With the broader environment improving, the truths we have learned during this period of market adjustment are clear. Steering committee to long-term maintaining optimism, fostering resilience, and unity. These truths and bold efforts we made in challenging times will enable us to go even further in a more favorable environment. Thank you. Next, I would like to turn the call over to our Chief Financial Officer, Tao Xu, to review our third quarter 2024 financials.

Tao Xu (Executive Director and CFO)

Thank you, Stanley, and thank you, everyone, for joining us. Before we dive into our Q3 performance, I'd like to briefly touch on some updates in the housing market.

The market's performance in Q3 was in line with our previous predictions. The market experienced a gradual retreat following the post-policy rebound, fueled by intensive supportive policy releases in May. Particularly in September, the year-over-year decline in market performance widened due to higher base. In Q3, the existing home market was relatively stable with year-over-year increase in transaction volume. This was primarily attributed to home buyers' preference for the readily available existing homes. In comparison, the new home market was still in a bottoming-out stage with weak supply and demand, as it would take time to resolve the real estate developers' debt risks. By the end of September, there was an intensive array of real estate policies from the central and local authorities. This included lowering interest rates, reducing mortgage rates for existing homes, and aligning the minimum down payment ratio for the first-time and second-time home buyers.

These policies further stimulated the housing demand, encouraging more people to enter the market. Meanwhile, other macroeconomic policies, such as monetary policies, indirectly fueled market confidence, which stimulated the market activities. We are highly anticipating the market performance after the third quarter. Turning to our financial performance in Q3, our total GTV reached RMB 736.8 billion, up 12.5% year-over-year. Net revenue was RMB 22.6 billion, representing a year-over-year increase of 26.8%. Gross margin declined by 4.7 percentage points year-over-year to 22.7%. GAAP net income reached RMB 1.2 billion, showing a year-over-year decrease of 0.2%. Non-GAAP net income reached RMB 1.8 billion, reflecting a year-over-year decrease of 17.5%. Non-GAAP net income exceeded market consensus. Moving to our home transaction services, revenue from existing home transactions reached RMB 6.2 billion, down 1.4% year-over-year and 15.2% quarter-over-quarter. GTV was RMB 477.8 billion, up 8.8% year-over-year and down 16.3% quarter-over-quarter.

Our GTV and revenue showed similar sequential declines, keeping our monetization rate relatively stable. Year-over-year, GTV growth surpassed revenue, which was mainly due to the higher contribution from the GTV of existing home transactions facilitated by the connect agents. The revenue was recorded on a net basis. The contribution margin from the existing home transaction services reached 41%, a decline of 7.7 percentage points year-over-year and 6.5 percentage points quarter-over-quarter. This decrease was primarily due to the increased fixed labor cost related to increased number of agents and improved welfare of the agent under the retreated market circumstance. In terms of the new home transaction services, although the market remained sluggish, we significantly outperformed the market across all metrics. CRIC shows that the sales from the top 100 developers decreased by around 29% year-over-year and around 27% sequentially in Q3.

In contrast, our new home GTV reached RMB 227.6 billion in Q3, up 18.4% year-over-year, while down 3.3% quarter-over-quarter. This remarkable performance, notably above the industry, was mainly propelled by deeper cooperation with developers and our refined operations that strengthened our capabilities. Revenue from new home transactions rose by 13.9% year-over-year to RMB 7.7 billion, but dropped around 2.6% from the previous quarter. Revenue outperformed GTV both year-over-year and sequentially, once again demonstrating our strong and steady monetization capability in new home transactions. The contribution margin from the new home transaction services fell by 0.4 percentage points year-over-year to 24.8%, largely as a result of the strategic increase in variable commissions due to greater emphasis on building a harmonious ecosystem and better rewards to our agents. Sequentially, the new home contribution margin declined by 0.3 percentage points due to the increase in the fixed labor costs.

