Hello, everyone. Thank you for joining us for KE Holdings, Inc. Third Quarter 2025 Earnings Conference Call. Today's conference call is being recorded. I will now hand the call over to your host, Ms. Siting Li, the IR Director of the company. Please proceed, Siting.

Thank you, operator. Good evening, and good morning, everyone. Welcome to KE Holdings or Beike's Third Quarter 2025 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. Xu will provide an overview of our business updates and financial performance. Then Mr. Peng will share more on our strategic developments and innovative initiatives. 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 includes 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 sources. Neither the company nor any of its representatives has independently verified such data, which may involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such information and estimates. For today's call, the management will use English as the main language. Please note that the Chinese translation is for convenience purpose only. In the case of any discrepancy, management's statements in their original language will prevail. With that, I will now turn the call over to our CFO, Mr. Tao Xu. Please go ahead.

Thank you, Siting, and thank you, everyone, for joining our third quarter 2025 Earnings Conference Call. In Q3, under the strategy of balancing scale and efficiency, we further optimized our business structure, enhanced operational and middle and back office efficiency through AI technology and achieved city-level profitability in both our home renovation and rental business before deducting headquarter expenses. The combined contribution profit to the company's total gross profit reached a record high. The costs and expenses of our core business segments were further optimized. We also significantly enhanced the execution of shareholder returns with the single quarter share repurchase spending reaching its highest level in the past 2 years. Regarding our overall financial performance in Q3, our total GTV was RMB 736.7 billion, remaining flat year-over-year. Total revenues reached RMB 23.1 billion, up 2.1% year-over-year. Gross margin declined by 1.3 percentage points year-over-year to 21.4%. GAAP net income was RMB 747 million, down 36.1% year-over-year. Non-GAAP net income was RMB 1.29 billion, down 27.8% year-over-year. With that overview, I'd like to provide some details on operational and financial performance for each segment. Looking at our housing transaction services, we have been continuously enhancing the productivity and operational performance through the application of AI and other technologies as well as in-depth operational optimization. For our existing home transaction services, we upgraded our AI tool, SmartAgent. As of the end of the third quarter this year, high-quality business opportunities identified through SmartAgent account for only single-digit percentage of total potential lease, yet contribute over 50% of transaction volume on our platform. On the housing supply side, we launched innovations such as agent specialization module, which agents are sent to specially manage home listings or serve the buyer based on their expertise as well as innovative services, including home staging and open house events. These efforts have enhanced the buyer conversion and the marketing and the sell-through efficiency of the home listings. For our new home transaction services, we have also continuously iterated our AI agent support system for intelligent operations and marketing as well as AI assistant customer service. In terms of the financial performance, revenue from its in-home transactions reached RMB 6 billion in Q3, down 3.6% year-over-year and down 10.8% quarter-over-quarter. GTV was RMB 505.6 billion, up 5.8% year-over-year and down 13.3% quarter-over-quarter. The GTV growth outpaced revenue on a yearly basis, mainly due to a higher GTV contribution from its in-home transactions facilitated by connected agents for which revenues are recorded on a net basis. While revenue performance outpaced the GTV quarter-over-quarter, mainly due to the structural shift as the revenue contribution from the rental brokerage services increased amid seasonal fluctuations, which have a relatively high take rate. The contribution margin of the existing home business was 39% in Q3, a decline of 2 percentage points