KE Holdings Inc. (BEKE) Q1 2023 Earnings Call

KE Holdings Inc. (NYSE:BEKE) Q1 2023 Earnings Conference Call May 18, 2023 8:00 AM ET

Company Participants

Siting Li - Investor Relations

Stanley Peng - Co-Founder, Chairman and Chief Executive Officer

Tao Xu - Executive Director and Chief Financial Officer

Conference Call Participants

Harry Chen - Citigroup

Eddy Wong - Morgan Stanley

Timothy Zhao - Goldman Sachs

Xiaodan Zong - CICC

Operator

Hello ladies and gentlemen. Thank you for standing by for KE Holdings Inc’s First Quarter 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. Today’s conference call is being recorded.

I would now like to turn the call over to your host, Ms. Siting Li, IR Director of the Company. Please go ahead, Siting.

Siting Li

Thank you, Operator. Good evening and good morning, everyone. Welcome to KE Holdings or Beike’s first quarter 2023 earnings conference call. The company’s financial and operating results were published in the press release earlier today and are posted on the company’s IR website, investors.ke.com.

On today’s call, we have Mr. Stanley Peng, our Co-Founder, Chairman and Chief Executive Officer, and Mr. Tao Xu, our Executive Director and Chief Financial Officer. Mr. Peng will provide an overview of our strategies and business developments, and Mr. Xu will provide additional details on the company's financial results.

Before we continue, I refer you to our Safe Harbor statements 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.

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

Stanley Peng

Thank you, Siting. Hello everyone. Thank you for joining Beike’s first quarter 2023 earnings conference call. During the past quarter, we have witnessed the real estate market in China, along with various other industries rebounding from the pandemic. GTV of existing home sales in China increased by 51%, while GTV on new residential home sales increased by 7% with sales of the top 100 developers growing by 2%, all on a year-over-year basis.

Existing home transactions GTV on our platform increased by 78% year-over-year in the first quarter and our new home sales GTV increased by 44% year-over-year in the first quarter, outperforming the industry by a great extent. In the past few years, amid the tremendous volatility in the market our continued investment in our Asian network and infrastructure, our persistent support, our quality service providers, and our efforts to shift toward higher quality, more efficient development have enabled our outstanding performance during the market recovery process.

As the external market gradually stabilizes and our organization gets stronger, we face people to questions such as where we can find our more growth opportunities going forward. What are the drivers and how much upside is there in next 10 years? Will we play defense or continue to pursue high speed growth? And how will we allocate our significant cash position? These questions are important to both our investors and our company.

Having pondered these questions today, I would like to take this opportunity to face the future together and share my thoughts on our costs over the next decade. Most importantly, we are an organization that always seeks development because we are committed to making the industry better. Our mission gives us a great cause.

Beike was established to serve our mission of other admirable service, joyful living. It has made asked who we are rather than the other way around. So we won't stop. Of course in our business development and growth cannot be measured with high frequency data, but the need to be viewed with our three-year aesthetics.

Sustainable growth is not in expansion, nor scale, rather it arises from customers and their unmet needs. In the past, our initiatives such as transparent transactions, authentic listings, full commission, refunds for failed transactions and protection or secure transaction were all originated from the question, which needs in the housing industry have not been met. Meeting these needs requires us to think big and think far.

At this point in time, customer demands in the housing industry are far underserved. Customers demands for better living, including the quality of homes, quality of home renovation and furnishing products and services, and a better home rental [indiscernible] remain largely unfulfilled. These are real needs which will provide us with needed room to grow in the future to achieve sustainable developments and growth.

The key is to improve our capabilities. First, our development will be built on our stronger Agent Collaboration Network, which forms the foundation of our infrastructure, holding quality as a pre-requisition and home listings at its core, a series of rules and mechanisms empower simply collaboration of brands, stores and agents within this network. Our ACNs call underlying assets is our customer trust in agents.

We believe that a rule-based competition for quality service among service providers will offer customers higher transaction efficiency and enhance their service [indiscernible] in the future. Our ACN can include additional rules and cover more links along the housing ecosystem value chain, which translates to huge potential for innovation in the network. As such, the most critical foundation for our development is to establish and maintain the connection between ACN and stores, as well as ensure collaboration quality while increasing customer trust in the ACN altogether making our ACN stronger.

Second, development comes from the rise of high quality brands. Brands are built on commitment to customers and their trust as well as an organization's ability to create emotional connections with its customers. In the future, I believe virtual competition will empower high quality brands to connect and aggregate more outstanding stores and agents, which in turn will have foster stronger capabilities within the ACN network to improve service providers' efficiency, thereby taking their incomes to the next level.

