ke (Minutes): The existing housing market will continue to recover in 2025, while new homes may still undergo adjustments

The following is the minutes of the Q4 2024 earnings call for $KE(BEKE.US) . For the earnings report interpretation, please refer to The real estate market is booming, but why is Beike only making “noise” without profit? .

I. Core Information Review of the Earnings Report:

1. Beike's performance steadily grows in 2024, with continuous expansion of platform scale

• In 2024, Beike's total GTV reached RMB 3.35 trillion, with total revenue of RMB 93.5 billion, an increase of over 20% compared to 2023.

• The number of active real estate stores reached 49,700, and the number of active agents grew to 445,000, a year-on-year increase of 12.1%.

• The GTV of second-hand housing transactions grew to RMB 2.25 trillion, a year-on-year increase of about 11%, setting a new historical high.

2. Resilience in new housing business, rapid growth in home decoration and rental services

• The GTV of new housing transactions was RMB 900.17 billion, a year-on-year decrease of 3.3%, but revenue grew by 10%.

The "one body and three wings" strategy has successfully promoted the home decoration business. In 2024, services were provided to nearly 60,000 families in 40 cities nationwide. Through supply chain management and systematic order dispatch capabilities, home decoration revenue reached RMB 14.8 billion (+36%).

• The number of managed rental service units exceeded 430,000, with revenue of RMB 14.3 billion (+135%).

3. Signs of market recovery in Q4 2024, with active new and second-hand housing transactions

• Since September 26, 2024, central government stabilization measures have led to an approximately 15% increase in new housing transaction volume, with GTV growing by 2%.

• The GTV of new housing on the Beike platform in Q4 2024 increased by about 50% year-on-year, indicating a strong market rebound.

• The proportion of GTV from existing homes increased from 40% in 2023 to 46% in 2024 (with nearly 50% year-on-year growth in 2023 and over 10% increase in transaction volume in 2024). The national price of existing homes still declined year-on-year in 2024, but increased by 0.2% quarter-on-quarter in Q4, showing the effectiveness of policy support.

4. Shareholder Returns

• In Q4, $132 million worth of shares were repurchased, with $760 million repurchased in 2024 (accounting for 3.9% of total shares at the end of 2023).

• A total of $1.63 billion has been repurchased since September 2022 (accounting for 8.6% of total shares before the repurchase program began), continuously fulfilling commitments • End-of-year dividend for 2024: $0.12 per share (ADS $0.36 per share), record date April 9, total payment of approximately $400 million.

II. Detailed Content of the Earnings Call

2.1. Key Information from Executives:

1. Beike continues to optimize operational efficiency and enhance customer service quality.

• In the fourth quarter of 2024, Beike reduced the average construction time for home renovation projects by more than 10 days, improving efficiency compared to the same period last year.

• By strengthening internal after-sales service capabilities, customer satisfaction in rental services has significantly improved.

• Adjusting roles and responsibilities has enhanced the experience of property owners and tenants, significantly improving key performance indicators such as secondary leasing efficiency.

2. Beike's strategic layout is diversified, exploring new business models.

• In 2024, Beike purchased land in multiple cities but clearly stated it will not transform into a real estate developer, instead focusing on providing customized services to reduce decision-making risks in the home buying process.

• In November 2024, Beike launched its first product solution service project in Xi'an, generating service revenue, indicating that the company is gradually transitioning to a platform-as-a-service (SaaS) model.

• Plans to set a cap on heavy asset investments and gradually shift towards a more ideal platform-based business model, similar to the SaaS model.

3. Beike increases investment in AI technology to enhance service efficiency.

• In 2025, Beike will increase its investment in AI, focusing on strengthening foundational capabilities, model data solutions, and accelerating the R&D of iterative applications.

• By combining high-precision next-generation P 4 cameras with deep learning-driven intelligent models, the professional understanding and intelligent assessment capabilities of properties have been enhanced.

