KE Holdings Inc. Q3 FY2024 Earnings Call

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.

Thank you, operator. Good evening, and good morning, everyone. Welcome to KE Holding's, 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 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. Certain statistical and other information relating to the industry in which the company is engaged to be mentioned in this call has been obtained from various publicly available official or unofficial resources. Neither the company nor any of its representatives have 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 estimation. 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 third quarter 2024 earnings conference call. In the third quarter, we continued demonstrating our dynamic and sustainable growth momentum. Despite challenges in the market, each of our business segments delivered solid results. GTV for our existing home transactions business reached RMB477.8 billion in the third quarter, up 8.8% year-over-year. According to the estimate from data disclosed by the housing bureaus and housing associations of the four first-tier 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 the Beike platform saw a 44% year-over-year increase. For new home transactions, GTV on the Beike platform increased by an impressive 18% to RMB227.6 billion in the third quarter, while new home transaction GTV of CRIC’s top 100 developers declined by 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. By the end of Q3, a noticeable shift in policy also boosted a solid market rebound. In this market cycle, one thing we have become increasingly certain about is the importance of thinking long-term. We are growing to deeply understand the power of a long-term perspective. For our organization, survival and development are our core imperatives. Among these, our foremost priority is to survive—enduring and thriving. Therefore, our focus is not just on how to navigate the next year but on how to become a company that can thrive for 30, 50, or even 100 years. The greatest threats to a 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 thing and creating value for society. And second, creativity. Every step we take today is guided by these principles; doing the right thing 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’re putting this vision into action. For any large organization, the biggest threat is lack of growth. The proactive business growth strategy we put in place this year has yielded remarkable results. In terms of scale, by the end of the third quarter, we had 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 active 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 market now span all top-tier developers. In August, the number of transactions from our strategic partner 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 an organization's creativity. In the third quarter, we officially established a small leadership committee as an innovative step toward rethinking large organization governance. It is a governance system that ensures forward-thinking and our long-term outlook. After a year of trial 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 Zuo Donghua. The committee will report directly to me and is 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 officially appointed the CEOs of our new initiative businesses. Xu Wangang, who has already been serving as the CEO of Beihaojia, will now also lead our home renovation and furnishing business. Wang Yongqun will head 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 commitment to tackling future challenges and our focus on aligning resources to achieve greater synergies across the Group. With development over the past few years, our home renovation and furnishing and home rental services businesses have achieved several key milestones. In the first three quarters of this year alone, revenue from our home renovation and furnishing business surpassed RMB10 billion across more than 45,000 projects. Revenue from our home rental services business approached RMB10 billion during the first three quarters, with the number of rental units managed under Carefree Rent exceeding 360,000. I am 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 capabilities 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 designed to significantly enhance store owners’ satisfaction and allegiance to our platform. In Q3, we distributed around RMB18 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 faced three major challenges: insufficient emphasis on existing home transactions, slow progress in new initiatives like home renovation and rentals, and weak collaboration across the platform with relatively high post-transaction customer complaint rates. We tailored specific incentives within the store points system to address these issues and motivate positive change. Stores can now receive 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 of RMB2.49 million equivalent incentives and 930,000 Beike coins, with the top single store receiving RMB210,000 equivalent incentives. Notably, the platform's profit-sharing payouts to store owners boosted their income, offsetting the costs of renting a storefront. At the same time, we effectively addressed the three core problems. Monthly existing home transactions began to recover and increased by 12% sequentially in September. The number of units leased out under Carefree Rent grew by 21% in Q3 compared with Q2, and cross-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 proprietary brand, Lianjia, we have continued to advance its Take-off 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 critical while we promote its expansion based on sustainable operations and ongoing efficiency. Lianjia also needs to lead the way in innovation and be the frontrunner in tackling industry challenges, reconstructing organizational capabilities, and advancing agents' professional development. The number of Lianjia’s active agents grew by almost 13% year-over-year, exceeding 108,000. The Lianjia agent attrition rate in cities, excluding Beijing and Shanghai, dropped to 4.4% by the end of September, down 0.4 percentage points from 2023. In addition, we also continued to make headway 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 consistently 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, remain open to embracing new ideas, and invest in 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 forethought, pilot trials by dedicated teams, and deep engagement. A thorough understanding is essential before taking any action; we don’t rush. This is 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’s reaction has been strong and far-reaching. We’re now seeing signs of market recovery regarding both volume and prices. As we navigate through highs and lows, we must remain calm at the peaks, steadfast at the troughs, and grounded in the 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: staying committed to the long term, maintaining optimism, fostering resilience, and unity. These truths, and the 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 CFO, Xu Tao, to review our third quarter 2024 financials.