In Q3, the commission income percentage from SOE developers rose to 58%, and the proportion of the commission in advance projects maintained a relatively high level at 44%. Revenue from the home renovation and furniture business, home rental services, emerging, and other services grew by 54.3% year-over-year in Q3, accounting for a portion of our total revenue at 38.3%, which is a record high, and surging by 6.8 percentage points from the same period of 2023. Our home renovation and furniture business maintained steady growth. In Q3, contract sales reached RMB 4.1 billion, up 24.6% year-over-year. Revenue amounted to RMB 4.2 billion, rising by 32.6% year-over-year. The revenue growth rate outpaced that of the contract sales, mainly due to the higher delivery efficiency. The contribution margin for the home renovation and furniture business reached 31.2%, up 2.1 percentage points year-over-year, and relatively flat sequentially.

This was primarily driven by gross margin improvement in our home renovation business. The contract sales of furniture and home furnishing retail, which are outside of our home renovation package, reached approximately RMB 1.1 billion in Q3, accounting for approximately 28.1% of the total contract sales, improving by 2.1 percentage points from the same period of 2023. Our home rental services business continued to grow at an accelerated pace. In Q3, its revenue reached RMB 3.9 billion, up 118.4% year-over-year, benefiting from the rapid growth in the number of rental units under management. By end of Q3, the number of units managed by our home rental services exceeded 370,000. In particular, the number of the rental units managed under our Carefree Rent exceeded 360,000, compared with around 160,000 in the same period of last year. Its contribution margin was 4.4%, declined by 1.4 percentage points sequentially.

This was mainly due to the higher commission expenses due to the seasonality. In Q3, our net revenue from emerging and other services decreased by 21.5% year-over-year to RMB 487 million. Next, let's move on to our other costs and expenses in Q3. Our store costs and other costs remained generally stable year-over-year and quarter-over-quarter, at RMB 703 million and RMB 502 million, respectively. Gross profit rose by 5.2% year-over-year to RMB 5.1 billion. Gross margin was 22.7%, down 4.7 percentage points year-over-year and 5.2 percentage points sequentially. The primary reason for the decline was the falling contribution margin of the existing home transaction service, led by the increased fixed labor costs. In Q3, our GAAP operating expenses were RMB 4.4 billion, up 11% year-over-year and down 2.1% sequentially. G&A expenses were relatively stable year-over-year at RMB 1.9 billion, while falling sequentially by 8.6%.

This was mainly attributable to the reduction in the share-based compensation. Sales and marketing expenses grew by 18.6% year-over-year to RMB 1.9 billion, as we invested in the rapid expansion of our home renovation and furniture business, increasing associated sales and marketing expenses. Quarter-over-quarter, sales and marketing expenses rose by 2.8%, remaining largely stable. Our R&D expenses were RMB 573 million, rising by 21.5% year-over-year and 13.6% sequentially, primarily due to the increased R&D expense in our home transaction services and the higher expenses of exploration for some advanced R&D projects. In terms of the profitability, GAAP income from the operations totaled RMB 727 million in Q3, down 20.2% year-over-year and 63.9% sequentially. GAAP operating margin was 3.2%, a decrease of 1.9 and 5.4 percentage points from the Q3 2023 and Q2 2024, respectively.

Non-GAAP income from operations totaled RMB 1.4 billion, declining by 27.7% from the same period of last year and 51.5% quarter-over-quarter. Non-GAAP operating margin reached 6%, down 4.6 and 6 percentage points from Q3 2023 and Q2 2024, respectively. The decline in operating margin was mainly due to the lower gross margin. GAAP net income totaled RMB 1.2 billion in Q3, showing a year-over-year decrease of 0.2%, while dropping by 38.5% quarter-over-quarter. Non-GAAP net income reached RMB 1.8 billion, down 17.5% year-over-year and 33.8% quarter-over-quarter. Moving to our cash flow and balance sheet, we realized a net operating cash inflow of RMB 449 million in Q3. The new home DSO was 47 days in Q3, which is a testament to our effective risk management.

On top of approximately $204 million allocated to the share repurchase during Q3, our total cash liquidity remains at a high level of RMB 76.3 billion, which excludes customer deposit payable. With our robust cash reserves, we continue to reward our shareholders who have grown resources through the acting share buybacks, enhancing capital operation efficiency and sharing the benefits of our development with investors. At the end of Q3, we had repurchased around $584 million worth of shares this year, which accounted for around 3.3% of company's total share outstanding at the end of 2023. We have consistently delivered on our promise to reward shareholders. Since the launch of our share repurchase program in September 2022, we have repurchased around $1.49 billion worth of shares at the end of Q3, which accounted for around 8.1% of the company's total share outstanding before the program began.