• The AI assistant saves about 5% of work time and provides nearly 20% of strategic planning support; AI tools assist in generating 30% of R&D code.

4. Beike actively explores value-added services to expand business boundaries.

• The company will explore low-frequency traffic channels while launching value-added services such as home decoration, aiming to create more added value for customers.

• Plans to continue enhancing product strength in 2025, improving delivery quality, and adopting a customer-centric approach.

• Committed to enhancing competitiveness by improving product strength and service quality while focusing on improving internal management and operational efficiency.

2.2. Q&A Analyst Questions

Q: Regarding the application of AI technology, Beike enhances its external resources and improves operational efficiency through AI real estate consultants, property sourcing assistants, and other technical tools. Is management considering further introducing or collaborating with advanced large AI models to optimize the company's business operations? For example, how can AI enhance user experience across different business areas?

A: AI has a significant impact on improving industry efficiency and user experience, which can be considered from three perspectives. First, from the service side, current customers face greater uncertainty and decision-making risks in the home buying and selling process. Through data knowledge and intelligent AI, these issues can be effectively addressed, significantly optimizing customer experience and greatly enhancing service quality. Second, from the supply side, AI will enhance the capabilities of professional agents and accelerate the industry's transition to high-quality supply Third, from the perspective of platform value, AI provides more opportunities to solve operational efficiency issues through innovation.

Historically, our strategy has addressed service quality and platform scalability issues through real estate listings, standardized housing descriptions, and platform models. However, if efficiency issues are not effectively resolved, the profitability of the industry will face challenges. The emergence of AI can be seen as a production sector in the value chain, helping to address quality, scale, and efficiency issues, creating new platform opportunities and increasing its value. Based on these conclusions, we place great importance on the capabilities and potential of AI and have taken several initiatives. We integrate AI capabilities with industry data, advance the development of foundational models, and develop natural language processing models, chatbots, and image recognition models. We are iterating these models to support various application scenarios.

For example, for customers, we are conducting gray box testing, adjusting the AI-driven home thinking system based on deep learning and big data, and plan to launch it in the coming months. This system combines competitive pricing strategies and can quickly and accurately understand user needs and provide real-time data analysis, helping users overcome the high early decision costs and clarify customer demands. Through a new generation of high-precision and deep learning-driven intelligent models, we can provide more refined professional understanding and enhanced intelligent assessment capabilities, improving the user experience of VR home selection and home tools.

For business partners, we are building comprehensive solutions. For instance, we have conducted grid box testing in multiple cities and launched AI real estate lectures, AI property maintenance systems, and more. We have also introduced tools like AI marketing assistants and small training camps to enhance agents' capabilities in customer acquisition, demand identification, and personalized home decoration and furniture business solutions. We ensure that AI design tools can automatically generate marketing visual blueprints and have an internally developed AI-driven delivery management system. Additionally, our cloud-based construction system can perform AI automated construction measurement monitoring, serving as a smart inspection acceptance tool, creating a nearly fully AI-embedded digital group to improve organizational efficiency. We have deployed five digital AI agents, including Swingbox, achieving efficiency breakthroughs in areas such as business analysis and operational strategy support.

Here are some results from these applications: AI property service management managers have automatically handled 60% of rental property management tasks during the testing period; digital AI agents like Sun Xiaoheng have saved 5% of time, with nearly 20% used for operational strategies; AI program tools assist in generating 30% of R&D code. By 2025, we plan to increase AI investment to further strengthen foundational capabilities, model data, and solutions, accelerating the iteration of applications, research, and development. This time, we will improve various AI assistant models and further promote AI integration and native innovation capabilities. Ultimately, AI facilitates the efficient flow of information and knowledge, accelerating the end of the old model that relies on scale to exploit information gaps. We must break the dependence on scale. On the other hand, AI makes it possible for us to enter a new era, but we still have a long way to go to achieve our goals Regardless of advantages in development, user accumulation, application scenarios of industry data assets, verification environments, or early strategic planning, we will continue to expand the in-depth application of AI in the future, shaping the entire residential service process. We believe this is a significant responsibility as architects of digital infrastructure in the residential industry and is key to creating long-term value for investors.