Thank you, Stanley, and thank you everyone for joining us. Before we dive into our Q3 performance, I would like to briefly touch on some updates in the housing market. The market's performance in Q3 was in line with our previous projections. The market experienced a gradual retreat following the pulse-like rebound fueled by intensive supportive policies released in May. Particularly in September, the year-over-year decline in market performance widened due to a high base. In Q3, the existing home market was relatively stable, with a year-over-year increase in transaction volume. This is primarily attributed to home buyers’ preference for 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 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. These included lowering interest rates, reducing mortgage rates for existing homes, and aligning the minimum down payment ratio for first-time and second-time home buyers. These policies further stimulated housing demand, encouraging more people to enter the market. Meanwhile, other macro-economic policies such as monetary policies indirectly fueled market confidence, which stimulated market activity. We are highly anticipating the market's performance after the third quarter. Turning to our financial performance in Q3. Our total GTV reached RMB736.8 billion, up 12.5% year-over-year. Net revenue was RMB22.6 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 RMB1.2 billion, showing a year-over-year decrease of 0.2%. Non-GAAP net income reached RMB1.8 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 RMB6.2 billion, down 1.4% year-over-year and 15.2% quarter-over-quarter. GTV was RMB477.8 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 a higher contribution from GTV of existing home transactions facilitated by connected agents. Their revenue was recorded on a net basis. The contribution margin from 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 increased fixed labor costs related to an increased number of agents and improved welfare of agents under the retreated market circumstances. In terms of new home transaction services, although the market remained sluggish, we significantly outperformed the market across all metrics. CRIC shows that 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 RMB227.6 billion in Q3, up 18.4% year-over-year while down 3.3% quarter-over-quarter. This remarkable performance, notably above the industry's, was mainly propelled by deeper cooperation with developers and our refined operations that strengthened our capabilities. Revenue from new home transactions rose by 30.9% year-over-year to RMB7.7 billion but dropped by 2.6% from the previous quarter. Revenue outperformed GTV both year-over-year and sequentially, once again demonstrating our strong and steady monetization capabilities in new home transactions. The contribution margin from 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 harmonious ecosystems and better rewards for agents. Sequentially, the new home contribution margin declined by 0.3 percentage points due to the increase in fixed labor costs. In Q3, the commission income percentage from SOE developers rose to 58%, and the proportion of Commission in Advance projects maintained a relatively high level at 44%. Revenue from home renovation and furnishing 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 surged by 6.8 percentage points from the same period of 2023. Our home renovation and furnishing business maintained steady growth. In Q3, contracted sales reached RMB4.1 billion, up 24.6% year-over-year. Revenue amounted to RMB4.2 billion, rising by 32.6% year-over-year. The revenue growth rate outpaced that of contracted sales, mainly due to higher delivery efficiency. The contribution margin for the home renovation and furnishing business reached 31.2%, up 2.1 percentage points year-over-year and relatively flat sequentially. This was primarily driven by gross margin improvements in our home renovation business. The contracted sales of furniture and home furnishing retail, which are outside of our home renovation package, reached approximately RMB1.1 billion in Q3, accounting for approximately 28.1% of total contracted 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 RMB3.9 billion, up 118.4% year-over-year, benefiting from the rapid growth in the number of rental units under management. By the end of Q3, the number of units managed by our home rental services exceeded 370,000. Specifically, the number of rental units managed under Carefree Rent exceeded 360,000, compared with around 160,000 in the same period of last year. Its contribution margin was 4.4%, which declined by 1.4 percentage points sequentially. This was mainly due to its higher commission expenses due to seasonality. In Q3, our net revenue from emerging and other services decreased by 21.5%. Our store costs and other costs remained generally stable year-over-year and quarter-over-quarter at RMB703 million and RMB502 million, respectively. Gross profit rose by 5.2% year-over-year to RMB5.1 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 services led by increased fixed labor costs. In Q3, our GAAP operating expenses were RMB4.4 billion, up 11% year-over-year and down 2.1% sequentially. G&A expenses were relatively stable year-over-year at RMB1.9 billion while falling sequentially by 8.6%. This was mainly attributable to the reduction in share-based compensation. Sales and marketing expenses grew by 18.6% year-over-year to RMB1.9 billion as we invested in the rapid expansion of our home renovation and furnishing 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 RMB573 million, rising by 21.5% year-over-year and 13.6% sequentially, primarily due to increased R&D expenses in our home transaction services and higher expenses of exploration for some advanced R&D projects. In terms of profitability, GAAP income from operations totaled RMB727 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 Q3 2023 and Q2 2024, respectively. Non-GAAP income from operations totaled RMB1.4 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 lower gross margin. GAAP net income totaled RMB1.2 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 RMB1.8 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 RMB449 million in Q3. The new home DSO was 47 days in Q3, which is a testament to our effective risk management. On top of the approximately $204 million allocated to share repurchases during Q3, our total cash liquidity remained at a high level of RMB76.3 billion, which excludes customer deposits payable. With our robust cash reserves, we continued to reward our shareholders who have grown with us through active share buybacks, enhancing capital operation efficiency and sharing the benefits of our development with investors. As of the end of Q3, we had repurchased around $584 million worth of shares this year, which accounted for around 3.3% of the Company's total shares 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 as of the end of Q3, which accounts for around 8.1% of the Company's total shares 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 operations and support the growth of our one body, three wings business by strictly controlling our risk threshold and maintaining a healthy cash flow. For 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 financial processes. As for our home rental services, with the continuous iteration of our business model and the rapid scale-up in the number of management properties, we continue to comb through and update our business and financial processes to facilitate business development. Regardless of how the external environment changes, we still remain true to our original intentions, facilitating consumers' better living, enabling service providers' bright prospect, promoting industry’s advancement, and building a harmonious ecosystem. We believe we will gain huge potential growth in the vast market and advance towards a one-stop residential service platform. This concludes my prepared remarks for today. Operator, let’s open for the questions.