As our business becomes more diverse and expands in scale, we have set higher requirements for the reasonable allocation of resources and financial prudence. Our financial strategy is to focus on the essence of the operation and support the growth of our One Body, Three Wings business by strictly controlling our risk thresholds and maintaining a healthy cash flow. For our housing transaction services, under the situation of our store expansion strategy, we have implemented a comprehensive upgrade of the financial accounting module. Regarding our home renovation and furnishing business, while upgrading our centralized purchasing module nationwide, we have further enhanced the level of automation in our business and the financial process.

As for our home rental services, with the continuous iteration of our business model and the rapid scale-up in the number of the management properties, we continue to comb through and update our business and the financial process to facilitate business development. Regardless of how external environment changes, we will remain true to our original intentions: facilitating customers' better living, enabling service providers' bright prospects, promoting industry's advancement, and building a harmonious ecosystem. We believe we will gain huge potential growth in vast markets and advance towards one-stop residential service platform. That concludes my prepared remarks for today. Operator, let's open for the questions. Thank you.

Operator (participant)

If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two.

If you're on a speakerphone, please pick up the handset and ask your question. As a reminder, we only accept questions on the English language line. For the benefit of all participants on the call, please limit yourself to one question, and if you have additional questions, you can re-enter the queue. If you're going to ask the question in Chinese, please follow with an English translation. Your first question comes from John Lam with UBS. Please go ahead.

John Lam (Managing Director and Head of Asia Property Research)

这边是管理员，好。那个，我就一个问题想问一下关于最近地产政策这边，就是想请教一下管理层怎么看待这一轮的地产政策跟以前有什么不同。那现在我们看到政策效果是怎么样的，包括呢，企业性是怎么样。如果我们要看到市场去筑底的话，那我们还需要什么的力量。

So maybe I translate my question in English. So my question is more regarding the recent property policy. So how does the management view about this policy versus in the past? And so far, how is the effect from the policy? How is the sustainability? And also, what kind of market forces are required in order to have a market stabilization? Thank you.

Tao Xu (Executive Director and CFO)

Thank you, John.

In Q3, overall market performance was muted as the effect of the May 17th policy resilience, coupled with the low summer season. So existing home transaction market showed a month-by-month decline in July, August, and September. For the new home market, the year-over-year decline in sales of CRIC 100 real estate developers also worsened month-by-month in Q3, even after seasonal improvement mid-year. However, since the launch of the policy package at the end of September, transaction volumes in existing and the new home market surged nationwide. Tier 1 cities led this surge. Meanwhile, with the huge transaction volumes, home prices also showed signs of temporary stabilization. Overall, this round of policies has driven stronger market recovery than the last two previous rounds on August 31st last year and May 17th this year. For details, this round of the policy exceeded the last two rounds in both scope and intensity.

Unlike previous relaxation in either purchase restriction or mortgage condition, this round of policy introduced a whole package of the countercyclical policies directly initiated by the Politburo in response to new issues in the current market economy. Combined with greater credit support from the central bank and the policy shift, implementation of purchase restriction relaxation in Tier 1 cities led to the market outperformance. In particular, the Politburo meeting explicitly emphasized the first time to stop the decline of the real estate market. This work shows the country's commitment to stabilizing the housing market and leads to a stronger recovery in market expectation compared to previous two rounds. For existing home market, following this round of policies, transaction volumes have increased significantly across first-, second-, and third-tier cities. This contrasts with post-May 17th policy response, where the rebound was only in the fourth-tier cities.

In October, the number of existing home transactions on our platform marked the highest monthly level, rising by over 17% year-over-year and 60% from September. Notably, the transaction volume in Tier 1 cities saw year-over-year increase of over 100%, with Shenzhen up by over 250%. In October, Shenzhen's average daily transaction volume reached the highest level in nearly four years. Year-over-year growth in Beijing and Shanghai was also more than 120%. For Tier 2 and Tier 3 cities, transaction volume saw year-over-year growth of more than 60%. Regarding existing home prices, a positive signal is that October saw a month-on-month price stabilization with a slight 0.3% increase thanks to the surge in transaction volume and improving market sentiment. This marks a notable improvement from the 2.1% decline in September and is the first increase since the beginning of 2023.