Q: Since September last year, the real estate market has seen a strong rebound. What is the management's view on the sustainability of the market recovery? How is the trend so far this year? What is the management's outlook for the market this year? Is it more optimistic?

A: In 2024, the national existing housing market is showing a decline in prices but an increase in transaction volume. According to estimates from Beike Research Institute, the number of existing housing transactions in China in 2024 is expected to increase by about 15% year-on-year, while the total transaction value (GTV) has only increased by about 2% due to price factors. Particularly, following the release of new policies on September 26, transaction volume rebounded rapidly. In the fourth quarter, the total transaction value of existing housing on our platform increased by about 60% year-on-year, achieving a stronger and more sustained rebound than ever before.

At the same time, prices have stabilized to some extent, with prices in December rising by 0.2% compared to September, marking the first price increase in the fourth quarter in the past two years. For the new housing market, the national new housing market continues to face challenges in 2024. According to official data, national new housing sales volume decreased by 18%, while the total transaction value of new homes from the top 100 developers according to CRIC fell by 28% in 2024. However, the strong rebound in total transaction value of new homes in the fourth quarter supported the market for the entire year.

Regarding the transaction structure, the dominance of the existing housing market is increasingly strengthening. In 2024, the proportion of total transaction value of existing housing nationwide rose to 46%, an increase of 5 percentage points compared to 2023. Notably, in 30 first-tier cities, this proportion exceeded 50%. This is mainly due to the rapid decline in existing housing prices, making them more attractive to homebuyers. Meanwhile, the ample supply of existing homes has shifted some demand away from the new housing market.

In terms of demand structure, the rise of new existing homes (relatively newer existing homes) meets the growing housing improvement needs of homebuyers, who are the largest group. According to Beike's transaction data, the sales proportion of existing homes with three bedrooms or more increased from 40% in 2020 to 55% in 2024. The proportion of new existing homes built in the past 10 years surged from 27% in 2020 to 43% in 2024.

Regarding recent market dynamics, let me first talk about the existing housing market. According to our platform's data, the existing housing market has maintained an upward momentum, with transaction volume rebounding significantly after the Spring Festival. In the four weeks following the Spring Festival, the transaction volume of existing homes increased by about 40% year-on-year, with first-tier cities growing by 50%, while second-tier cities such as Chengdu, Ningbo, and Tianjin also achieved strong growth It is worth noting that the weekly trading volume has exceeded the peak in October following the policy stimulus on September 26, reaching the highest level since March 2023, indicating that the suppressed demand in the market has truly been released. Overall, the market follows seasonal trends, with growth momentum beginning to stabilize in the fourth week after the Spring Festival, but the decline is relatively small, still maintaining a high level.

Regarding housing prices, the price of existing homes slightly decreased by 0.4% month-on-month in February, which is significantly smaller than the average monthly decline in 2024. We can refer to the market sentiment index from Beike, which is compiled based on the proportion of homeowners increasing prices among all listing price adjustments. This index rebounded rapidly last October and has gradually recovered after reaching a low during the Spring Festival, with fourth-tier cities showing relatively high levels of market sentiment.

The new housing market has also seen a recovery during the traditional off-season. In the four weeks following the holiday, the volume of new home subscriptions increased by over 10% year-on-year. In terms of prices, new home prices have indeed remained stable month-on-month since September. Regarding the market outlook for 2025, we believe the market may begin to warm up in March 2025. In our view, the premise for overall market stability is the stabilization of new home prices. According to our survey, insufficient confidence in housing price expectations is the biggest obstacle preventing people from purchasing homes.