Third, development is also propelled by the enhancement of service providers efficiency that is centered along quality. For 20 years in the past we benefited from the tail wave, tailwind or rapid market growth. The main development cost of the real estate brokerage industry was about achieving skill, growth, with quality as a pre-requisition. Whereas fundamental industry efficiency did not improve substantially with the average transaction per agent has been hovering at 0.3 [indiscernible]. Looking at the next two years, we think we will see a shift to enhance efficiency with quality as a call focus.

We firmly believe that this is not the right task even though it is difficult. As quality improvement delivered a better customer endurance and efficiency against driver agent success ultimately resulting in the success of store, brands, our platform and industry as a whole. On the store front, the trend to what large stores is irresistible going forward. Only large stores can bring high incomes to store owners and agents while raising the operational scope. We need to invigorate store owners entrepreneurial spirits and furnish them with support to strengthen their multiple and large store management capabilities.

Meanwhile, we will need to stimulate high quality agents and motivation to help them grow as well as nurture and retain them, which also serves as a crucial measure to enhance store efficiency. On a service provider front, in the residential service industry where agents and stores are at the core, the rather personal value of service providers is also an irresistible trend with the potential for lifelong careers. The value of service providers in our industry grows all the time and they deserve more increment or income and rewards. Their growth and developments also lead to better appearances for customers, which is why we are committed to prioritizing the rights and the interest of service providers.

Our next step is to improve the working environment and the mindset of service providers by committing to the institution of initiatives that ensure their wellbeing with focus on areas such as rest and vacation time. There are many opportunities for improvements and progress in this industry and we are determined to make that happen. Internal efficiency improvement, the adoption of scientific management and technological applications for consistently driving programs in the industry and we will continue to empower future efficiency gains.

Scientific management has been a crucial component and a way of thinking for [indiscernible] to overcome growth bottlenecks in the past. Through a series of tools and measures that we have accumulated, we can discover loss dictating events to guide our actions and ensure we achieve our goals. Ability to balance both long-term and short-term objectives is also crucial during the process of development. We believe that comparing scientific management with cure for people will help us reach our next level of success.

In addition, our organization has stayed from a combination of service oriented and engineering oriented change and the integration of industry practice and technology application are the underlying driving forces for our continuous developments. The emergence of new technologies such as AIGC is also persisted to look in to continue improve industry efficiency and make high quality service providers even more valuable, propelling us to new heights. Everything we do starts with taking care of customers, reflecting on our path to success.

We recognize that our ability to adequately address customer pinpoints has been integral to our growth and customer satisfaction is a foundation of our success. The optimal choice generally benefits both customers and service providers. Taking authentic home listing as an example, it is clear the exact listing precisely is what our customers need as we persist in promoting these listings. Customers gradually progress from that to believe for fulfilling our service providers with a tremendous sense of motivation that propels the entire team to improve their abilities.

We apply the same mentality across our organization. From the existing home business, new home business, home rental business and home renovation, and the furnishing business to broader housing services. In each cases, this mindset has inspired us to develop our capabilities, earn customer recognition and enforce our growth, our own growth opening vast possibilities for expansion. Every time we embark on a new venture, we remain true to our original valuation. We strive for development and growth in order to meet our customers' needs and resist tendencies towards entropy increase.

We reduce cost and increase efficiency to a very large company syndrome, and improve our operational capabilities. We firmly invest in our foundational capabilities rather than make quick profits and extend our scale in [indiscernible] large manners. All of these efforts are amped at providing the best possible service to our customers and creating lasting value through transcending market cycle.

We also focus on shareholders return to both rewards and align ourselves with like-minded investors who share our long-term vision and will stay with us through the market cycles. Finally, what makes our organization different is the culture shift by a group of people. We have been inspired by customers and service providers. Behind this culture there is a mission that drive us to keep motivating forward, admirable service, joyful living. We aim to have service providers understanding and pursue what's right and to help customers to give meaningful feedback to our service providers.

Our value lies in harnessing what's right to motivate positive feedback and to have the reward what's right. We are generally inspired and moved by this. We firmly believe that our presence in this industry will represents a difference for industry practitioners and customers alike. This difference will spread and influence more people and together we will be primed to talk of our next momentum. Thank you.

Next, I would like to turn the call over to our CFO Xu Tao to review our first quarter financials. Thank you.

Tao Xu

Well, thank you Stanley. Thank you everyone for joining us. Before going to the detail of our first quarter financial results, I would like to provide a brief update on the housing market in the first quarter. Since the beginning of this year the real estate market has staged significant recovery, bolstered by a favorable policy of preventing risks and supporting demands, coupled with a concentrated release of pent up housing demand from the pandemic. Notably the existing home market saw a strong pick up with housing pricing beginning to narrow their yield decline and the showed a return to quarter-over-quarter increase from the sequential decline in previous periods.