year-over-year, primarily due to the relatively stable fixed labor cost amid the revenue decline. Sequentially, the contribution margin declined by 1 percentage point due to the decline in revenue exceeding the fixed labor costs. Our new home GTV reached RMB 196.3 billion in Q3, down 13.7% year-over-year and 23.1% quarter-over-quarter. Revenue from the new home transactions was RMB 6.6 billion in Q3, decreasing by 14.1% year-over-year and 23% quarter-over-quarter. Revenue performance was in line with GTV performance both year-over-year and quarter-over-quarter, reflecting our steady monetization capability in new home business. The contribution margin from new home transaction services was 24.1%, down by 0.7 percentage points year-over-year due to an increase in variable costs resulting from our agent benefit improvement last year. On a quarterly basis, the new home contribution margin fell by 0.3 percentage points, largely due to higher variable costs and a smaller decline in fixed labor costs compared with the revenue. For our home renovation and furniture services, we continued to strengthen our core capability to support long-term sustainable growth. On the product side, we successfully replicated our productized showroom model in multiple cities. On the supply chain side, we expanded our centralized procurement categories and adopted localized sourcing standards and selection processes, further reducing the overall unit purchase price to enhance delivery quality with a focus on improving construction quality, standardizing on-site management, laying the foundation for a unified system to exercise construction site quality. In terms of the financial performance, revenue from our home renovation and furniture business was RMB 4.3 billion, remaining relatively flat year-over-year. Contribution margin for the segment reached 32%, up 0.8 percentage points year-over-year, primarily driven by the reduced procurement costs resulting from a larger proportion of centralized purchasing and decreased labor costs resulting from enhanced order dispatching efficiency. Sequentially, the contribution margin remained relatively stable. For our home rental service business, on the product front, our new 09 products have been launched in 10 cities, offering property owners diversified service options. For unit sales and occupation, our improved operational efficiency through AI-powered housing condition assessment and intelligent pricing while further promoting our quality-based traffic allocation rules to achieve faster housing turnover. In Q3, the conversion ratio of Carefree rent business opportunities to rental deals increased by more than 2 percentage points year-over-year. In terms of operational management, we enhanced the productivity for the property managers and other personnel through further refinement of the role specialization of labor, the integration of operational process and the empowerment of AI technology. Regarding financial performance, revenue from our home rental services reached a record high of RMB 5.7 billion in Q3, up 45.3% year-over-year, driven by rapid growth in the number of rental units under management. At the end of Q3, we had over 660,000 rental units under management compared with over 370,000 in the same period of 2024. The contribution margin for home rental services was 8.7%, up 4.3 percentage points year-over-year and 0.3 percentage points quarter-over-quarter, largely driven by improved gross margin from our Carefree rent business. As we continue to refine the business model, we have adopted a net revenue recognition approach based on service fees for certain newly signed properties in line with the nature of the underlying service contracts. In Q3, our revenue from emerging and other services decreased by 18.7% year-over-year and 8.4% quarter-over-quarter to RMB 396 million. Now moving to the other financial metrics in Q3, including other costs and expenses, profitability and cash flow. Our store costs reached RMB 663 million in Q3, decreasing by 5.8% year-over-year and 13% quarter-over-quarter, mainly due to the lower store rental costs. Gross profit dropped by 3.9% year-over-year to RMB 4.9 billion. Gross margin was 21.4%, down 1.3 percentage points year-over-year. The decline was mainly due to the structural impact from a lower revenue proportion of existing home and the new home business, which had