Your first question comes from John Lam with UBS. Please go ahead.

So I will translate my question into English. My question is more about the recent property policy. How does management view this policy compared to the past? So far, what has been the impact of the policy on leasing? How sustainable is it? Additionally, what market forces are necessary to achieve market stabilization? Thank you.

Thank you, John. In Q3, our market performance was muted. As a factor of the May 17th policy stated, coupled with the low summer season, the existing home transit to market shows a month-by-month decline in July, August, and September. For the new home market, the year-over-year decline in GTV of CRIC 1200 developers also worsened month by month in Q3, even after seasonal improvements in mid-year. However, since the launch of the policy package at the end of September, transaction volume in the existing and new home market surged nationwide, with Tier 1 cities leading this job. Meanwhile, with the huge transaction volumes, home prices also showed signs of temporary stabilization. Overall, this round of policies has driven a stronger market recovery than the last two previous rounds on August 31 last year and May 17 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 restrictions or mortgage conditions, this round of the policy introduced a whole package of counter-cyclical 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 swift implementation of purchase restriction relaxation in Tier 1 cities, we saw market outperformance. In particular, the political meeting explicitly emphasized the goal of stopping the decline of the real estate market. This ensures the country's commitment to stabilizing the housing market and leads to a stronger recovery in market expectations compared to the previous two rounds. Following this round of policies, transaction volumes have increased significantly across Tier 1, 2, and 3 cities. This contrasts with the post-May 2017 policy response where the rebound was only seen 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 increases 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 volumes saw a year-over-year growth of more than 60%. Regarding existing home prices, there is a positive signal; October saw month-over-month price stabilization with a slight 0.3% increase thanks to the surge in transactional volume and the 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 rose by 2.2%, 2%, and 0.7%, respectively, compared with September. This was mainly due to fewer homeowners rushing to sell at a steep discount. This shift is reflected in the paper prospecting tax, which tracks the percentage of the price increase in all price adjustments of listed homes on bigger platforms. After hovering below 10 since its rise early this year, the index recently recovered to 14. In Tier 1 cities, it rose to 19, with Shenzhen jumping to 32, indicating 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 upgrades, who had purposely been viewing properties but were in a wait-and-see mood. According to Baker Research Institute survey, after the policy rollout, the proportion of consumers looking to buy a home quickly increased by 5 percentage points. In Tier 1 cities, this grew from 17% to 31%, while the proportion of wait-and-see consumers decreased. Concerning the new home market, the latest round of policies also led to a rebound in the new home market. In October, the GTV of CRIC 1200 developments increased by 73% from September and 7% from the same time last year. New home subscriptions on our Beike platform during the National Day holiday nearly matched the subscription level for the entire month of September. New homes experienced a greater month-by-month rebound than existing homes. One reason is the lower base in September; the second is that the new policies mitigate consumer concerns about home delivery issues, and developers' active promotions during the National Day holiday also helped boost the new policy's effectiveness and accelerate sales. Regarding the market outlook in the future, the latest round of policies has more enduring effects on the housing market, given its 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 strong short-term momentum. We expect the market to be relatively stable in Q4. For existing home prices, they are maintaining stability in the short-term, but there is a need for sustainability in observation. However, beyond boosting sentiment, the recovery of the economy fundamentals is key to ensuring the property market bottoms out. This relies on enhanced policy focus on the overall market economy improvement. In addition to policy stimulating housing demand, further rollout of measures on the supply side, such as support for developers and reducing inventory, will help rebalance supply and demand in the new home market and revitalize the industry. Continued favorable policies for the real economy will also provide greater support for residents' income expectations and purchasing power, fundamentally stabilizing the real estate market. Thank you.

