KE Holdings Inc. Q1 FY2024 Earnings Call

Hello, ladies and gentlemen. Thank you for standing by for KE Holdings Inc. First 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 would now turn the call over to your host, Ms. Siting Li, IR Director of the company. Please go ahead, Siting.

Thank you, operator. Good evening, and good morning, everyone. Welcome to KE Holdings, or Beike's first 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. 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 development and Mr. Xu will provide additional details on the company's financial results. Before we continue, I refer you to our safe harbor statement in our earnings press release, which applies to this call as we will make forward-looking statements. Please also note that Beike's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Please refer to the company's press release, which contains a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures. Lastly, unless otherwise stated, all figures mentioned during this conference call are in RMB. For today's call, management will use English as the main language. Please note that the Chinese translation is for convenience purposes only. In the 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.

Thank you, Siting. Hello, everyone. Thank you for joining Beike's first quarter 2024 earnings conference call. In the first quarter of 2024, the transaction volume of existing homes on our platform prevailed, surpassing that of new homes in 74 cities despite a high base rate in the first quarter of last year. The existing home transactions continued to show year-over-year growth in 15 cities. The steady growth in the existing home market reached RMB 630 billion in the first quarter, down 35% year-over-year. At the same time, GTV on existing home and new home transactions declined by 32% and 45% year-over-year, respectively. The overall performance is expected to improve in the coming quarters. At the end of the first quarter, the total number of active stores on our platform reached over 42,500, an addition of nearly three solid stores compared with last year, primarily attributable to a substantial increase in the number of net stores. Our strategy on active partnering with interconnected stores has paid off, with additional key partner brands joining us across Wuhan, Xiamen, Nanjing, Jilin, and other cities. It also demonstrated that more industry partners are finding ways to improve efficiency these days. Since the fourth quarter of 2023, the performance of newly connected stores has also exceeded our expectations. There has also been a positive surprise in agent productivity in the newly connected stores with only a handful of employees compared to those of large stores, which have withdrawn major market fluctuations. These smaller stores boosted operational efficiency and created a community of rich capabilities far beyond our expectations. Their performance has motivated us to improve our service competencies to better serve the diverse types of stores. The scaling up of agent and store networks further enhances the most fundamental infrastructure of our one-stop residential services. On the agent and store front, Lianjia Shanghai has adopted innovative business strategies to achieve growth. Looking back to 2022, our home listing coverage rate in Shanghai was around 35%. This indicated that there was room for improvement in our community outreach, and that our traditional large store model was too heavy-handed and impersonal. We advocate for a limited agent store model, where we are stores and service providers with strong community ties and extensible strategic components. Over the years, we have explored many ways to improve the agent size. In 2023, Lianjia Shanghai discovered more possibilities on the storefront, exploring various innovative practices under the large strong model with nearly 60% of community mini-service outlets derived from these large stores, which we call community mini-stores. This streamlined approach includes providing local convenience services such as printing at various small stores or mobile service kiosks and reception points located in high-traffic areas like community centers, shopping malls, and subway stations. By deepening our exposure in neighborhoods and establishing a strong community presence, we strengthened the sense of security for customers as well as agents. We have achieved better community coverage and can better identify local customer needs. In 2023, our coverage of the 3.5 million target residential households rose to 95% compared to 87% in 2022, and our home listing coverage rate in Shanghai shot from 65% to 84%. We also made new attempts to enhance customer endurance in housing transactions. In terms of online operations, the rise of new media platforms over the past few