relatively high contribution margins as well as the decrease in contribution margin from the existing home business. This was partially offset by the increase in contribution margin from home rental services. Gross margin declined by 0.5 percentage points quarter-over-quarter in Q3, mainly due to the structural impact as the revenue contribution of new home transaction service declined. In Q3, our GAAP operating expenses totaled RMB 4.3 billion, down 1.8% year-over-year and 6.7% quarter-over-quarter. Notably, G&A expenses were RMB 1.9 billion, relatively flat year-on-year and down by 10.3% quarter-over-quarter, primarily attributable to decreased bad debt provisions and reduced share-based compensation expenses. Sales and marketing expenses were RMB 1.7 billion, down 10.7% year-over-year, mainly due to lower personnel expense and reduced advertising and promotion expenses under the efficiency enhancement strategy. On a quarterly basis, the sales and marketing expenses were down 9%, mainly driven by a reduction in labor-related costs. Our R&D expenses were RMB 648 million, up 13.2% year-over-year and 2.3% sequentially, largely driven by higher personnel expenses. In terms of the profitability, GAAP income from operations totaled RMB 608 million in Q3, down 16.4% year-over-year and 42.6% quarter-over-quarter. GAAP operating margin was 2.6%, dropping by 0.6 percentage points from Q3 2024 and 1.4 percentage points quarter-over-quarter. The non-GAAP income from operations totaled RMB 1.17 billion, decreasing 14% year-over-year and 27% quarter-over-quarter. Non-GAAP operating margin was 5.1%, down 1 percentage point from Q3 2024, mainly due to the decline in gross margin. Non-GAAP operating margin was down 1.1 percentage points from the previous quarter, mainly due to the increase in operating expenses ratio sequentially. GAAP net income totaled RMB 747 million in Q3, down 36.1% year-over-year and 42.8% quarter-over-quarter. Non-GAAP net income was RMB 1.29 billion, falling 27.8% year-over-year and 29.4% quarter-over-quarter. Moving to our cash flow and the balance sheet. We generated net operating cash inflow of RMB 851 million in Q3. New home DSO remained at a healthy level with 54 days in Q3. In addition to spending approximately USD 281 million in share repurchase during Q3, our total cash liquidity, excluding customer deposits payable remained at around RMB 70 billion. Facing the short-term business challenges brought by external fluctuations and internal strategic transformation, we support and reward our shareholders through consistently active share repurchases to improve the efficiency of capital operations. From the first to third quarter of this year, we spent USD 139 million, USD 254 million, and USD 281 million on share repurchase, respectively, with a cumulative amount of approximately USD 675 million this year, up 15.7% year-over-year. As of the end of Q3, the number of repurchased shares accounts for about 3% of the company's total issued shares at the end of 2024. Since the launch of our share repurchase program in September 2022, we had repurchased around USD 2.3 billion worth of shares as of the end of September this year, accounting for about 11.5% of our total issued shares before the program began. We have made progress in Q3 this year in proactively optimizing our business structure, strengthening technology empowerment and enhancing shareholder return. Our forward-looking layout of the home renovation and furniture services and home rental services have both achieved profitability at the city level before deducting headquarter expenses in the third quarter. The AI capabilities have shown initial results in driving business development and improving the work efficiency of the service provider and the middle and back office personnel. We are also fulfilling our shareholder return commitment with greater intensity, repurchasing USD 281 million in a single quarter, increasing 38.3% year-over-year as the industry enters a new stage of high-quality development while taking initiatives in building a residential service ecosystem. With our combination of technological innovation, anticyclical business portfolio and highly efficient and well-structured operating system, we are well positioned to deliver great value to both customers and investors. Thank you. Next, I would like to turn the call to our Chairman and CEO, Stanley.