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

Great. 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 the home renovation business? Could you share some recent progress on this business line, such as how you managed to improve operating efficiency? Thank you.

Thank you, Timothy. In Q3, our home renovation and furnishing business achieved steady growth. At full scale, our contracted sales reached RMB4.1 billion, showing a year-over-year increase of around 25%, with revenue rising to RMB4.2 billion, up 33% year-over-year. 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 profitability, the home renovation contribution margin reached 31.2% in Q3, showing an improvement compared to the same period last year. That's mainly due to the following factors. First, we focused on reformed operating management. Since the home renovation construction involves a lot of complex steps, we conduct a thorough review of each phase to identify key areas for improvement. For example, we noticed excess materials. We quickly adjusted our construction problems and strengthened internal control to minimize material waste. We also continued updating our product package during the initial design phase. We carefully analyze the cost and construction standards for each type of product, running profitability models to ensure that each package makes a reasonable gross margin during the initial development phase. Additionally, we increased the proportion of centralized purchasing. For products with a high degree of authorization, we scaled up the centralized purchasing at the group level. The centralized procurement ratio for both maintained supplementary material reached over 30% in Q3, 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 larger scale. While strengthening profitability management, we're also continuously focused on improving our operational processes 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 of around 99.5 days in Q3, compared to 109.3 days in the same period last year. Regarding after sales, while implementing priority maintenance services, we expanded our in-house after-sales team nationwide. Our up 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 addresses customer repair requirements and further enhances our customer satisfaction. In our home renovation business model of quality, scale, and efficiency, quality remains a core focus where we will continue to iterate and invest in building our infrastructure and capabilities to strengthen our quality foundation, which is essential to remain competitive in the future. Thank you.

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

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

Thank you, Griffin. This year, we focused on expansion at the store level and ecosystem development, proactively strengthening high-level collaborations with developers in the new home business. These efforts have all paid off, enabling us to continuously outperform the market. Regarding scaling our platform, our agent store network has continued to respond positively. By the end of Q3, the total number of active non-Lianjia stores on our platform was more than 41,000, and the number of active non-Lianjia agents was 315,000, up 16% and 4% year-over-year respectively. We provided brands with fitness comps, installment plans, and other support to attract them to join our network. In a volatile market, our platform’s reach, customer resources, extensive cooperation network, professional empowerment, and diversified services such as new homes and home renovation had a stronger appeal to stores outside of the smaller circles. Returns from our investment in store functions have remained good. From the platform perspective, by the end of September, newly opened stores in Q1 this year had a positive ROI with all regions covering their costs. As we made steady progress in connecting stores, we further shifted our strategy into the second half of this year from connecting small and scattered community stores to large stores. Accordingly, we raised the threshold of average number of agents per store, performance requirements, and incentives. Our goal was to attract more quality stores in the industry to join Beike to boost overall scale and efficiency. Regarding the store network operation, we'll adopt 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. Stock productivity in these commercial areas was 1.2 times as high as in other commercial areas. In areas where our store collaboration was insufficient, we focused on targeted management and empowerment through platform data analysis, problem diagnosis, and strategic support aligned with the involvement of the store owner or governance counsels. We promoted the focus on card home listings to enhance sell-through and boost cooperation among stores. In regions with insufficient network coverage, we actively connect to new stores through various types of storage function packages. For existing stores, we piloted a points-based incentive system in Q3 to multiple stores to enhance efficiency and optimize our ecosystem. This system is essentially a membership program for store owners through which the platform gives back returns as incentives to outstanding stores. This aims to achieve share value and win-win between the platform and stores. Among nine pilot cities in Q3, the platform issued over $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 operations 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 RMB227.6 billion, up 18.4% year-over-year, compared with a 29% decline in the GTV of charity top-line development. Meanwhile, our multifaceted rate continued to increase in Q3. The proportion of revenue from commissions in our new home business is primarily driven by the continuous increase in the number of home business projects, which reached a high of over 8,000 in Q3. In September, the number of our new home 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 proactive efforts to respond to collaborations. We continue to make breakthroughs with new strategic collaborations. We have already covered 7 out of the 10 top developers. Strategic collaboration differs from the top single project cooperation, which typically features a competitive relationship between both sides. In strategic collaboration, the two sides work as partners to enhance mutual understanding. We inform our corporate partners about the operations and needs of our agents, market dynamics, and additional service value our platform offers beyond the profit channel. Through the top-down promotions of such partnerships in real estate companies, we have overcome difficulties in negotiating city-level projects, leading to more corporate projects. Through strategic collaboration, we can also better protect agents' rights. For instance, we incorporate customer privacy protection and equal protection periods 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 receivables collection also motivate agents to work more actively on new home sales, boosting our new home sales throughput. Meanwhile, agents' operational ecosystems have continued to improve; the penetration of customer profit from number protection rose to 67% in Q3, up by a year from Q2, bringing a greater sense of security to agents, which also improves our awareness to sales in the new home segment. Thank you.