Prices in Beijing, Shanghai, and Shenzhen were up 2.2% and 0.7% respectively compared with September. This was mainly due to the fewer homeowners rushing to sell at steep discounts. This shift is reflected in the Beike price index, which tracks the percentage of the price increase in all price adjustments of listed homes on Beike platform. After hovering below 10 since its rise earlier this year, the index recently recovered to 14. In Tier 1 cities, it rose to 19, with Shenzhen jumping to 32, to a relatively active range. This shift indicates an incremental increase in the number of homeowners raising their home listing prices. Regarding the transaction structure, the market was primarily led by home upgraders who had previously been viewing properties but were in a wait-and-see mood.

According to Beike Research Institute's survey, after the policy rollout, the proportion of consumers looking to buy a home quickly increased by 5 percentage points. In Tier 1 cities, it grew from 17% to 31%. The proportion of the wait-and-see consumers decreased. Regarding the new home market, the latest round of policies also led to a rebound in the new home market. In October, the GFA of CRIC 100 developers increased by 73% from September and 7% from the same time last year. New home subscriptions on our Beike platform during National Day holiday nearly matched the subscription level for the entire month of September. New home experienced a greater month-by-month rebound than existing homes. One reason is the lower base in September.

The other reason is that the new policies mitigate the consumers' concern about the home delivery issues, and developers' active promotion during the National Day holiday also helped boost the new policy's effectiveness and accelerate the sales through. Regarding the market outlook in the future, the latest round of policy has more enduring effects on the housing market, giving it wider scope and intensity compared to previous ones. It is worth noting that since October and through the first two weeks of November, the weekly existing home transaction volume on the platform has remained stable at a high level, demonstrating a strong short-term momentum. We expect the market to be relatively stable in the fourth quarter. For existing home prices, they are remaining stable in the short term, but their sustainability requires further observation.

However, beyond the boost to the sentiment, the further recovery of the economy fundamentals is key to ensure the property market bottom out. This relies on enhanced policy focus on the overall market economy improvement. On top of policy stimulating housing demand, the further rollout of the measures on the supply side, such as support for developers and inventory reduction, will help rebalance supply and demand in the new home market and revitalize the industry. Continued favorable policy for the real economy will also provide greater support for residents' income expectations and purchasing power, fundamentally stabilizing the real estate market. Thank you.

Operator (participant)

Thank you. Your next question comes from Timothy Zhao with Goldman Sachs. Please go ahead. Great.

Timothy Zhao (Executive Director and Equity Research Analyst)

Thank you, Management, for taking my question. My question is regarding your home renovation and furnishing business.

As we have seen signs of recovery in the home transactions in both existing home and new home markets in September, how should we think about the growth outlook for home renovation business? Could you share some recent progress on this business line, such as how you managed to improve the operating efficiency? Thank you.

Tao Xu (Executive Director and CFO)

Thank you, Timothy. In Q3, our home renovation and furniture business achieved steady growth. In fourth-tier, our contract sales reached RMB 4.1 billion, making a year-over-year increase around 25%, with revenue rising to RMB 4.2 billion, up 33% year-over-year. Our cities, such as Beijing, Guangzhou, Zhengzhou, and Nanchang performed especially well, and each achieved over 50% year-over-year growth in contract sales. As for the profitability, home renovation contribution margin reached 31.2% in Q3, showing an improvement compared to the same period last year. It's mainly due to the following factors.

First, we focused on refined operation management. Since the home renovation construction involves lots of complex steps, we conducted a thorough review of each phase to identify key areas for the improvement. For example, when we noticed excess materials, we quickly adjusted our construction price and strengthened the internal control to minimize the material waste. We also continued updating our product package. During the initial design phase, we carefully analyzed the cost and the construction standards for each type of product, running profitability models to ensure that each package maintained a reasonable gross margin during the initial development phase. Additionally, we increased the proportion of centralized purchasing. For products with a high degree of standardization, we scale up the centralized purchasing at the group level. The centralized procurement ratio for both maintained and supplementary material reached over 60% in third quarter, while it was over 20% in the second quarter.