Thank you, Tao, for sharing our business and financial developments for the third quarter, we are strategically shifting our growth engine from scale to efficiency. Today, I'd like to highlight some innovative initiatives we have rolled out across businesses to advance this shift. First, in terms of our core business transaction services, externally, we see new demand from both buyers and sellers under the new norm for China's housing market. Home sellers expect stronger marketing capabilities from us. Buyers are counting on us for customer-oriented insights to support their decision-making in areas such as timing, asset planning and listing comparisons. These trends place new requirements on our traditional agent skill model and agents who are great at supporting both buyers and sellers are extremely rare. Since mid-year, we have been working to restructure our capabilities across both buyer and seller agents. In Shanghai, we piloted a seller and buyer agent specialization mechanism to enhance our marketing and operating excellence on the home sellers' agent side first. The mechanism redefines organizational roles, commission structures and performance initiatives and offers supporting tech products. This in turn allowed buyer-side agents to prioritize quality listings and improve transaction conversion. The underlying logic is that high-quality home listings are not ready made. They require skilled agents to mass market analytics, pricing, property staging, owner engagement and decision-making, precision marketing; second, inventory quality drives customer acquisition. Superior listings inherently attract more serious buyers, driving transaction speed and our brand reputation, which in turn attracts better talent to join us. Therefore, we did several things to implement this. First, we adjusted our organizational structure and incentive mechanisms. We shifted some senior agents into hybrid roles that combine management and home sellers' focused responsibilities, giving them the authorities to form and lead their own teams dedicated to listing management. Under the ACN commission allocation mechanism, we raised the selling agent share from 40% to over 50%. We are maximizing incentives for top-performing agents to focus on marketing high-quality home listings. This group of home seller-focused agents can earn around 25% more than before, assuming our market share remains stable. To mitigate potential pressure on buyers' agents, we reduced the mandatory commission split, raised the minimum commission for selling agents and offered extra incentives for selling high scoring listings. Second, we provided agents with systematic tools and digitalized products to help them manage listings. In the past, homeowner relationship management, listing presentation and marketing relied on agents' personal experience that made it hard to replicate and scale. We have built an AI-powered listing score system that captures and codifies the know-how required in six key areas: Home listing maintenance completeness; homeowner engagement depth; property condition, for example, renovation recency; listing cross-channel marketing performance; AI-powered pricing competitiveness; buyers' interest, for example, the listings online, offline viewings. These metrics have agents clearly understand what defines a high-quality listing and how to better present and market homes. Homebuyer agents can also focus on selling high score listings to drive better sales conversions. In terms of results, in September, high score listings accounted for more than 75% of transactions. Our average market coverage in Shanghai hit record high in Q3, increased 1.2 percentage points year-over-year and 2.6 percentage points quarter-over-quarter. The experience of homeowners looking to sell quickly also improved. Many homeowners reached out to us proactively to learn how to raise their listing scores. Buyers also naturally prefer high-scoring listings, creating a positive cycle that benefits everyone involved. The home seller/buyer side agent specialization in Shanghai is an important initiative designed to meet the changing needs of our customers and marks a milestone in our shift from scale to efficiency. We will continue to track its progress and explore new initiatives on the homebuyers' agent side. In addition, we tried innovative approaches to make our new business more efficient. For example, in our home rental business, Q2 marked the first time we excluded headquarter costs from break-even at the city level and Q3 is expected to contribute over CNY 100 million in profits. Carefree rent, our decentralized long-term rental business, housing businesses inherently faces challenges, including relatively low average selling prices, non-standardized products and services, extensive service coverage and high maintenance costs, traditionally requiring heavy manpower and variable cost investment for scaling and operating. This sector has struggled with economics of scale industry-wide with no established best practices yet. As newcomers, we embraced this as an opportunity to build an AI-native operation from inception, enabling parallel development of business capabilities, frontline operations and AI intelligence. Through our organizational restructuring, process optimization and AI strategy and products, we are pioneering an AI-driven efficiency model. Early results demonstrate significant improvements, offering valuable insights for our other platform business. I'll walk you through three major AI-driven breakthroughs across different dimensions. First, AI has been fully integrated into our rental services business, enabling end-to-end intelligent decision-making and business operations. For rental unit sign-ups, AI now powers critical processes, including property lead identification, personnel management and deployment, property evaluation, pricing strategies and homeowner communication. For example, previously, personnel management and operations relied heavily on various levels with supervisors deciding which agent will be responsible for which area. Now through AI-driven grid management supported