years has led more agents to leverage those channels to acquire and engage customers. Capitalizing on this trend, agents and store owners on our platform also began using tools like short videos and live streaming to present home listings, introduce residential neighborhoods, and share real estate knowledge. Despite these early efforts, the lack of a new media strategy resulted in low customer acquisition efficiency. In response, we kicked off the Galaxy initiatives in 2022, incubating and empowering more agents and store owners to acquire customers through short videos and live streaming. By the end of the first quarter of this year, our improved in-store network has grown to over 12,000 with almost 36 million followers, making it one of the largest real estate MCN networks nationwide. The traffic led to thousands of transactions last year. More importantly, this can better satisfy customer needs. Service providers can connect with a wider audience via these new media platforms which offer potential customers more impartial interactions compared to traditional online methods. This approach gives agents an edge in uncovering heightened customer needs, plus the emergence of real estate content influencers is not just a trend resulting from technological advancement; rather, it reflects and results from the further specification of buyers and sellers' agents within the industry. Regarding our offline operations, we are advancing the iteration of a series of services that directly improve customers' experience, including a direct connection with the housing provided fund to facilitate easier access. We also implemented measures that enhanced customer endurance by elevating our business partners' engagement such as public supervision and control programs to enhance ecosystem governance and entire agent operations. Taking the Winthrop transaction services model, which we implemented in Suzhou, as an example, historically, customers needed to go to four separate places to complete the required procedures for existing home transactions and often had trouble scheduling appointments in advance. This internalized process also hindered our ability to ensure seamless endurance throughout the entire transaction. So we sought ways to streamline this endurance by promoting collaboration among the government agencies, banks, and related enterprises in Suzhou, alongside our technology support. All this effort provided one-store wholesale services for existing home transactions, covering transaction funds escrow, face-to-face bank mortgage, sign-ups, home title transfers, tax payments, and connection of property ownership certificates. As Suzhou successfully pioneered the one-store services model with an end-to-end wholesale transaction process for existing homes, we plan to replicate this model in more cities and significantly improve customer endurance going forward. As for our customer endurance in new initiatives, there is still ample room for improvement as we delve deeper into customer needs and iterate our service products. For example, last year, we conducted a survey involving the needs of 100,000 tenants and identified several major pain points, such as delayed service response, non-standard housing amenities after moving in, high costs of changing rentals, and a lack of lease termination guarantees. As a response, on March 16, 2023, we upgraded our services to include seven service offerings: timely repairs, housekeeping, broadband setup, smart door locks, worry-free rental changes, flexible payments, and dedicated bounties. We also implemented a three-day unconditional reform upon lease termination, guaranteed reform for rental changes, a home security guarantee, compensation for unsatisfactory rental variances, and timely deposit reforms. These service benefits and guarantees are specifically designed to address the most critical pain points of customers. We have created a standard service fulfillment process based on best practices in this area. The result has been a notable improvement in the standardized service fulfillment rate, high customer satisfaction rates three days after moving, and a better customer recommendation rate. The areas I have just touched upon uncover some of the key initiatives we have been preparing over the quarters. What we are working toward is assembling a group of people to forge a better pace forward. That enables us to navigate the changing times. We are looking to evolve our agent store model for housing transaction services, enhance the quality and efficiency of our new initiatives, and elevate our overall platform to new heights, striving to meet and address opportunities presented by the new era in China's housing market. Thank you. Next, I would like to turn the call over to our CFO, Xu Tao, to review our first quarter financials.