In a neutral scenario, we expect the existing home market to achieve moderate recovery in 2025, while the new home market may continue to adjust due to the complexity of certain risks, but the year-on-year decline may narrow. At the same time, we expect the structural differentiation of housing transactions in 2025 to further intensify, reinforcing the dominant position of relatively new second-hand homes. In particular, larger, relatively newer second-hand homes that meet the housing improvement needs of buyers will become the preferred choice. The new housing market will accelerate supply-side innovation, providing upgraded products that match the evolving demand. Thank you.

Q: The number of agents in stores on the Beike platform continues to grow. The company has made significant efforts and investments for this, and has been quite proactive. What areas of growth has the company achieved in 2024 through such investments? Will Beike continue to develop along the same growth path in 2025, or will we consider using methods such as artificial intelligence to improve efficiency for higher growth?

A: Last year, one of our key focuses was to expand the network of agents and stores. We launched customized incentive programs targeting stores of different sizes to attract industry participants. By the end of 2024, the number of active non-Lianjia stores on our platform exceeded 44,000, and the number of active non-Lianjia agents reached 331,000, representing year-on-year growth of 20% and 11%, respectively. Notably, four large new brands have joined the platform, each with over 100 stores Our goal in expanding the network is to enable industry participants to leverage our customer traffic, cooperative network, practical operational management, and diversified business opportunities within the broader residential services sector to enhance their operational efficiency. During the three months of June, the efficiency of each newly onboarded store's broker reached over 80% of the efficiency level of existing store brokers. Additionally, approximately 13% of the newly onboarded stores were able to achieve an average capacity that was twice that of the average capacity of existing stores on the platform within six months of joining, becoming high-capacity stores. Therefore, the functionality of our store network has brought strong investment returns.

In the first half of the year, the investment recovery period for newly onboarded stores was six months, with a cumulative churn rate of only 5% within the six months after onboarding. As the scale of the store and broker network expands, deepening ecosystem governance and strengthening our relationships with all stakeholders becomes increasingly critical.

All of our governance mechanisms respond to the operations of the regional joint governance committee, allowing store owners to better participate in the decision-making of some platform rules, enhancing their engagement. Furthermore, our store points reward program was successfully launched citywide. [Data missing] 46% of cooperative stores received reward benefits, with each store receiving an average reward valued at approximately 2,000 RMB. We also created tools like online store owner workshops, which simplify their management processes through features such as dashboards and traffic lead management.

The satisfaction of cooperative stores and owners has improved throughout the year, rising by 4% from the first quarter to the fourth quarter. Additionally, the monthly churn rate of stores in cities like Beijing and Shanghai decreased by 0.2 percentage points in 2024 compared to 2023, while the monthly churn rate of brokers decreased by 1.7 percentage points year-on-year.

As a key growth engine and an innovative leader in the industry, Lianjia has consolidated its market position in 2024. By the end of 2024, Lianjia had over 114,000 active brokers, with a net increase of over 16,000 brokers, a year-on-year growth of 17%. The average monthly churn rate of Lianjia brokers nationwide decreased by 0.7 percentage points year-on-year, reaching a lower level of 3.4%.

As transaction volumes slow and the demands on brokers become more stringent, our solution is to utilize the large store model to improve organizational efficiency. This model was first implemented at Lianjia, and by the end of 2024, the average number of brokers per store increased to 20. The store structure continues to optimize, with the proportion of large stores reaching over 50%, an increase of 8.6 percentage points year-on-year. The average commission of Lianjia stores reached 2.53 times that of the average commission of cooperative stores, a year-on-year increase of 5.9%.

Talent development remains a key investment area for Lianjia. We launched a three-year leadership development program for Lianjia store managers. This initiative aims to enhance store efficiency and improve profitability to retain high-performing store managers. In 2025, growth and ecosystem will continue to be key elements of our housing transaction services. At the same time, we are also striving to improve efficiency We will continue to ensure the stable growth of our stores and broker network.