by our unique dynamic domain data and modeling capabilities, AI can make data-driven determinations. It evaluates factors such as the number and quality of property leads, local supply and demand relationships and personnel capabilities models. Based on this data set, it determines the optimal personnel assignments, regional coverage and organizational structure. AI can simulate up to 90,000 design scenarios per minute, automatically generating the most efficient staffing and operational strategies. This has greatly improved how we allocate our service personnel deployment, configuration and operational scope. We also use AI to guide and execute our core business strategies and that is helping us move forward with fully intelligent operations. For rental unit sign-up, we rolled out AI-powered rental unit sign-up assistant that uses real-time data and algorithms to predict market demand, property inventory and price trends. It generates automated sign-up strategies and dynamic pricing recommendations, delivering tailored plans for each property through adaptive decision models as market conditions change, such as customer demand, property inventory and pricing. AI can guide our operations team to make timely adjustments. For example, when there is an oversupply of three-bedroom units in a certain area, the system automatically triggers price controls and sign-up restrictions. When unit types are in short supply, AI reactivates dormant property leads. Our upcoming AI cloud bot will also automatically contact homeowners of these reactivated properties. In Ningbo, where we began pilot operations in August, our workforce decreased by 10%, while new rental sign-up units grew by 10% even in the off-peak season. For rental unit leasing, our AI inventory management system frequently monitors inventory and checks over managing high-risk or low maintenance properties. It dynamically adjusts pricing and targeted discounts while optimizing traffic to speed up leasing. In Q3, these capabilities accelerated the lease-out of 350,000 units across 11 cities with 90% price adjustment adoption. These efforts generated over RMB 100 million in nationwide cost savings. Second, we use AI and technology to solve the industry's long-standing problems with non-standardization, enabling high-quality, scalable growth. The home rental industry has several characteristics. Home listings are scattered and each home has different and complex internal conditions, making the products non-standard. Service providers are many and their levels vary. So the workforce is also non-standard. Market price fluctuates, and traditional pricing relies on frontline staff's on-site judgment leading to non-standard pricing. Operational processes are mostly offline and complex, making sales strategies and service execution non-standard as well. There are traditional constraints of the industry, but with the progress of AI, we see changes to achieve both standardization and personalization at the same time. At the property quality and risk assessment stage, we have achieved human AI integration with AI now leading the entire unit sign-up workflows. Our AI property evaluation assistant uses visual recognition and multi-model analysis to intelligently capture indoor features, assess property conditions and evaluate potential risks. It also incorporates market data to generate intelligent AI-driven pricing recommendations. Beyond analyzing photos, the system can interpret property attributes holistically, helping address challenges such as consistent product standards, varying personnel capabilities and pricing accuracy. In the homeowner communication phase, we launched the AI negotiation assistant. This tool packages AI-driven property assessment, dynamic pricing and competitive market data into tailored home sign-up strategies and negotiation scripts, helping our service providers communicate and negotiate with homeowners more effectively. This provides a more professional and friendly experience for our clients, equipping new service providers with the tools they need to grow quickly and learn how to address non-standard sales issues. We piloted this feature in Ningbo and unit sign-up productivity rose by over 10 percentage points in Q3 compared with Q2, ranking #1 nationwide. Third, we achieved a leap in efficiency by adopting different AI applications. During the sign-up stage, our AI reviews system has replaced manual reviews, enabling fully automated risk control. As of September, the AI review function covers 11 cities, processing each case in just 20 seconds on average, making a 60-fold efficiency gain, saving more than 33,000 work hours and intercepting more than 16,000 risky properties. In the leasing stage, we use AI to power content lead marketing, expanding lead generation while reducing labor needs. AI intelligently analyzes and identifies high-quality leads, enhancing leasing efficiency. The AI-driven operational system in our home rental services has enabled us to see the possibility of scalable, yet personalized services for previously fragmented non-standardized demand, demonstrating the potential for traditional industries to overcome these economics of scale through technological innovation. We now integrate AI across our entire home rental services process and are replicating the system across 13 key cities. Only through continuous innovation can we navigate industry cycles. By implementing home buyer/seller agent specialization and AI-driven home rental operations, we have forged a new path that re-engineers workflows through technology and fuels scale through efficiency. Moving forward, we will deepen AI integration across business scenarios to advance both service providers' capabilities and consumer experiences. As China's housing service industry undergoes this next evolution, we are afforded a historical opportunity to further its transformation guided by our commitment to technology power, high-quality growth and its potential to unlock infinite possibilities for modern living services. This concludes my prepared remarks for today. Operator, we are now ready to take questions.