The new home market also experienced the moderate recovery with the consumer confidence improving. As a fact of the one off release of pent up demand and the seasonality starting in March, market transaction volume began to normalize from an excessively high level. And speaking from relatively stable scale of our ACN network, during the market protracted slump and the effective promotion of refined operations for stores and agents, we proactively capitalized the market to recovery tools and the seasonal dividend as the market rebounded at the beginning of the year. As a result, our GTV growth significantly outperformed the market.

According to Beike Research Institute, in first quarter GTV of existing sales in China increased by 51.2% year-over-year. Well within home transaction GTV on Beike platform grew by 77.6% year-over-year. Data from National Bureau of Statistics also showed that the GTV of the new home sales in China increased by 7.1% year-over-year, while the new home transaction GTV on Beike platform dropped by 44.2% year-over-year.

Our net revenue in the first quarter reached RMB 20.3 billion, representing a 61.6% increase year-over-year, beating both the [indiscernible] of our guidance and the Street consensus. The increase was driven by our highly efficient operations. Stable monetization capability and organic growth in our home renovation and production services our gains were further bolstered by the better than expected market recovery. Moreover, in the difficult environment since the second half of 2021, we implemented the strong comp in the expense of optimizations and consistently refined our operations, which made our organization more efficient than [indiscernible]. These efforts empowered us to deliver strong performance in profitability during the market function.

They have also allowed us to start this year in a position of good strength, gaining great benefit from our increased operating leverage. Therefore we reported continued improvement in multiple financial metrics. Our Q1 gross margin was at 31.3%. Cash net income reached RMB 2,750 million while noncash net income jumped to RMB 3,551 million in the quarter compared with RMB 28 million in the same period of 2022 and an increase of 137% compared from the first quarter of 2021 with a similar revenue scale.

By segment, our net revenue from the new home transaction services increased by 49.3% year-over-year to RMB 9.2 billion in Q1, primarily driven by a 27.6% increase in GTV. Among that the new home transaction GTV from Lianjia rose by 43.2% of which the revenue was recorded on a gross basis. While GTV of connected agents jumped by 117.9% year-over-year in Q1 due to the multiple property market recovery in many tier two cities of which the revenue was recorded on a net basis, resulting in the slight smaller growth of the existing home revenue compared to GTV.

Our next revenue from the new home transaction services increased by 42.2% year-over-year to RMB 8.4 billion in Q1. [Indiscernible] our outstanding sales and capability while our customer base from the single home transaction and the operation integration of the new home single home business, faster new home settlement by Lianjia and the targeted market coverage in the first and the second tier cities that were forced to recover at the beginning of the year.

Particularly cooperation with the state owned developers account for 46% of our sales revenues. Benefiting from the effective coordination with home transaction services, the contract sales of our home renovation and refurnishing business totaled RMB 2.7 billion, up 108.2% year-over-year and the revenue amounted to RMB 1.4 billion rising by 54.3% year-over-year, both on pro forma basis. Our net revenue from emerging and other services increased by 222.1% year-over-year to RMB 1.3 billion in Q1, primarily attributable to the increase of net revenues from rental property management services and the financial services.

Our most streamlined cost of revenue expense structure has largely a significant increase in single quarter profitability amidst the substantial recovery of the market. In particular, the contribution margins of the new home business jumped to 49% in Q1, up by 11.3 percentage points from the same period of 2022 and 11.9 percentage points from Q4 benefiting from the notable revenue increase, the year-on-year decrease in the fixed cost and the revenue based stable variable cost ratio.

The contribution margin of the new home transaction services reached 27%, up by 8.8 percentage points from the same period of 2022, mainly driven by the increased percentage of the high profitability projects and at the more streamlined personnel structure. Therefore driven by the higher margins from the existing and the new home business, increased proportion of home renovation and the furnishing services, with the higher margin as well as a smaller percentage of the cost rate to store and the other cost of the net revenues, gross profit increased by 186.1% to RMB 6.3 billion in Q1. Growth margin increased to 31.3% in Q1 from 17.7% in the same period of 2022.

Our GAAP operating expenses increased by 7.5% year-over-year to RMB 3.4 billion. Among that sales and the marketing expenses increased by 50.3% to RMB 1,294 million mainly due to the consolidation of Shengdu and the organic growth of home renovation and furnishing services. General and administrative expenses increased by 6.1% to RMB 1,621 million mainly due to the increase of the share based compensation expenses. Notably with the healthy cash collection of the new home business, we have a better provision written back of RMB 127 million in Q1.