Thank you, Stanley, and thank you, everyone, for joining us. Before we dive into the performance of Q1, I would like to quickly touch upon some updates on the recent housing market. The housing market saw a year-over-year decline in Q1, primarily due to the high base effect from the release of pent-up demand early last year following the dynamic. However, compared to the typical first quarter market performance, the new home market was fairly stable in this Q1, with some cities' transaction volumes exceeding those of the same period last year. This improvement can be partly attributed to city-specific policy optimization that relaxed the criteria of home buyers' eligibility. The other reason is the active entry of first-time home buyers into the market, primarily driven by reduced mortgage rates and housing price adjustments. These factors further lower the home purchase cycles and costs. At the same time, due to home buyers' preferences for readily available existing homes, more demand was met in the existing home market. Turning to our performance in Q1, our revenue reached RMB 16.4 billion compared to RMB 20.3 billion in the same period last year. Gross margin stood at 25.2%, compared to 31.3% in Q1 last year. GAAP net income reached RMB 432 million compared to RMB 2.75 billion in the same quarter last year. Non-GAAP net income was RMB 1.39 billion compared to RMB 3.56 billion in the same period last year. Our Q1 performance was weaker than the same period last year, mainly due to the higher base performance from the one-time impact, partly attributable to the concentrated release of pent-up demand in the same period last year. Another reason was the optimistic expectations for the housing market, which surged demand in Q1 last year. At the same time, the new home market continues to experience depression. We believe the first two factors are one-time impacts, and our future performance will better reflect our business operations. Regarding home transaction services in Q1, both new and existing home markets showed a year-over-year decline, primarily due to the higher base performance from the one-time impact mentioned earlier. Revenue from existing home transactions reached RMB 5.7 billion, down 37.6%, with GTV reaching RMB 453.2 million, down 31.8% on a year-over-year basis. GTV outperformed the revenue year-over-year, mainly due to a higher contribution from the GTV of existing home transaction services facilitated by connected agents. The revenue was recorded on a net basis. Our strategic expansion of more connected stores played a key role in driving this growth. The contribution margin from existing home transaction services reached 44.5%, remaining steady quarter-over-quarter but dropped 4.6 percentage points year-over-year. The change was mainly due to the increase in fixed labor costs related to the growth of the number of Lianjia agents as the negative leverage influenced by the reduced revenue. In terms of new home transaction services, the industry is still in a risk clearance phase, with supply and demand dynamics remaining subdued. Data shows that the sales from the top 100 developers decreased by nearly 50% year-over-year in this Q1. As we continue to refine our new home business operations, we have expanded our channel partnerships while upholding our risk structure. In Q1, new home GTV reached RMB 151.8 billion, down 45.4% year-over-year. Revenue from new home transactions was RMB 4.9 billion, dropping by 41.5% year-over-year. The outperformance of revenue over GTV year-over-year was due to our strong monetization capabilities. The contribution margin for new home transaction services was 22.3%, falling by 4.1 percentage points quarter-over-quarter and 4.8 percentage points year-over-year. The decline was attributable to the rise in variable commission and the negative leverage from the relatively stable fixed labor costs and lower revenue. In Q1, the commission income percentage from state-owned enterprises (SOEs) was around 49%, maintaining a relatively high level. Revenue for home renovation and furniture business, home rental services, and other emerging services grew by 112.9% year-over-year in Q1, accounting for an increasing portion of our total revenue at 35% and surging by 21.7 percentage points from the same period of 2023. Our home renovation and furniture business continued to grow rapidly. In Q1, contracted sales reached RMB 3.4 billion, up 26.1% year-over-year. Revenue reached RMB 2.4 billion, rising by 71.1% year-over-year. The growth rate of revenue outpaced that of contracted sales, primarily due to the concentrated release of pent-up demand after the lifting of pandemic restrictions in the same period last year, leading to a substantial rise in contracted sales and creating a high base of GTV. However, due to insufficient delivery capacity, the revenue recognition was slow in the same period last year, leading to a lower base of revenue. In terms of highlights in the first quarter, total contracted sales in March reached nearly RMB 2 billion, up around 53% year-over-year. Especially noteworthy was the record-breaking March contracted sales in Beijing, surpassing RMB 400 million. The contribution margin for the home renovation and furniture business was 30.6%, remaining flat year-over-year and up 2.8 percentage points sequentially. This was mainly attributable to the rebound in gross margin from furniture and home furnishing quarter-over-quarter. The percentage of contracted sales contributed by our home transaction services continued to increase, representing around 51% of total GTV in Q1, making an 11 percentage point increase year-over-year. This further highlights the synergies between our housing transactions and other residential services. Moreover, our home renovation and furniture business has grown more diverse. Furniture and home furnishing sales reached