Your first question comes from John Lam with UBS.

So let me translate my questions. For the new home business, the company has previously been outperforming the market in terms of alpha. However, it appears that the magnitude of the alpha has been decreasing. Can you explain the reason for this? Additionally, how should investors assess the growth potential of the company's new home business?

Although the short-term performance of our new home transaction business has been impacted by market fluctuations, we are optimistic about its long-term potential to outperform the market. Over the past two years, China's new home market has matured, with risks from the supply side decreasing. In light of this, we have transitioned from a cautious strategy to one focused on growth. Our new home transaction business has outpaced the overall market during the last few quarters, up until this second quarter, due to higher brokerage penetration, a wide range of housing transaction services, and increased collaboration on projects. In the third quarter, our year-over-year growth has slowed compared to the market for several reasons. Firstly, customers frequently consider both new and existing homes when purchasing. Lately, existing homes have offered more attractive prices, prompting first-time buyers and those upgrading to favor them. Secondly, there is the base effect; last year’s third quarter had a higher baseline for new transactions due to many policy-driven new home subscriptions occurring in the second quarter. Thirdly, it's important to recognize that our new home business has seen rapid growth from a lower base, capturing significant brokerage penetration. We estimate that brokerage channel penetration in the new home market has risen to over 50% this year from about 30% several years ago. In the cities we operate in, our collaborative project coverage has grown to over 70% from around 39% in 2023. To drive further growth from this higher baseline, we have identified several key opportunities. Our plans include expanding into more cities and broadening our target market. Additionally, since broker channel penetration in China still falls short of developed markets, there is considerable room for growth. We are also refining our operation management to enhance service capabilities for new home customers, boost sales efficiency, and improve coverage and sell-through rates for high-end products. To delve into specifics, we are testing lighter product offerings in lower-tier cities through our B+ products. Our platform still has over 150 feature and country-level markets that are not yet tapped. We are committed to providing authentic listings, and the B+ pilot allows local brokerage stores and agents in more cities to access system capabilities, traffic support, and commercialization tools. This streamlined operational approach facilitates more flexible collaborations on home listings and sales. As of September 2025, we have piloted our B+ business in four cities, with plans to expand to over 30 cities by year-end, unlocking additional market opportunities. Furthermore, we see potential to enhance sales opportunities through collaborative projects. We will refine content and operational strategies for our new home business to attract more buyers and improve conversion rates. Additionally, we will adapt our partnership models with developers. Lastly, both supply and demand are increasingly leaning toward home upgrade projects. We intend to identify these projects accurately and elevate their visibility to agents and customers, linking appropriate agents to these upgraded offerings and driving more customer traffic to them. This strategy aims to create a seamless cycle among homes, agents, and customers, helping agents enhance their selling capabilities for upgrade products and reduce the price gap between the platform's average new home units and the broader market. Thank you.

Your next question comes from Griffin Chan with Citi.

Yes, I'm going to translate my question. This is Griffin from Citi Property Team. How did the leasing service business manage to turn last year's losses into operating profit by the third quarter this year? What opportunities remain for further improvement going forward?

Yes. Thank you, Griffin. The profitability of our home rental services improved significantly this year. Excluding headquarter locations, city level operating profit breakeven in Q2 and became profitable in fiscal Q3. First, we benefited from economies of scale from rapid growth in both SKU and revenue. The total number of managed units exceeded 660,000 by end of Q3, up 75% year-over-year. Revenue from our home rental service business reached RMB 5.7 billion in Q3, up 45.3% year-over-year. The contribution profit from our home rental services also rose significantly to nearly 500 million in Q3, up 186% year-over-year with a contribution margin of 8.7%, up 4.3 percentage points year-over-year. On one hand, the light-asset model of our Carefree rent business has given us a higher margin, lower risk rental structure. Starting in Q3, the revenue from newly added rental units and renewed existing units under Carefree rent has been accounted on a net basis. In Q3, rental units under the net revenue accounting method made up 25% of the total units under management, up 10 percentage points quarter-over-quarter, contributing approximately RMB 470 million in revenue. This structural shift drove RMB 130 million increase in Carefree rent's Q3 contribution profit and lifted its contribution margin by 3 percentage points. At the same time, 2025 has been a year of improving operational efficiency. Streamlined and highly efficient operations have driven the reduction in several cost ratios, adding about RMB 170 million to contribution profit and increasing contribution margin by roughly 1.5 percentage points. Excluding rental costs recognized on a gross basis, the main cost of Carefree rent are labor cost, channel cost, post-rental installation and default costs. The improvement was mainly driven by the optimized operation labor cost. In Q3, the average monthly number of units managed per property manager exceeded 130 compared with over 90 in the same period last year. In the first three quarters of this year, average monthly efficiency in unit sales and occupancy rose by approximately 10% and 28% year-over-year, respectively. The default cost ratio declined by 0.1 percentage points, benefiting from our strong leasing capability. In Q3, initial leasing success rate improved by 0.9 percentage points year-over-year. So far this year, contribution profit from our Home Rental Business segment has grown much faster than operating expenses. These expenses mainly comprise headquarter and city level staff compensation and R&D with a quite low expense ratio. A series of operating management tools have consistently improved the productivity of our middle and back office personnel. The average number of units under management by each middle and back office personnel rose by 7.5% year-over-year, while the overall operating expense ratio declined year-over-year. In the coming years, there is significant room to continuously improve the contribution margin in our Carefree rent business. The key drivers will be the continuous growth potential of the rental unit scale of Carefree rent and the ongoing improvement of our operational efficiency. From a per unit optimization perspective, we are diversifying our channels for renting out our property to reach broader tenant demographics, increasing the share of our in-house rental occupancy team and reducing reliance on the concentrated broker channels. This is expected to lower the per unit channel cost ratio. In addition, labor costs remain a large part of per unit expenses and there is still room for further reduction of the cost ratio. We see the potential to nearly double the number of units managed per property manager, moving towards an average of over 200 units per person. Furthermore, we will keep exploring and expanding diverse value-added services within the home rental ecosystem. We will continue to invest in AI and online digital capability within our home rental service, while other operating expenses should stay relatively stable. As the business continues to scale and we further optimize unit economics, we expect our home rental service to maintain a strong operating leverage in the year ahead. Thank you.