Research and development expenses decreased by 39% to RMB 457 million mainly due to the decrease of the personnel cost and share based compensation as a result of the decreased headcount. We are maintaining our investment in the new business including the home renovation and furnishing. Our total non-GAAP expenses in Q1 was at RMB 2.61 billion, representing a notable decrease, both year-on-year and the quarter-on-quarter. Income from operations was RMB 2,987 million in Q1 compared to loss from operation of RMB 918 million in Q1 2022.

The increase in gross margin, the improved operating leverage have brought about the increase in operating margin to 14.7% in Q1 from 97.3% in the same period of 2022. Our non-GAAP income from operations was RMB 3,830 million in Q1 compared to non-GAAP loss from operations of RMB 450 million in the same period of 2022. Non-GAAP operating margins increased to 18.9% compared to negative 3.6% in the same period of 2022. Q1 net income was RMB 2,750 million compared to net loss of RMB 620 million in the same period of 2022 and the net income of RMB 1,259 million in Q1 2021. Non-GAAP net income was RMB 3,561 million in Q1 compared to RMB 28 million in the same period of 2022.

Our cash position and cash flow remains robust at the end of March, 2023 on the basis of one-time payment of year end bonus before the [indiscernible]. The combined balance of our cash back items totaled RMB 85.3 billion or US$12.4 billion up by 7 billion from end December and RMB 16.2 billion from end of Q1 2022, among which the combined balance of our cash, cash equivalents, restricted cash and the short-term investments was RMB 66.6 billion. The balance of our long-term cash like items mainly included in the long-term investments amounted to RMB 18.7 billion.

Our net operating cash inflow was RMB 7.6 billion in Q1 remaining positive for the sixth quarter in a row. Under our stringent receivable management, our cash collection from the new home business has exceeded new home brand new for seven quarters in a row totaling RMB 8.84 billion in Q1. New home DSO was at only 59 days in Q1 further shortening by five days from Q4 and 93 days from the same period of 2022.

Turning to the guidance of the second quarter of 2023, we expect total revenues to be between RMB 18.5 billion and RMB 19 billion in Q2, representing an increase of approximately 34.3% to 37.9% from the same period of 2022. This forecast consists of potential impact of the recent road related policies and the market economy recovery standards that constitutes the current and the preliminary review, our business situation and the market condition, which are subject to change.

The past three quarters represented [indiscernible] in the market conditions. In the third quarter of 2022 the market was on the path of the recovery. Despite the impact on [indiscernible] hot summer recurring pandemic outbreak in sporadic cities and the financial streams in the new home market, based on historical trends, we believe the market had returned to 80% of its normalized level and we are recording our non-GAAP net income of RMB 1,888 million during the quarter.

The fourth quarter of 2022, nevertheless was extremely difficult. The market was hit hard by the home buyer's loan purchase intentions. The widespread pandemic outbreak across the country, [indiscernible] formidable changes will demonstrate the resilient profitability with the non-GAAP net income of RMB 1,547 million.

Moving to the first quarter of 2023, the market became excessively heated during the three factors, driven by the three factors. The regular home purchase demand, the concentrated release of pent up demand that had been suppressed by the pandemic and some home buyers early entry into the market for repair of the rising prices. This led to the market directly rebound at the start of this year. In this extremely hot environment we recorded the non-GAAP net income of RMB 3,561 million recorded. In the three consecutive neutral extremely cold and hot markets, we mentioned the remarkable profitability which clearly demonstrates the value of our platform. We do not favor [indiscernible] market, nor do we fear [indiscernible] wise.

Rather we prefer markets that prioritize housing is for mean not [indiscernible]. Where supply and demand balanced enabling us to showcase our value and achieve the sustainable development. Particularly in the fourth quarter Beike and the platform agent remained objective and rational becomes a counterforce to the market, to the mark boom. In terms of our financial strategy, building upon our core businesses fully optimize the company's expense structure. We will continue to enhance quality of our operations on the force of effective growth. For the industry capabilities that have survived the market deep adjustments, very well connected by the regional resources allocation to improve the collaboration quality attracts the industry to compete for the access and improve the agent's productivity and the storage efficiency.

Regarding the new home business, we will continue to strictly abide by our management bottom line and aim for appropriate skills function based on the balanced operations, financial health and the risk control and the new accordance with the market conditions. Meanwhile, we well make reasonable and appropriate investment in sales and the marketing based on the pace of market recovery. We will also decisively invest in the application of cutting edge technology.

Regarding our “two wings” business, home renovation and furnishing and the rental property management services, we are now in pursuit of far scale function that can be done in the short term. Rather we plan to validate our unit economy model at some core cities this year and the building the benchmark pieces to replicate it in the larger scale. In addition, we're more determined than ever to invest in our long-term capabilities including product development capabilities, supply chain and the service cost improvement as well as continuously enhance the service providers professional competency and elevate customer satisfaction.