As our home renovation business has responded rapidly, we not only increased purchase volume from existing products but also renegotiated unit prices to reflect our large scale. While strengthening the profitability management, we also continuously focused on improving our operational process and models to enhance quality and boost customer satisfaction. For timeline management, we further shortened construction timelines by optimizing workflow and dispatch efficiency. This brought the combined timeline for basic construction and preliminary material to an average around 99.5 days in Q3 compared to 109.3 days in the same period last year. Regarding after-sales, while implementing a variety of maintenance services, we expanded our in-house after-sales team nationwide. Our after-sales team grew from over 200 people at the end of last year to over 500 at the end of September this year. This team remotely and carefully addressed customer repair requirements and further enhanced our customer satisfaction.

In our home renovation business model of quality, scale, and efficiency, quality remains at the core. We will continue to iterate and invest in building our infrastructure and the capability to strengthen quality foundation, which is essential to remain competitive in the future. Thank you.

Operator (participant)

Thank you. Your next question comes from Griffin Chan with Citi. Please go ahead.

Griffin Chan (Director and Equity Research Analyst)

管理层好，我是花旗股票研究部的桂粉陈俊伟。我的这贝壳的二手房跟新房业务其实持续的好于市场，请问该趋势是否能够保持？后续应该怎么展望？或者是它的持续性会是怎样的？另外，今年我们门店拓店其实是比较积极，请问贝壳后续是如何规划的呢？

So this is Griffin from Citi. I will translate my own questions. Beike has outperformed the market for both existing and new home business, with the management confident in sustaining this outperformance. Besides, we know Beike has been actively expanding stores this year. Would management please share your plan going forward? Thank you.

Tao Xu (Executive Director and CFO)

Thank you, Griffin. This year, we focused on agent and store network expansion and ecosystem development, and the proactively strengthening high-level collaborations with developers in new home business.

These efforts have all paid off, enabling us to continuously outperform the market. Regarding scaling our platform, our agent and store network continued to expand. By the end of Q3, the total number of IP99+ stores on our platform was more than 41,000, and the number of active agents was 350,000, up 16% and 4% year-over-year respectively. We provided brands with free discounts, entrustment price, and other support to attract them to join our network, and in a volatile market, our platform's rich customer resources, extensive cooperation network, professional empowerment, and diversified services such as new home and home renovation had a stronger appeal to stores outside of the network. Returns from our investment in store expansion have remained good. From the platform perspective, by the end of September, newly sent stores in Q1 this year had a positive ROI, with all regions covering their cost.

As we made steady progress in connecting stores, we have further shifted our strategy in the second half of this year from connecting small and scattered community stores to large stores. Accordingly, we raised the threshold of the average number of agents per store, performance requirements, and incentives. Our goal was to attract more quality stores into the industry to join Beike to boost overall scale and efficiency. Regarding the store network operation, we adopted a more refined strategy at each individual business district level. For the areas fully covered by our network, we placed more emphasis on ecosystem optimization. We helped store owners and agents retain more income through a series of the platform benefits and supporting measures. Store productivity in these commercial areas was 1.2 times as high as other commercial areas.

In areas where our store collaboration was insufficient, we focused on targeted management and empowerment through the platform data analysis, problem diagnosis, and strategy support, along with the involvement of the store owner co-governance council. We promoted the focus on the quality home listings, enhanced sales through, and boosted the cooperation among stores. In areas with insufficient network coverage, we actively connect to the new stores through various types of store expansion packages. For existing stores, we paired a points-based incentive system in Q3 to motivate stores to enhance efficiency and optimize our ecosystem. This system is essentially a membership program for the store owners, through which the platform gives back returns as incentive to outstanding stores. This was aimed at achieving share value and a win-win between the platform and stores.