Your next question comes from Jiong Shao with Barclays.

Thank you for taking my questions. I would like to ask about your renovation business. You've performed very well in cities like Beijing and Shanghai. Is that success due to your substantial market share with the Lianjia brand in those areas? Do you believe this is a key factor? Additionally, in cities outside of Shanghai and Beijing, how do you plan to encourage your agents to promote the renovation business, especially where your market share is not as strong?

Thank you, Shao Jiong. First of all, it is important to note that the home renovation market in second and third-tier cities represents a critical long-term growth driver for our future home renovation business, carrying irreplaceable strategic value. From a market fundamental perspective, compared to the first-tier cities, the cost of purchasing a similar size of property is much lower in small cities. Based on the latest data from our platform, the average price of existing home in Beijing and Shanghai is around RMB 4 million versus just over RMB 1 million in other cities. This price gap presents a meaningful opportunity as customers in second and third-tier cities can allocate a relatively larger budget for home renovation. In 2024, we recorded approximately 1 million existing home transactions outside Beijing and Shanghai. In these cities, home renovation contract orders generated through our agent network only accounted for around 30% of overall home renovation contract orders. Our conversion rate from existing home transactions to home renovation contracts in these cities were just less than 5% compared to over 20% and 10% in Beijing and Shanghai, respectively. Our strategic rationale is clear. Larger scale expansion into additional cities will only be pursued once the home renovation business underlying operational capabilities are mature. And the model has been fully proven in the core cities. Therefore, our resources are highly concentrated in core cities at this moment, and we have not yet made a big effort to drive traffic for our home renovation business through non-Lianjia agent channels in the second and third-tier cities so far. This approach is to ensure that every step of our growth is solid and sustainable. Meanwhile, we put in place a multidimensional systematic operational framework to engage with and motivate non-Lianjia agents. It includes three components. First, we aim to deepen our operation team's understanding and expertise in home renovations. Our operation teams have also shared knowledge and proven operational capability to connect store owners and agents, fostering an ecosystem marked by professional collaboration and shared competency. Second, we rolled out an innovative incentive program to build an online brand promotion metric. By offering incentives such as larger commissions, we encourage more connected store agents to visit our offline home renovation stores and showcase our service through short videos, which will then also be uploaded to leading social media platforms such as Douyin. Since the launch of this program in late April of this year, more than 30,000 agents in over 30 cities have uploaded over 50,000 short videos. This has cultivated a positive environment of full participation and widespread promotion. Lastly, on top of improving agent capability, we are leveraging AI to boost contract conversion efficiency. Using AI, we assess key attributes of the property within the store owners' coverage area such as property age, layout, condition, and quantitative scores. This allows us to accurately identify high-scoring homes with a higher likelihood of generating home renovation business. Feedback from the pilot cities has been extremely positive. While high-scoring homes constitute only low single digits of total home renovation leases, they contribute to over 20% of preliminary home renovation contracts, underscoring AI's value in boosting our operational efficiency. In Q3 this year, our home renovation leads from non-Lianjia agent channels achieved year-over-year growth, and the lead to contract conversion rate increased compared with last year's average. In the short term, our approach for the home renovation business remains relatively conservative. In the long run, once our home renovation service meets our established high standards across customer experience, product competitiveness, and delivery quality; we will initiate a more proactive traffic diversion strategy through non-Lianjia agent channels in the cities outside Beijing and Shanghai.