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

Thank you to the management for addressing my question. I'm interested in our home rental business, particularly with the rapid growth of Carefree Rent. Given that this sector demands significant operational involvement, could management explain how we differentiate ourselves from competitors in our operational approach? Thank you.

Thank you, Thomas. In Q3, revenue from our home rental services reached RMB3.94 billion, up 118.4% year-over-year. This growth is mainly due to the continuous increase in the number of homes 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 declined slightly quarter-over-quarter in Q3 due to 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, affecting the contribution margin. Excluding the seasonal impact, the core metrics of the category run improved significantly year-over-year from January to September. Our operations focus on quality and efficiency has yielded good results. On improving services to customers, we provide pre-moving inspections, standardized handover services, and tenant-side property transfer services with a cumulative service count exceeding 970,000, providing a series of the core guarantees to our tenants. Also, we centralized the management of the two types of property managers, tenant service manager and property service manager, to realize centralized empowerment and standardized services. This has enhanced our post-lease service capabilities and quality while also leading to a continuous decrease in customer compliance rates. In terms of operation efficiency, we continue to increase the percentage of lease renewals, which helps reduce the channel costs associated with re-ranking and finding new tenants. We achieved this through improved post-lease services, leading to increased tenant satisfaction and user retention. By the end of Q3, the lease renewal rate was around 52%, compared to 48% in the same period last year. Regarding management's rental costs due to vacancies, we shortened the days needed to rent out the properties through 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 model. The coverage of our new product model, which incurred no vacancy period, continues to rise in Q3. This model enhances our resilience against rental price volatility and reduces vacancy costs. The deposit cost per unit of our new Carefree Rent product model also dropped due to the improvement in the success rate of first-time rentals, which rose to 82% at the end of Q3 from 76% during the same time last year, driven by higher personnel activity. We continue to build our rental occupancy team, which enhances 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 5 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 off-seasons. The specialization strategy for 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 and August, in particular, personnel productivity of unit leasing and occupancy improved notably year-over-year. Since entering the off-season in September, we have implemented multiple strategies, including strengthening rental occupancy, leveraging our self-built team and agents, improving productivity using various marketing methods for targeted customers, and continuously managing lease renewals and second-time leasing presales while focusing on key areas of housing unit subs and effectively managing inventory. Thank you.

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

Thank you for taking my question. My question is about Beihaojia. We have seen the news that Beihaojia has successfully been established in Chengdu City. Can management provide us with details about the project and the reasoning behind it? Also, what is the company's business model for Beihaojia? Thank you.

Thank you, Miranda. Our new business Beihaojia won a piece of land that was sold at auction in the Chengdu Kuo area of Sichuan District, Financial City Phase 3 in September. We undertook this project after a careful review and selection, and it will be operated by the Beihaojia team independently. We aim to use pilot projects like this to better validate our ability to implement our C2M solutions at every stage, including land auctions, product positioning, design, and marketing. By creating multiple projects, we can build trust with future partners such as developers, contractors, and property owners regarding our business model and product solution, ultimately helping us achieve a long-term life asset service platform model. However, it is 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 assets investment. We position Beihaojia as a data-driven residential development service platform achieved through our one plus two business model. This includes C2M product solutions supported by our accumulated user insight and big data complemented by efficient customer acquisition and marketing capability. This empowers our partners in that chain to create homes that are well-suited to customers. C2M will be our core capability, leveraging vast amounts of data and AI technology to ensure customer preferences and demands are reflected in the new homes produced as much 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 large capital contributions or earning 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 test bed for our capabilities, allowing us to accumulate know-how to support the realization of our long-term platform model. Thank you.

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.

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.