Among the nine pillar cities in Q3, the platform issued over RMB 18 million in equivalent cash benefits to store owners, with 30% of stores receiving this reward. The incentive system will bring more flexibility to our housing transaction business operation, while motivating store owners to engage more in our new business, including renovation and rentals. In our new home business, we continue to outperform the industry. In Q3, our new home GTV reached RMB 227.6 billion, up 18.4% year-over-year, compared with a 29% decline in the GTV of China's top SOE pioneer developers. Meanwhile, our market rate continued to increase in Q3. The proportion of revenue from commissions in our new home business outperformance mainly comes from continuous increase in the number of cooperative projects, which reached a high of over 8,000 in Q3.

In September, the number of our cooperative new projects accounted for 64% of all new home projects across cities where we operate, excluding Beijing and Shanghai, compared with 53% in the same period last year. This was a result of growing recognition among developers for our sales capability, as well as a proactive effort to expand collaborations. We continue to make the breakthrough new strategy collaboration. We have already covered seven out of the 10 top developers. Strategic collaboration differs from the top single project cooperation, which typically featured a competitive relationship between the two sides. In strategic collaboration, the two sides work as a partner to enhance mutual understanding. We inform our cooperative partner of the operations and the needs of our agents, market dynamics, and additional service, and value our platform efforts beyond the brokerage channel.

Through the top-down promotions of such warnings in real estate companies, we helped overcome difficulties in negotiation of city-level projects leading to more cooperative projects. Through the strategic collaboration, we can also better protect agents' rights. For instance, we incorporate customer private phone number protection and equal protection period into the strategic collaboration framework to promote fair cooperation. Moreover, we enhance business conduct governance to improve operational transparency, putting developers' minds at ease in their cooperation with us. Our stable monetization and the receivables collection also motivate agents to work more actively on the new home sales, boosting our new home sales through. Meanwhile, the agent's operational ecosystem has continued to improve the penetration of the customer private phone number protection, which rose to 16% in Q3, up by 8% from Q2, bringing more sense of security of agents, which also improves awareness to sell the new home. Thank you.

Operator (participant)

Thank you. Your next question is from Thomas Chong with Jefferies. Please go ahead.

Thomas Chong (Regional Head of Internet & Media)

晚上好，谢谢管理层接受我的提问。我的问题是关于我们家居租业绩发展得很快，但是这个业务好像是一个比较重运营的业务。公司可以分享一下在运营上我们做了什么来跟别人不一样。

Thanks, Management, for taking my question. My question is about our home rental business. As we see our Carefree Rent, it is undergoing fast growth pace. While this business requires quite a lot of involvement in operation, can Management share about how we are different from others in terms of operations? Thank you.

Tao Xu (Executive Director and CFO)

Thank you, Thomas. In Q3, revenue from our home rental services reached RMB 3.94 billion, up 118.4% year-over-year. It's mainly due to the continuous increase in the number of the home units under our management. By the end of Q3, we were managing over 360,000 units under our Carefree Rent module, compared to over 160,000 in Q3 last year. The contribution margin of our home rental services fell slightly quarter over quarter in Q3 due to the seasonality.

In the summer peak season of July and August, our Carefree Rent saw rapid growth in unit size and occupancy, which increased commission costs for the channel referrals and related personnel, which impacts contribution margin. Excluding the seasonal impact, the core metrics of the Carefree Rent improved significantly year-over-year from January to September. Our operations, focused on quality and efficiency, have yielded good results. On improving services to customers, we provide pre-moving inspections, standardized handover services, and tenant-side property transfer services, with the cumulative service count exceeding 970,000, providing a series of the core interests and rights guarantees to our tenants. Also, we centralize the management of the two types of property managers: tenant service manager and property service manager, to realize the centralized empowerment and the standardized services. This has enhanced our portal service capabilities and quality, while also leading to a continuous decrease in customer complaint rate.

In terms of the operation efficiency, we continue to increase the percentage of the lease renewals, which helps reduce the channel costs associated with the re-renting and finding new tenants. We achieve this through improved post-lease services, leading to increased tenant satisfaction and user retention. At the same time, we actively engage with tenants prior to lease expiration to discuss renewals, thereby boosting the renewal rate. By the end of Q3, the lease renewal rate was around 52%, compared to 48% in the same period last year. Regarding management rental costs due to vacancies, we shortened the days needed to rent out properties through the refined operations. The time required to rent out the property for the second time decreased to 7.5 days at the end of Q3, from 14.7 days at the beginning of the year. We also continue to optimize and upgrade our product module.