around RMB 940 million in Q1, accounting for around 27.8% of total contracted sales, representing a 5.1 percentage point improvement from the same period of 2023. The contracted sales of furniture and home furnishings retail outside of our home renovation package reached around RMB 882 million in Q1, accounting for around 26% of total contracted sales, representing a 4.7 percentage point improvement from the same period of 2023. Starting from this year, we have begun to disclose the financials of our home rental services due to their growing importance in our business. Revenue from this service accounted for over 10% of total revenue in the first quarter. In Q1, revenue from our home rental services reached RMB 2.6 billion, up 189.3% year-over-year, mainly due to the rapid growth of the number of rental units under our management. By the end of Q1, the number of units managed by our home rental services exceeded 250,000, reflecting a 159.1% rise year-over-year. With the revenue generated from our home rental services, our decentralized rental management services collected rent contributed to more than 95% of total. Other revenue sources include centralized rental apartment services, monetization of platform traffic, and online rental management services. In Q1, our net revenue from emerging and other services increased by 85.3% year-over-year to RMB 700 million. Next, let's move on to our other costs and expenses in Q1. Our store costs totaled RMB 685 million in Q1, remaining stable overall compared to the same period of 2023. Other costs decreased by 20.7% year-over-year to RMB 379 million, primarily due to the reduction in taxes and surcharges. As a result of our decreased operating leverage, our gross profit dropped by 35.1% year-over-year to RMB 4.1 billion, with a gross margin of 25.2%, down 0.3 percentage points quarter-over-quarter, remaining relatively stable. Year-over-year gross margin decreased by 6.1 percentage points, mainly due to the lower contribution margin from existing and new home transactions along with the decreasing share of revenue from existing home transactions. This decline in gross margin was partially offset by the larger portion of revenue from our home renovation and furniture business. In Q1, our GAAP operating expenses totaled RMB 4.1 billion, showing a 21.9% year-over-year increase and a 22.7% quarter-over-quarter decrease. Specifically, G&A expenses climbed by 24.5% year-over-year to RMB 2 billion, driven by higher personnel costs associated with our home renovation and home transaction services. The rise in G&A expenses on a year-over-year basis was mainly due to a provision for bad debt totaling approximately RMB 19 million in Q1, whereas around RMB 127 million of the provision for bad debt were reversed in the same period of last year. Sales and marketing expenses grew by 25.5% year-over-year to RMB 1.6 billion, propelled by the rapid expansion of our home renovation and furniture business. Our R&D expenses amounted to RMB 467 million with only a slight change compared to the first quarter last year. In terms of profitability, GAAP income from operations totaled RMB 12 million in Q1 compared with RMB 2.98 billion from the same period of 2023. GAAP operating margin was 0.1% compared with 14.7% from Q1 2023. Non-GAAP income from operations amounted to RMB 960 million compared with RMB 3.83 billion from the same period of 2023. Non-GAAP operating margin was 5.9% compared with 18.9% from Q1 2023. The year-over-year decline in operating margin was mainly due to the lower gross margin and the higher operating expenses ratio. GAAP net income totaled RMB 432 million in Q1 compared with RMB 2.75 billion from the same period of 2023. Non-GAAP net income amounted to RMB 1.39 billion compared with RMB 3.56 billion from the same period in 2023. Shifting to cash flow and balance sheet metrics, we realized a net operating cash outflow of RMB 950 million in Q1, largely due to the seasonal impact of the bond payment during this Q1. On top of that, USD 220 million was allocated towards share repurchases during the first quarter. Our total cash liquidity, excluding customer deposits payable, reached RMB 75.6 billion. This year, the EU market remains challenging. Internally, we will increase our strategic investments. Under these circumstances, we remain committed to enhancing shareholder returns, refining the company's capital structure, and optimizing capital operations. Our goal is to provide shareholders with consistent returns, enabling them to navigate the economic cycles alongside sellers. Our actions demonstrate that we have delivered on our promise. Throughout 2023, we allocated around USD 790 million to the share buyback program and recently completed the payment of the final cash dividend plan, distributing around USD 400 million in aggregate. Our total shareholder returns from repurchases and dividends significantly exceeded our net income, accounting for around 159% of our net income in 2023. In 2024, as of May 10, we have allocated around USD 344 million for share repurchases, and the number of repurchased shares accounted for around 2% of the total shares at the beginning of the year. This year, we are focusing on strategic investments to expand our store network, enhance training for frontline service providers, iterate product technology, upgrade card services, and improve middle to back office operations for our emerging business. This initiative requires more efficient financial management. Therefore, we are committed to supporting our business in optimizing financial resource allocation and making efforts to help our business achieve long-term development. Simultaneously, we will maintain high standards for risk management and capital allocation efficiency to ensure our investment generates better returns in the future and create long-term value for our shareholders.