Our next question comes from Timothy Zhao with Goldman Sachs.

My question is about your costs and expenses. Could you further elaborate on the measures for the company to control costs and any effect or outcome that you have seen so far? And what should we expect from this costs and expenses line going forward?

Yes. Thank you, Timothy. Under the strategic guidance of operational efficiency enhancement, all businesses have ultimately implemented a series of optimization measures and achieved phased results. Now I'd like to elaborate on the cost reduction achievements of each business line and overall operating expenses in the third quarter of 2025. For our existing home transaction services, we continue to boost the productivity of our Lianjia team and organizational optimization has driven a notable decline in labor cost. Organizational optimization has directly led to a cost reduction, with fixed labor costs in Q3 decreasing by more than 20% compared to the peak in Q4 last year. And labor efficiency has been continuously improving. For new home transaction services, we have both streamlined fixed labor costs and the variable cost structure through streamlining the organizational structure of the new home operation team. We have achieved a reduction of more than 40% relatively in relevant fixed labor costs compared to the peak in Q4 last year. On the variable cost side, the gross profit margin per project has been steadily increased by focusing sales strategy to maximize unit sales per single housing project. The commission spread of non-Lianjia channels has decreased by more than 1 percentage point from the peak in Q1 this year. For our home renovation and furniture business, we have effectively lowered the material cost through supply chain integration. By streamlining partner brand selections and SKU counts, we have achieved significant cost savings in procurement. Our centralized purchasing category has expanded from 4 as of Q2 to 13 as of Q3, covering core categories such as wooden doors, flooring, and towels. The procurement unit price of some products has decreased by over 20%. The effectiveness of the cost optimization has been reflected in the financial report, with the proportion of material-related costs as a percentage of revenue in Q3 decreasing by about 1 percentage point compared to last year's average. For our home rental services, cost reduction has been driven by both technological empowerment and business model refinement. We have improved the efficiency of the rental housing channel management through AI empowerment and the task specialization of the service providers. The proportion of operating labor cost to revenue in Q3 decreased by around 1 percentage point year-over-year. For store costs, we have reduced fixed expenses through refined management and closed underperforming stores. The number of actively operated stores has been decreased from around 5,600 as of Q4 last year to less than 5,200 at the end of Q3, a decrease of around 8%. Meanwhile, we have actively promoted rent negotiation with existing industrial owners and achieved an average rent reduction of over 10%. Regarding the control of operating expenses and R&D investments, for G&A expenses, we have achieved efficient cost control through organizational optimization. On a non-GAAP basis, the G&A expenses of the home renovation business have decreased by more than CNY 100 million compared to the peak in Q3 last year. This was mainly due to the adjustment of the organizational structure. The headquarter's G&A has also been optimized based on the market conditions. For sales and marketing expenses, both marketing spending optimization and improvement of labor efficiency have been implemented. On a non-GAAP basis, the sales and marketing expenses of the housing transaction business have decreased by around RMB 90 million compared to the peak in Q3 last year, mainly through the optimization of the advertising and marketing placements. The related advertising and promotion expenses have declined by more than 20% compared to the peak in Q3 last year. The sales and marketing expenses for the home renovation business have decreased more significantly by more than RMB 100 million compared to the peak in Q3 last year. The core driving factors, including AI technology enhancing the operational efficiency of the containers and other front-end staff as well as organizational optimization that improved the workforce structure. For R&D expenses, on a non-GAAP basis, the expenses in Q3 increased by around RMB 79 million year-over-year as the scale of the R&D team has expanded steadily. As of Q3, there were more than 2,300 R&D-related personnel, an increase of more than 100 compared with Q3 last year, among which the number of AI-related R&D personnel has exceeded 600, doubling compared to the same period last year. R&D resources continue to be tilted towards core areas with R&D investment related to AI in Q3 exceeding RMB 150 million, nearly doubling compared to the same period last year. Our operational efficiency enhancement strategy has a clear execution path. We firmly believe that with the market environment stabilized, our continuous operation optimization will fully release the operating leverage effect.

We are now approaching the end of the conference call. I will now turn the call over to your speaker 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.