Overall, we will be more proactive with our initiatives that a contributor to long-term growth and a great [indiscernible] similar to what we did before with our commitment for the transparent pricing and authentic listings, where we're ultimately investing our people, our growth and our service quality. We're also endeavor to explore the applications of new technologies such as AI to operational scenarios in order to tap into small productivity potential of the frontier service providers under the industry in general.

The journey of 1000 miles is made one step at a time. In vast market of special services we will fortify our condition with quality at our core, make relentless efforts to input the service providers working environment and bring a better housing service experience to customers. With respect to recent government guidelines, we carry out studies right away and will make a remaining effort with all parties to serve customer for joyful living.

This concludes my prepared remarks. Now we are open for questions. Operator, please go ahead.

Question-and-Answer Session

Operator

[Operator Instructions] If you’re going to ask the question in Chinese please follow with the English translation. Today's first question comes from Harry Chen with Citigroup. Please go ahead.

Harry Chen

This is Harry Chen from Citigroup. So thank you management for the opportunity and first of all, I want to congratulate on extremely solid results in the first quarter. So my question is regarding the general housing market. We see that as a housing market was in great shape in the first quarter of this year. Have there been any structural changing in the market? And a series of leading indicators since March seem to show both the existing and the new home markets are relatively soft. What are the company's observations of the latest market conditions and how to interpret this leading indicator? What's the company's view about the future trends of the existing and the new home market and how will the market performance differ among different CPPs? Thank you.

Stanley Peng

Thank you Harry. Regarding your first question. In the first quarter, the release of pent-up home concession demand, along with the support of leasing policies, contributes to a significant rebound in China's existing and new home market, followed by a normalization of the market. Overall, the China housing market experienced a moderate recovery, with new characteristics including the demand for home upgrades becoming a solid driving force in the market. And the existing home as the major market contributor, and the second tier cities are the strongest players.

In particular, in the first quarter, the GTV of existing home sales in China increased by 51% year-over-year. But it was 25% lower than that in the first quarter of 2021. The GTV of the new home sales grew by 1.4% year-over-year. The fourth year-over-year increase in past six quarters, while the GTV rose by 7% year-over-year, the second highest year-over-year growth in history.

Price-wise, the new home price ended their 17 consecutive quarters of decline, and they grew by only 0.4% quarter-over-quarter, with the year-over-year decline narrowing to 5.5%. New home prices increased by 0.7% sequentially in the first quarter, with year-over-year decrease narrowing to 1.4%.

Home upgrade demand was the main contributor to the market for the recent round of recovery and the future market growth. This demand comes from the people that already own at least one home and are looking for the upgrade. The proportion of the home upgrade demand exceeded 70% in the first quarter of this year, up 7 percentage points from 2019.

Notably, over 45% of this demand was for the first-time upgrades. The implication of this increased demand on the market as follows. Number one, clients with a home upgrade demand are bound to enter the existing home market first, as most of the new home channel sales customers come from the existing home market.

New home recovery is perceived on the rally of the existing home market. Number two is, for clients, especially for those whose home upgrade demand is rigid, they are usually time-sensitive, as they are facing the life-changing events, such as getting married or have children or for the children's education.

As such, that demand cannot be met by new homes, which are mostly for delivery housing. This is a policy for the existing home market and the moving-ready new homes. The third is, in the market, dominated by a home upgrade demand, supply and demand in the market change simultaneously. Higher demand for the home upgrade naturally leads to more existing home listings without putting downward pressure on the housing prices.

Cities with the higher increase in the home listing also have larger transaction volume and higher prices. For example, at the end of the first quarter, home listing in Shenzhen, Hangzhou, Changsha, Wuxi, and Chengdu rose by over 20% quarter-over-quarter. And that transaction volume, all grow at the higher rate, with a steady price increase.

Number four is due to a longer decision-making process and is the higher transaction complexity. Home upgrade transactions have the higher requirements for the professional and the quality housing services, which will promote industrial upgrades. So in the most recent round of market recovery, the existing home market is significantly outperformed to the new home market. The structural support of the home upgrade demand and delivery issue of the new home both made the home buyer more inclined to purchase existing homes.

As a consequence of this, the existing home market recovered in January, already ahead of the rally in the new home subscriptions in February. Existing home transactions in various regions also accounted for a rising share of the total housing transaction, up from 32% in 2020 to 38% in the first quarter of this year.

The housing market recovery of the second tier cities was more pronounced. In the first quarter, GTV of these in-home sales in the second tier cities or platform increased by 120% year-over-year, far higher than the 40% and 105% in the first tier and the third tier cities, respectively. The greater rebound in the second tier cities is attributable to a lower base in 2022, better local infrastructure and infrastructure, stronger population appeal, and the more relaxed mortgage and the home purchase restrictions.