Operator, we can move to Q&A session.

Your first question comes from Sophie Xiaodan Zhang with CICC.

I got two questions here. First of all, could you please share your views on recent policies as well as the market outlook? And secondly, since the customer acquisition channels are becoming increasingly diverse for real estate agencies, how are you going to ensure your efficiency in online traffic acquisition, especially regarding the new home transaction services? Developers started to allocate part of their sales and marketing budget on emerging media platforms, so I wonder if the company has considered investing more in video-based products or content to better reactivate used traffic.

Regarding your first question, despite ongoing price adjustments in the existing home market, the overall transaction volume has remained relatively stable. The market performance in some cities even exceeded expectations, which makes us cautiously optimistic about the future of the existing home market. Nevertheless, the new home market remains somewhat sluggish with the rollout of policies aimed at inventory reduction. We anticipate improved liquidity in the new home market supply side and a recovery in market confidence. Let me elaborate further. Regarding the policies this year, the positive policies can be categorized into three types: firstly, policies aimed at releasing and attracting buying power, such as the consolidation and optimization of purchase restrictions in cities like Hangzhou, Chengdu, and Shenzhen, and removing the minimum mortgage rate. Secondly, policies facilitating the sale of old homes for new ones and the government buying unsold homes to help adjust inventory. Thirdly, policies to optimize the supply of new homes such as directives to limit residential land supply in areas with high inventory levels. The policies are very supportive of the existing housing market. Since the beginning of the year, GTV for new homes has remained largely stable, not matching the high base that was the release of pent-up demand in Q1 last year. It has also shown recovery in March following a seasonal adjustment in April. In April, the number of existing home transactions on our platform did not experience the rapid decline seen during the same period last year, instead recording a year-over-year increase of 14%. Cities such as Shanghai, Shenzhen, Nanjing, Hangzhou, Changsha, Wuhan, and Xiamen showed a notable increase. At the same time, the recent trend indicates that the weekly transaction volume has continued to decline sequentially. The total number of new home transactions on our platform increased by over 20% year-over-year in the first three weeks of May, while GTV increased by over 10%, higher than the level of decline from the high base in the same period last year. Meanwhile, existing home prices remain in fluctuations, while the market is in a state of decreasing price for increasing volume. Looking at leading indicators, the volume of home purchases is higher than last year's average, indicating that buyers are actively seeking to purchase homes. Meanwhile, so far this year, the growth rate of both month-over-month and year-over-year in home listings in the top 50 key cities has slowed down, unlike in September last year when numbers of listings surged under more policy loosening. There has been no similar surge this year. Overall, people in the market have become more rational. In terms of the transaction structure, the proportion of home purchases by first-time buyers has increased in the short term, driving from around 30% to around 35%. This is partly due to price adjustments and the easing policies that have lowered cost barriers for buyers, needing to sort out school enrollment hierarchies of residential permits through re-registration. Additionally, issues with new home pre-sales are making effective supply scarce, and a trend towards luxury housing has pushed some first-time home buyers out of the new home market. Positive trends of first-time buyers entering the market are also defined as a front-end of the how-to-upgrade chain, increasing customer accumulation and activation. For the new home market, it continues to see weakness in supply and demand with low expectations. From January to April, GTV of the top 100 real estate developers declined by about 47% year-over-year, which is a historical low. On the demand side, potential buyers with home upgrade needs are focusing more on larger homes. Data from China Index indicates that in key cities, the proportion of new home units with four or more rooms has increased from 