At the same time, we are increasingly driving business growth by improving efficiency, leveraging ecosystem collaboration, and utilizing digital tools. This includes implementing a comprehensive long-term store incentive program, such as a points-based reward system, to translate skill advantages into efficiency gains. Additionally, by using more refined management tools, we will empower store owners with stronger operational capabilities, enhance regional penetration, and help more brokers and stores increase their income.

Q: What are the key advantages driving the rapid growth in the housing rental business? We observe that the housing rental market still faces challenges, with declining rents and ongoing oversupply. In this context, how do we maintain the stability of the housing rental business while improving profitability?

A: In 2024, our housing rental business achieved significant scale growth in optional services, particularly in our "Worry-Free Rental" service. With a focus on service and efficiency, we have established a solid foundational framework for our business model. In terms of scale, our housing rental service revenue reached RMB 14.3 billion, a year-on-year increase of 135%, primarily driven by the expansion of the "Worry-Free Rental" business. By the end of 2024, the number of properties managed by "Worry-Free Rental" exceeded 420,000, compared to over 200,000 a year earlier.

In the process of operating a large number of properties, we have gained a deeper understanding of the high frequency, non-standardization, long cycles, and complexity of rental services. To address these issues, we have broken down non-standardized services into standardized actions for service providers and assigned specific roles to them, achieving service specialization and thereby improving efficiency.

For example, offline rental services, such as property inspections, rent collection, and periodic key handovers, are handled by rental specialists to ensure standardized [specific process missing] procedures. Meanwhile, rental service managers handle various independent requests through centralized online management, providing 24/7 support. By the end of the year, [specific business missing] service orders accounted for over 50%, better aligning with tenants' schedules.

We have also deployed artificial intelligence motion radar tools to detect tenant disturbances and proactively improve service trends. In this way, our property managers can focus on the sales and occupancy rates of rental units without being distracted by rental affairs. By the end of 2024, unit sales efficiency increased by 29% year-on-year, driving rapid growth in the total number of rental properties.

In addition to enhancing organizational capabilities, we have developed an intelligent artificial intelligence system that empowers operations using AI technology. From pricing strategies for property acquisitions, inventory management to rental strategies, we deploy intelligent algorithms to dynamically manage traffic, pricing, and marketing strategies, improving labor efficiency and asset turnover rates. For example, in some pilot cities, since the system was launched, the operational efficiency of service providers and managers has improved by about 40%, property turnover rates have increased by 7.7%, and turnover cycles have shortened by 11.3% From a financial perspective, the contribution profit margin of our leasing business improved quarter-on-quarter in the fourth quarter, due to the impact of the summer leasing peak in the third quarter. The "Worry-Free Rental" business experienced a quarter-on-quarter decline in new home sales and rentals. This led to a decrease in the proportion of operating personnel expenses to net rental income, resulting in a slight improvement.

For the whole year, the core operational indicators of the "Worry-Free Rental" business significantly improved. Enhanced tenant services increased customer retention rates. By the end of the year, the customer violation rate had decreased by over 20% compared to the beginning of 2024. We also optimized our cost structure and improved service quality, resulting in a tenant renewal rate of 54.4% in 2024, an increase of 2 percentage points year-on-year, which reduced the channel costs for subleasing.

Regarding the management of leasing costs due to vacancies. On one hand, we focused on improving re-leasing capabilities. Over time, this significantly reduced the vacancy rate. Considering that the fourth quarter is the off-season, the average vacancy period shortened from nearly 15 days at the beginning of the year to less than 12 days in the fourth quarter. On the other hand, we continuously upgraded our product models. The coverage of new product models with no vacancy period continued to rise in the fourth quarter. This model enhanced our resilience to rental price fluctuations and reduced vacancy risks.