In the new home market, with just the marginal sales recovered in the first quarter, high-quality private developers have regained some of their enthusiasm for the land auction in core cities. The proportion of land acquired by the private developers in terms of value recovered from 70% in 2022 to 32% in the first quarter of this year, and the land auction premium rebounded to 3.2%.

Regarding your second question, we would like to say that the market from January to May, we not only need to prevent a slight blackness to the difficulties, perhaps due to our beliefs, but also prevent ourselves from closing our eyes to any improving business data right in front of us due to the pessimism that we missed the opportunity of the market. It's true since March, the market has indeed experienced a certain degree of adjustment, but we need to remain calm during the significant market upswings and refrain from being overly bearish during the market corrections.

The market correction is partly returned to normalcy after the release of the pent-up demand. It also reflects the intensification of gains and the bottling between the homeowners and the buyers, which has slowed down the transaction pace. The market rebound in the first quarter quickly increased the home buyers' expectation for the higher housing prices, which are well ahead of the macroeconomic growth and the home buyers' expected income improvement.

The disparity in price expectations, combined with more listing in the market from relatively new homes intended for the home upgrades, reinforced the back and forth between the homeowners and the buyers, slowing down the transaction pace. Nevertheless, we believe the current market adjustment is within the range of normal seasonal adjustment. The transaction volume of the adjustment remain at a relatively higher level.

In April, the existing and the new home substitutions still grow by over 40% year-over-year. Meanwhile, the market stabilized beginning in May. Therefore, we are still in a stage of moderate recovery. We believe the future market will be generally stable, but it will take more time to determine the certainty around the pace and the magnitude of the market recovery. A continued positive policy environment improves the housing price expectations and the recovery of the resident income expectations, as well as the progress on the timely delivery of the pre-sold homes, will all provide support for the continuous market improvement down the road.

On the policy front, a series of supportive policies that began at the end of 2021 has underpinned the recovery of the housing market in the first quarter, which acts as the anchor of the China macroeconomic development. Further policy relaxations with the room for the improvement and the deepening will offer a further economic recovery. The easing policies have recently supplied to the first-tier cities and core regions of the second-tier cities. Since March, cities and the districts of Shenzhen, Guangzhou, and Beijing have relaxed their policies, and the strong second-tier cities like Hefei have narrowed the scope of purchase restrictions.

Targeted easing policies in the first-tier cities and increasingly relaxed cities in the second-tier cities and the third-tier cities will open up the home upgrade transaction channels to better fulfill home upgrade demands, further lifting the market confidence. On the residence, the housing price expectation need to continuously improve. According to survey data from the Beike Research Institute, in the first quarter, the share of the respondents biding the housing price to rise increased by 90 percentage points quarter-over-quarter, which may provide a support to subsequent market recovery.

And at the residence [Ph] the income expectation need to improve further as well. This cannot be realized immediately after policies are relaxed. It takes more time and patience. The Central bank's first quarter data already shows the improvements in residence employment and the income expectations. And also for the delivery issue of pre-sold new homes, and the developers that default continue to exert pressure on the recovery of the new home market.

By the way, we did notice that delivery of pre-sold houses have been improved this year. As long as these factors continue to improve, the market's moderate recovery momentum will be sustained.

Going forward, the existing home market will continue to outperform the new home market, particularly in the first and the strong second tier cities. This is because the cities have greater room for the policy implementation and the higher proportion of existing homes. This effectively limited the new home supply and inventory, as well as a stronger attraction for the population. Thank you, Harry.

Harry Chen

Thank you, management.

Operator

Thank you. And our next question today comes from Eddy Wong with Morgan Stanley. Please go ahead.

Eddy Wong

Thank you, management for taking my question and congratulations on the very great results. So, my question is that Beike has significantly outperformed the market across different business lines in the first quarter. Could you please share how the company achieved this very strong results and performance, and how should we think about your performance relative to the overall market going forward? Thank you.

Tao Xu

Thank you, Eddie. In the first quarter, our company significantly outperformed the market across all of our business. Our GTV of the new home sales increased by 78% year-over-year in the first quarter, compared to the market growth of 51%. And our market penetration rate increased by 6.6% quarter-over-quarter. And our GTV for new home sales increased by 44% year-over-year compared with the market of the 7% increase. And our penetration rate increased by 1% quarter-over-quarter.

Firstly, we need to emphasize this, our significant strong run of performance is similar to what happened in two years ago, that is the second quarter of 2020, followed the pandemic outbreak. And we expect a return to normal in this year as well. In Q2 2020, our market penetration of existing and the new home increased by 6% and 2% respectively, both quarter-over-quarter.