The coverage of our new product module, which incurred no vacancy period, continued to rise in Q3. This model enhanced our resilience against the rental price volatility and reduced the vacancy costs. The deposit cost per unit of our new Carefree Rent product module also dropped. This was mainly due to the improvement in the successful rate of the first-time rentals, which rose to 82% at the end of Q3, from 76% in the same time of last year, driven by higher personnel productivities. We continue to build our own rental occupancy team, which enhanced the leasing efficiency while keeping overall costs lower than the channel cost. By the end of Q3, the rental occupancy contribution by this team was at 19%, up five percentage points from the same period last year.

In addition, regarding Q3 operations, we took targeted measures to ensure the health and efficiency of our business in peak and light seasons, respectively. The specialization strategy for the service providers, based on their roles, significantly boosted our efficiency, leading to large-scale growth and incremental profit margins. In the peak season of July-August, in particular, the personnel productivity of the units and jobs and occupancy improved notably year-over-year. Since entering the off-season in September, we have implemented multiple strategies, including strengthening the rental occupancy made through our self-built team and agents, and improving their productivity using various marketing methods for the targeted customers. Continuously managed lease renewals and second-time leasing pre-sales, and focusing on key areas of the housing unit sales and effectively managed inventory. Thank you.

Operator (participant)

Thank you. Your next question comes from Miranda Zhuang with Bank of America Securities. Please go ahead.

Miranda Zhuang (Equity Research Analyst)

感谢管理层接受我的提问。晚上好。我的问题是跟贝好家有关的。看到最近贝好家在成都有拿到了地块，想请管理层分享一下关于这个项目的情况，我们做这个项目的逻辑原因是什么，然后我们对于贝好家这块业务整体上所考虑的商业模式是什么样子的。谢谢。

Thank you for taking my question. My question is about Beihaojia. We see the news that Beihaojia has successfully been aligned in Chengdu City. So can Management share with us about the project and the rationale about it, and then what's the company's business model for the Beihaojia? Thank you.

Tao Xu (Executive Director and CFO)

Thank you, Miranda. Our new business, Beihaojia, won a piece of land through the auction in Chengdu core areas of Jinjiang District, Financial City Phase III in September. We undertook this project after carefully reviewing and selecting, and it will be operated by Beihaojia's team independently. We aim to use the pilot project like this to better validate our ability to implement our C2M solutions at every stage, including the land auction, project positioning, design, and marketing.

By creating multiple projects, we can build trust with future partners such as developers, contractors, and property owners towards our business model and the product solution, ultimately helping us achieve a long-term life asset service platform model. But it is very clear that we do not intend to become a real estate developer. In terms of our long-term business model, we will not use our own capital for large-scale heavy asset investment. We position Beihaojia as a data-driven residential development service platform achieved through a one-plus-two business model. This includes C2IM product solution supported by our accumulated user insight and big data, and complemented by efficient customer acquisition and marketing capability. This empowers our partners in that chain to create homes that are well-suited to customers. C2IM will be our core capability.

It leverages vast amounts of data and AI technology to ensure the customer preference and demands are reflected in the new home products as possible. Regarding commercialization, we will charge service fees for offering an integrated set of solutions, including product positioning, initial and in-depth design, rather than through the large-scale capital contribution or early investment returns. Lastly, we were fortunate to acquire the land on September 20, right before the government rolled out the subsequent bundle of favorable policies. This has made the land acquisition price highly competitive. We believe this project will serve as a testbed for our capabilities, allowing us to accumulate know-how to support the realization of our long-term platform model. Thank you.

Operator (participant)

Thank you. We are now approaching the end of the conference call. I will now turn the call over to your speaker host today, Ms. Siting Li, for closing remarks.

Siting Li (IR Director)

Thank you once again for joining us today. If you have any further questions, please feel free to contact Beike's Investor Relations team through the contact information provided on our website. This concludes today's call, and we look forward to speaking with you again next quarter. Thank you, and goodbye.