21% in 2020 to 25% this year. Additionally, substantial demand for other types of new homes is flowing into the existing home market. On the supply side, in light of new home sales, developers are adopting a pre-cyclic strategy, retreating from land auctions and project launches amid insufficient new factory supplier and high inventory levels at the end of March 2024. Further data shows that the average inventory turnover period for new homes in 80 cities has extended to 24.4 months. With the strengthening of policies, we believe expectations for the new home market will improve. For your second question, this year, one of Beike's key focus areas is constructing online infrastructure at the customer front end and the business needs acquisition. In the past, we formally invested in solving the pain points that customers encounter when actively searching for homes through our authentic listing and home listing-centric emphasis. In today's bearish market, customers have a wider range of choices and longer decision-making periods, making it even more crucial to start from the customer perspective. We aim to provide real and effective information and better understand and translate customer needs. Therefore, we are updating our ways of connecting with customers, our service models, and the online content that we provide. Regarding the user connection methods, users previously only connected with our app when needed. Now we have added proactive ways to connect with users, helping to better utilize both internal and external traffic channels to proactively reach out to them. For example, we use live streaming and short videos that align with user habits. In terms of service models, we are making service providers rather than the houses the first online content point for the customer. We believe that only by doing so can we better explore and understand customer needs and provide better services. On this front, we introduced new online roles for service providers such as streamers and home selection consultants. This will help build personal brands and attract customers. In terms of content, in addition to sharing sale information, we have diversified our content to include market trends in commercial areas, land auction information, and property analysis. We’ve provided professional home-buying consultation services via videos and live streaming. One of our initiatives is the Galaxy plan, as our Chairman mentioned in his letter, which aims to cultivate new media talent from our store owners and agents on our platform, helping them acquire customers through short videos and live streaming on external video platforms, enhancing both agent and platform transaction activity. Currently, the Galaxy plan powers 63 cities nationwide, empowering a total of over 12,000 people. Our influencer network has accumulated tens of millions of followers, with more than 600 agents having over 10,000 followers each. In the first quarter of 2024, over 2,000 housing transactions were achieved by influencers through new media customer acquisition, increasing by 103% year-over-year. We have established a comprehensive employment system for online influencers, including online and offline course systems and mentorship programs. This system covers various stages of empowerment from incubation to long-term operational efficiency – ensuring efficient conversion. In terms of content, Beike's massive housing resources provide strong support for agents. Meanwhile, we're empowering agents to improve their online influence through various methods such as sector analysis, property valuation, dynamic maps, and popular tools. We also created accounts based on indicators such as follower numbers, conversion rates, and performance, matching their traffic support with other incentive mechanisms to give streamers sustained growth and long-term return opportunities.

I have two questions here. The first one is regarding our investments into the core home transaction business. I was just wondering if management could share any color on what our key focus will be for this year in terms of investments and how we evaluate the ROI of these investments. We used to mention that one of the big key focuses this year is to increase the number of connected stores. Could management provide updates on this point? How do you think about the efficiency impact on existing stores from increasing the number of connected stores? And the second question is about our outlook for new home sales, or new home GTV on the platform, after a relatively weak first quarter. I'd like to know what your outlook here is.