In the third quarter, as the market has normalized, our market gain has also returned to 1% increase quarter-over-quarter. Meanwhile, the difference in the sales recognition may also be one of the reasons why our data significantly exceeds market. The existing home market data is based on the online registrations. When transactions are closed, while our data is based on the contract signing, which leads to the online closing date by around a half a month to one month.

Excluding of our factors our first quarter performance, also demonstrate our strong ability to capture the market opportunities during the recovery cycle. Firstly, we supported and retained the high quality service providers during the market downturn, which has enabled us to raise the benefit of the market recovery. Our view on the future market is that those who can attract the existing and the high quality service providers will be the ultimate winner.

In the fourth quarter, we took advantage of the recruiting season and the exit of many other players in the industry to grow our coverage of existing stores and agents. As a consequence of this, we ended the five and six consecutive quarters of decline in the number of stores and the agents respectively.

Our number of active stores increased by around 6% quarter-of-quarter to over 39,600. And the number of our active agents increased by as much as 18% quarter-over-quarter, crossing the number of agents is 410,000.

Secondly, our service provider did not have [Indiscernible] during the market downturn. They continued to improve their professional skills and they can start the community friendly services during the pandemic, which earns them the long-term trust of the current and the potential customers.

As the market recovers, those better known professionals becomes customer go-to’s. In two years period of 2021 to 2022, 4,600 store owners complete courses in our Beihe Huaqiao Academy, while agents on our platform completed over 24 million hours of professional training through various online and offline courses.

Investment in enhancing the capability and accelerating the growth of both agents and the store owners will yield benefits that transcend the market cycle. We also iterate and refine our business operation strategy. Before 2020, we focused more on growing our number of store and agents. Beginning this year, we will limit number of new store agents, leverage our analysis of the different businesses districts. We will only allow the new addition in non-saturated areas.

Meanwhile, we will identify the problem in different areas and operate in a targeted manner to better support and empower store owners and agents. Our capabilities in the existing home market enable us to succeed in the new home market.

More than 50% of our new home customers come from the existing home market. Our proficiency in the existing home sales support our ability to better seize the business opportunities as the new home market recovers. In cities, where we hold advantage in the existing homes, we can expand our reach more significantly in the new home market.

For example, in the first quarter, our new home sales market penetration in the city such as Wuhan increased by more than 5% quarter-over-quarter. Finally, a healthy ecosystem in both existing home and the new home market will help establish a virtual business cycle, naturally leading to a sustained mass penetration gains.

Regarding our home renovation and furniture services, the overall renovation market rebounded in the fourth quarter along with the real estate market. The contract sales of the Beike's home renovation and furniture services grow by 108% year-over-year on a per-forma basis.

In particular, referrals from our core business contribute to over 40% of total contract sales. Leading cities such as Beijing have been witnessing a continuous improvement in their single city operational ability with an increase in the volume of the renovation orders for passing that of existing home transactions, setting the new records of monthly profitability along with emerging cities gradually gaining momentum, contributing more to overall performance.

In summary, while our market penetration will be normalized in the short term, in the long run, we will consistently expand our reach to the wider retirement services, which provide ample room for growth with high certainty. Thank you.

Eddy Wong

Thank you, Tao Xu and congratulations on the results again.

Tao Xu

Thank you.

Operator

Thank you. And our next question comes from Timothy Zhao with Goldman Sachs.

Please go ahead.

Timothy Zhao

Hi, Stanley, Tao Xu and team. Thank you for taking my question and congrats on the very strong results. My question is about the efficiency improvement, as you mentioned in your remarks. And just wondering if management see any opportunities for further efficiency improvement after very strong Q1 results, and how do you plan to achieve them? And additionally, are there any specific measures that management have in their mind for this year to further improve the quality of the services to customers? Thank you.

Stanley Peng

Okay, thank you for the question. Regarding efficiency improvements, we have already mentioned some ideas in our prepared remarks. The key to focus on customer experience and enhance the capabilities of stores and their agents while improving our platform system and mechanisms. We have implemented many initiatives to greatly enhance the customer experience over the past 20 years. This has helped us to win customer trust and become a top choice for both customers and service providers through initiatives such as transparent pricing, authentic listing, and housing dictionary and our commitment to the protection of secure transactions. Through these efforts, we have addressed many key pinpoints that a customer face on the transaction side, as a new continuing to improve the industry ecosystem as well as its efficiency.