The customer acquisition cost per property under the "Worry-Free Rental" model also decreased. This was mainly due to an increase in the initial leasing success rate, which rose to over 80% in 2024, an increase of 8 percentage points year-on-year. For 2025, we still have high expectations for the number of rental properties managed under the "Worry-Free Rental" model. At the same time, we will continue to balance scale and operations. To this end, we need to strengthen our value proposition to tenants and owners. The key lies in improving our service quality and re-leasing efficiency.

Q: The home decoration business has maintained steady growth over the past year, with revenue exceeding 10 billion RMB in 2023. Can management share the main factors driving growth and the strategic plan for 2025?

A: In 2024, our home decoration and furniture business achieved strong growth. In terms of scale, our revenue reached 14.8 billion RMB in 2024, a year-on-year increase of 36.1%. The contracted sales amount reached 15.9 billion RMB, a year-on-year increase of 27.3%. In Beijing, the contracted sales exceeded 3 billion RMB, in Hangzhou over 2 billion RMB, and in Shanghai and Chengdu over 1 billion RMB. Additionally, five other cities also had contracted sales exceeding 500 million RMB each.

As for profitability, the contribution profit margin of the home decoration and furniture business reached 30.7% in 2024, an increase of 1.7 percentage points compared to the same period last year. For example, in the first quarter, the contribution profit margin of the home decoration and furniture business reached approximately 35%, and after deducting high quarterly costs, the pre-tax profit margin exceeded 5%. The breakthrough in our home decoration and furniture business is mainly attributed to the efficient synergy between our housing transaction services and new businesses, as well as our enhanced construction delivery capabilities and support from the underlying digital platform The deep integration of our housing transaction services and renovation services has significantly enhanced our customer acquisition capabilities and driven rapid growth in signed sales. We encourage brokers to recommend our new business through a points incentive model. The proportion of signed sales brought in by broker recommendations has increased in the total signed sales. As signed sales grow, we need to strengthen our delivery capabilities. To achieve this, we have optimized order dispatch efficiency and workflows, further shortening the construction cycle. In the fourth quarter of 2024, our average construction cycle was approximately 94 days, shortened by more than 10 days compared to the same period last year. At the same time, we continue to integrate our home decoration system and have launched version 2.5 nationwide.

Through personalized product management and unified drawing rules, we have improved the foundational data of the system. This ultimately enables us to generate automated renovation designs and construction drawings quotes, as well as achieve unified online material scheduling. Regarding the business outlook for 2025, we made further breakthroughs in business scale last year. In 2025, our core goal for the full-package renovation business is to be customer-centric, enhance product strength, and improve delivery quality while achieving operational efficiency.

To this end, we intend to implement the following key initiatives. First, enhance product strength through business model iteration and showroom upgrades. We plan to establish a strong brand image as a full-package renovation service provider. Based on our insights into customer needs, we aim to provide comprehensive renovation solutions rather than just selling different products. At the same time, we expect to upgrade our showrooms. We plan to make the showroom the core display area of offline stores. We will collaborate with professional designers to create realistic showrooms and showcase various renderings to enhance the offline experience for customers.

Second, improve delivery capabilities and promote the professionalization of product managers. We believe that long-term stable cooperation with product managers is the fundamental guarantee for ensuring the quality of home renovation delivery. We intend to enhance delivery quality with full-time product managers at the core and stimulate their enthusiasm through an order allocation incentive mechanism to improve customer satisfaction with service product delivery and reduce customer complaint rates. At the same time, product managers will be responsible for delivery quality and orders from repeat customers.

Third, we need to enhance operational efficiency. We previously found that several travel suppliers establish connections with customers through key responsible persons. Based on this, we define store managers as the primary responsible persons, fully responsible for customer needs, contract conversion, cost delivery, and business management, achieving an end-to-end management cycle. We define designers as the primary responsible persons for renovation solutions and communication. We will strengthen centralized training and conduct professional certification to enhance our full-package renovation design skills.

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