For your first question, this year, we are primarily focused on growth with enhanced quality and efficiency in our housing transaction business. Actively connecting with more high-quality brands, stores, and agents is one of our main investment directions. The results have surpassed our expectations in both scale and efficiency. Regarding store connection, we have proactively connected stores to our network since September last year. By the end of the first quarter, the number of active stores increased by 1.4% compared to the previous quarter, with over 1,000 new stores added, including those being prepared for opening or signed in the first quarter. The 90-day retention rate of these newly connected stores remains at a high level of around 98%. Our market penetration has further improved, showing considerable gains in cities such as Bo'ao and Yantai. Regarding efficiency, we have not lowered the entry barrier or sacrificed quality for the sake of growth. The average number of agents per new store is slightly lower than that of the existing platform stores, but it maintains steady growth. The efficiency of newly connected stores continues to rise rapidly. Other stores connected since last September and up to March of this year saw the average revenue per store increase by 100% within six months of operation. Moreover, by the end of March, the productivity per agent in these newly signed stores reached over 90% of that in existing platform stores. In addition, we are seeing that in newly connected stores, some smaller family-operated stores with around two agents have performed well, due to their deep community involvement and capital efficiency. Within three months of connecting to our network, agent productivity in small stores was 15% higher than the average productivity of agents in stores connected during the same period. These competitive small stores also inspire us to connect further with various types of stores, enhancing our ability to serve them on the platform. We aim to implement more refined store tier management. We also achieved better-than-expected ROI for these investments from an overall perspective. The stores connected in Q4 2023 achieved positive ROI by March of this year. In supporting our growth in scale, we are very cautious with our investment strategy. We primarily provide performance-based support, such as funding, storefront renovation, and business development to newly connected stores rather than increasing personnel. This ensures flexibility in our investment and streamlines our operations. Regarding your second question, the new home market has remained tough since the beginning of the year. In Q1, our new home GTV reached RMB 151.8 billion, a 45% drop year-over-year, but still better than the market. Revenue from new home transactions was RMB 4.92 billion, down 41.5% from the same period last year. This smaller decline compared to the GTV shows our stronger monetization capabilities. We believe our new home business will continue to show greater resilience and solid performance. In Q1, we showcased our strength in multiple ways. Firstly, we made a significant breakthrough in our channel service operation capabilities. This year, the number of developers achieving strategic cooperation increased by 20% from the same period last year, and the quality of those collaborations continues to improve, as we expand our coverage to most core and large-scale state-owned developers. We have already established strategic partnerships with six out of the top ten developers. Those high levels of in-depth cooperation have facilitated our local teams to pursue regional business expansion more actively. We also made new breakthroughs in our core operating terms. This includes not only strategic initiatives from the past but also new guaranteed payment terms that ensure improved cash collection from our new home business. Based on these improvements, our new home collaboration project coverage ratio was 55% in Q1, an increase of 25% year-over-year. This has led to a more stable supply of new homes. Secondly, regarding our channel sell-through capability, as I mentioned earlier, we integrated our new and existing home business into an innovative model that makes it easier for consumers to replace their old apartments with new ones. Considering customer needs, we also introduced services like worry-free repayment and carefree renovation, collaborating with developers, banks, and others to boost new home sales and drive customers' home purchase challenges. Thirdly, we strictly adhere to risk control and disciplined management. In Q1, new home days sales outstanding (DSO) was 69 days. The commission advance model covered 46% of total commission, maintaining a high level. The percentage of commission from state-owned enterprises remains high at around 50%.

My question is about home replacement policies. The government has rolled out replacement policies to support upgrade demand. How does management view the effect on overall housing demand? How will Beike, as a service leader in the new and existing home market, participate?