As the market supply and demand gradually balance pinpoints of owners, become increasingly prominent, their needs have undergone changes and the ability to better meet these needs will be an important direction for enhancing customer endurance in the next stage. Furthermore, this year, we will iterate our commitment system for housing transaction services, enhancing the overall customer endurance by addressing core pinpoints. At the end of 2022, our platform offered 56 service commitments to customers in our housing transaction services. The fulfilment of these commitments is far more important than their quantity.

Therefore, we will prioritize commitments that address our customers' most relevant pinpoints and promote the high quality management of our service commitments. Firstly, we will focus on more targeted brand-level service commitments. Secondly, we will steadfastly improve the quality and fulfilment of commitments that cover key customers' pinpoints, such as compensation for damage caused by water leakage.

Thirdly, we will provide guarantees to both end customers and our business partners. For our home renovation and furnishing business, the key to success lies not in customers' acquisition of our marketing, but in the quality of delivery. Fulfilling commitments is more important than simply making promises. To address key pinpoints of our renovation services, we must set clear fulfilment standards and responsibilities, enhance our fulfilment capabilities, and tackle industry-wide challenges.

This is the next breakthrough that we are targeting. Meanwhile, the pinpoints for our core business customers arise more from the housing product side. For the transaction side, the key drivers for improving efficiency lie with helping high-performance agents to better earn more, and providing them with a clear career path to become experts in community and housing-related services. Only in doing so could customers receive professional, quality, and diversified housing-related services.

On efficiency enhancement for the long-term, we have put tremendous effort. First, the average income of agents in our industry still lags far behind the average wage in our society. Only when agents have a healthy income can they maintain a long-term career and achieve higher productivity. We establish and continue to have a healthy ecosystem and a competitive mechanism that avoids cutthroat and inefficient competition.

By providing long-term, high-performance practitioners with more resources and improving their income, we can retain them in the industry. This can be achieved through a platform ecosystem refinement, adequate enabled network coverage, efficient cooperation, professional training for store owners and agents, as well as by adopting the cost-effective large store model.

Secondly, technological advancements, such as AIGC continue to present opportunities for service providers to improve their efficiency, exploring and effectively utilizing these products and tools will help unlock significant efficiency for our service providers in our core and emerging business. That's my answer. Thank you, Zhao.

Timothy Zhao

Thank you.

Operator

Thank you. And our next question today comes from Xiaodan Zong with CICC. Please go ahead.

Xiaodan Zong

This is Xiaodan from CICC. Thanks, management for taking my questions, and congrats on another strong quarter. So my question is on the new home transaction services. As mentioned in the last quarter's call, Beike plan to dynamically adjust the credit ranking of developers based on market conditions, which may in turn expand the addressable market. So could you please update us on the progress of that?

Additionally, have you noticed any changes in the channel penetration rate, commission and split rate in the market? And what are the measures the company has taken in response to those market changes? Thank you.

Stanley Peng

Thank you, Brenda [Ph]. Beike is a company with a strategic focus. Regardless of market conditions, we know what to do and what not to do. And this is especially true for our new home business. Last year, we established a solid foundation for the safer operation and optimized business conduct of the new home transaction service industry. We have improved the service capability for the high-quality ISO [Ph] developers. And in Q1, the proportion of the new home sales had increased to nearly 46%. Our cooperation with a larger number of ISO [Ph] developers is also a validation of our ability to provide the high-quality service and our high sales efficiency.

We have transformed the industry payment mechanism to protect the receivable security of the service providers. Projects with a commission in advance have higher sales efficiency than those without, which is a win-win situation for all parties involved. We have also established a safer working environment for both consumers and service providers. This is the right choice, regardless of market environment. In this year, our market is experiencing moderate recovery. Strategic-wise, we will maintain consistent and stability without focusing on the short-term or being overly aggressive and blindly pursue scale.

We will focus on the better collaboration with upstream developers and further safeguard the interests of all of the service providers in Beike platform. And first, we have set minimum commission speed with our China partners to prevent the plant pursuit of profit, which would lead to a deterioration of downstream ecosystem.

Second, we are strengthening the requirements of the reciprocal protection period, which extends our receivable requirements to ensure the equal protection of the agents and the developers. Third, the refined management, we are strengthening the management of the new home sales external Fangjianghu channel to achieve the paired management for the empowerment and to allocate the resources more efficiently to them.

We also conduct the rating for the new home project in order to better organize and allocate our agents to accelerate the sales through of the high-quality listing, therefore improving the efficiency. And fourthly, we are enhancing our efforts in ecosystem governance with more than 5,000 cooperating new home projects implementing private phone number protection services and more than 4,000 new home projects covered by commitment from both developers and the platform to transparent operations. Overall, with our four strategic initiatives and a stable market environment, we at our new home business will achieve more win-win situation, greater safety, and a more dynamic growth in this year. Thank you.

Operator

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

Siting Li

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.