First on inventory reduction, I want to emphasize the focus on the inventory reduction of the so-called destocking policy, which is a positive approach in response to evolving supply and demand dynamics. The destocking policy has been reintroduced since its last implementation in 2016. A new round of inventory reduction efforts is expected to help rebalance market supply and demand, improve market sentiment, and stabilize the price system. It will also help developers sell inventory, improve liquidity, support stabilization in the new home market, and ensure project conditions. The government is also leading the repurchase of homes for conversion into affordable housing, which will better meet housing needs for new urban residents. Currently, relevant supporting policies are still in the formation stage. For example, the Central Bank will provide CNY 300 billion in relending forms to support local governments in acquiring some unsold homes to convert them into affordable housing. More time will be needed to observe the scope and impact of this policy's implementation. Another major policy innovation this year regarding destocking is initiatives to encourage residents to replace their old homes with new ones. This is the first time a policy has linked an independent decision and the new home market. This intends to stimulate transactions and contribute to stability in the market going forward. As of now, over six cities have introduced housing old-for-new policies, generally falling into two categories: brokerage agency-led models and government-led models through subsidies or acquiring old homes through state-owned enterprises or developers. Regarding Beike's participation opportunities, we would like to facilitate the connection between developers, agents, and homebuyers under this model. This will promote the sale of old homes and the visibility of new home listings. We have been deeply involved and actively promoting this implementation. We pioneered old-for-new models in Qingdao in 2022 in collaboration with developers and stores on our platform. This initiative brought innovative practices to local government by activating transactions and has inspired other city governments and industrial associations to reference and promote the Qingdao model. In Qingdao, our model has also received government endorsement and substantial support in the form of one-stop administrative services. With our strong capabilities in home sell-through and supporting homeowners for sell-one-and-buy-one transactions, we helped developers attract additional buyers to accelerate the sales of new homes. Under our innovative sell-old-homes-for-new-one model in Qingdao in 2023, we completed nearly 200 transactions. Originally dormant deals were activated under this model. Currently, this model, which offers a worry-free change, has already been introduced in 12 cities. We are also engaging with developers in more cities to iterate and innovate on this model. Looking forward, we hope to explore more new methods with governments and developers to accelerate inventory reduction.

Could management share a bit about the decoration business and the window home services business in terms of the progress and any highlights?

Let me discuss the home renovation and furniture services. We achieved strong growth in our home renovation and furniture business in Q1. For scale, our contract sales reached RMB 3.4 billion, up 26% year-over-year, with revenue growing by 71% to reach RMB 2.4 billion. In March, total contract sales reached nearly RMB 2 billion, up around 53% year-over-year. The March contracted sales in Beijing achieved a historic breakthrough. On the operational side, the contribution of contract sales attributable to customer referrals from our real estate agents in Q1 also hit a record high. This achievement resulted from the improvement of our customer acquisition ability and a stronger delivery capability. Let me elaborate on that. First, better integration of housing transactions and home renovation services significantly improved our customer acquisition capability. In 2023, we aligned our organizational structure, enabling each renovation business unit to work with brokerage stores. New renovation business also assists some home transactions. Customers receive a rough plan and package for home renovation before completing housing transactions. Our one-store residential service model is starting to take shape. Meanwhile, the improving customer acquisition requires strong delivery capabilities. Our efforts in delivery capability over the past few years have paid off. For instance, our average construction timeline dropped to 104 days in Q1, decreasing by around 18 days compared to the same period last year. We utilized a strategy encouraging healthy competition to ensure sufficient labor capabilities. We also managed key process points strictly, including identifying potential delay risks ahead of time to resolve delays quickly. This year, while ensuring steady growth in our business scale, we will focus on enhancing quality by implementing one-store site management services and online quality control. We aim to proactively prevent issues, reduce their occurrence, and improve customer satisfaction. Regarding the Beike rental business, revenue from Beike rental services reached RMB 2.63 billion, increasing by 189.3% year-over-year, mainly due to the direct increase in the SKU of rental property management services. Under our Carefree Rent model, we are managing over 240,000 units by the end of Q1 compared to over 90,000 in the same period last year. As of now, we have nearly 270,000 units managed under Carefree Rent. The number of units managed under centralized long-term apartments exceeded 11,000 by the end of Q1 compared to around 7,000 in the same period last year. In terms of efficiency improvements and operational rate control, the occupancy rate for the Carefree Rent model increased by around 2.7 percentage points year-over-year to 96.5% by the end of Q1. We significantly reduced the vacancy rate by increasing coverage of low-rate Carefree Rent models and better managing long-term properties. Also, at the end of the first quarter, the occupancy rate of our self-operated apartments, which have been opened for over six months, increased by around 3.8 percentage points year-over-year, reaching 94.8%.

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

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. We look forward to speaking with you again next quarter. Thank you and goodbye.