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spk05: Ladies and gentlemen, thank you for standing by for KE Holdings Inc's second quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host, Mr. Matthew Zhao, IR Director of the company. Please go ahead, Matthew.
spk06: Good evening and good morning, everyone. Welcome to KE Holdings Inc. or Baker's second quarter 2021 earnings conference call. The company's financial and operating results were published in the press release earlier today, and we are posted on the company's IR website, www.investors.ke.com. On today's call, we have Mr. Stanley Yongdongpeng, our co-founder, chairman, and the chief executive officer, and Mr. Tao Xu, our executive director and the 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 Steve Harper statement in our earnings press release, which applies to this call, as we will make forward-looking statements. Please also know that Baker's earnings press release and this conference call include discussions of an audit gap financial information. as well as an audit non-GAAP financial measures. Please refer to the company's press release, which contains a reconciliation of the audit non-GAAP measures to comparable GAAP measures. Lastly, unless otherwise stated, all figures mentioned during this conference call are in R&B. With that, I will now turn the call over to our Chairman and CEO, Mr. Stanley Peng. Please go ahead, sir.
spk04: Thank you, Master. Hello, everyone. Thank you for joining us for our conference call today regarding our performance in the second quarter of 2021. This is our first earning call since the passing of our visionary founder and the permanent chairman, Emeritus Mr. Zuo, who was also referred to as Lao Zuo throughout the industry. And that has been the most significant event that took place in the second quarter for Baker. We mourn his loss not only because he has been a founder who set the mission for our company, but also because he has such an inspirational leader and trailblazer who asked us to explore the future and create value for the housing industry. Lao Tzu has been an invaluable asset to Beike and Lianjia, but his contribution and influence exceeded way beyond our organization. With a clear focus on promoting industry progression, he took decisive actions as an industry practitioner, and he was a true leader who had urged us to reckon more meaningful questions like how we can change the industry and how we create a value for cost consumers and the society. Laozhuo has inspired us to self-improve, improve, be visionary, enact positive changes, infuse value in everything we do, and always do the right things despite the difficulty. In memory of Laozhuo, we will continue to make dedicated efforts to fulfill our mission to providing admirable service, joyful living. We are deeply grateful for and motivated by the condolences and support we received following Lao Tzu's passing. We also appreciated Lao Tzu's family for their trust to the management by granting the irrevocable POA of the voting rights of their Class B ordinary shares to the company by Hui Partnership, to which Ms. Yi Gangshan and myself serve as initial partners. Lao Zhou's family, together with executive directors and co-med members, have also agreed to a one-year voluntary share lock-up of their holding. After Lao Zhou's passing, We fully understand our goal, and we will rise to face the challenger, and we will continue to create value for our consumers, service providers, employees, and shareholders. Turning to our business operations, let's first take a look at the micro policy and market environment. In the past quarter, regulatory authorities their views and opinions in various areas, such as antitrust and data security, and issued a series of policies and guidance opinions in multiple industries. During this period, we have been honored to have multiple opportunities to communicate directly with the relevant government authorities and have gained their recognition and respect for our efforts to improve the industry throughout the interactions. At the same time, we have taken the opportunity to look internally and engage in self-reflection and introspection. As a result, we have further solidified our ongoing belief that our business model would not be feasible without the benefits from being in such a great country and in this great era. As we move forward, we will continue to reflect our thoughts on the two key questions, namely how we can change the industry and how we can take more social responsibilities. Regarding the housing industry, recently many cities and regions have introduced various cooling measures such as loan quotas, price caps, purchase restrictions, and mortgage interest rate hikes, all in an effort to help stabilize housing price, land price, and market expectations. As these measures have begun to effectively chill the rapid expansion of the housing market in various cities, the path of existing home sales growth in many cities started to slow down since May, singularly the beginning of a market correction cycle and a more stabilized growth period for the company. The rapid development of China's economies over the past 30 years spurred fast growth in new and existing home sales as well as demand for home renovation services with overlapping and interconnected waves of the growth among segments in a time with more balanced housing demand and supply and more stabilized market expectation for property price. We expect three major structural trends and opportunities, including the industry's focus on shifts from houses to customers and from transactions to services, and demand from consumer has moved from home purchases to high quality living. In the housing industry, relative inefficiencies continue to persist. with overall low user satisfaction and lingering problems such as lack of standardization, digitalization, and internet penetration. In light of this, we do not expect short-term market corrections to affect the continued long-term firm demand for housing consumers' aspiration for more joyful living conditions. Our journey over the past 20 years tell us that market corrections create opportunities for quality upgrade, strategic thinking, and further development to improve competitive advantages in the future. In 2008, we introduced comprehensive scientific management for our organization. In 2011, we spray-headed authentic listing. In 2014, we initiated our nationwide expansion. And in 2017, we launched the platform strategy. Whenever the industry goes through a transformation phase, we ask ourselves if the industry would be the same with or without Baker and make decisions from a long-term perspective. Clearly, the industry will not be where it is today without these market corrections and the advancement that follow. During this industry inflection, we are again looking in what, like what we have been doing over the past 20 years to seek strengths and explore opportunities to withstand market fluctuations. and create lasting future value. We will prove to the market that we are building a capable, sustainable, and socially responsible enterprise that upholds an uplifting culture, and we aim to create value for consumers and our industry despite the relative market volatility. We believe we can generate more and more values in the housing domain. We hope our long-term commercial values that are built around home will continue to bring one-stop shop quality housing services for the 300 million plus families in China. Next, let's look at our business progress in the second quarter and the first half of 2021. The number of stores on our platform increased to 52,868 in the second quarter, representing 25% year-over-year growth. Approximately 30% of new stores opened were from our current Canadian store owners. The number of stores with a trailing 12-month GTV over RMB 50 million exceded $19,500, accounting for 37% of the total stores and an increase of 10% quarter over quarter. In the first half of 2021, the two-year of GTV per store, both stores and third-party Canadian stores were 20.3% and 15.1% respectively. As we shifted our focus in the second quarter to talent retention of the peak recruiting season in the first quarter, we grew the number of agents by 20% year-over-year to 548,000. The agent attrition rate in Canadian stores on the platform dropped to 8.1% in the first half of 2021. from 9.6% in the first half of 2018. The enhanced store management and agent retention, we helped 45% of Canadian stores to fulfill more than 37 store assistant positions. In the first half of 2021, we implemented agent support initiatives for agents on our platform, which helped improve agent satisfaction and retention. In the second quarter, according to our survey, the number of agents that feel safe to work on the platform with others and the compliance to platform rules increased by 12% compared with that at the end of 2020. Average MAUs, including our MAU on platform apps and WeChat mini programs, reached $52.1 million in the second quarter, up 33.5% from which same period last year, as we continue to improve our brand recognition. Turning to our existing home transaction sources, according to Baker Research Institute, nationwide GTV of existing home transaction market in the first half of 2021 increased by 41% year-over-year, and decreased by 8% compared to second half of 2020. In comparison, GTV of existing home transaction on Bakers platform rose to RMB 1.33 trillion in the first half of 2021, representing 17.1% growth year-over-year, while GTV of existing home transactions for Canary stores increased by 89.6% year-over-year. reflecting our resilience during the early stage of the market downturn. In a fast-growing market, agents tend to focus on closing deals. A market downturn, however, provides a better environment for us to refine management and enhance quality and efficiency. At the end of June 2021, we opened 287 contract service centers in certain major cities in China so that more customers can enjoy enhanced endurance and transaction security during the signing process. We continue to promote our agent specialization strategy. As of June 30, 2021, our agent specialization strategy has covered over 61% of stores in 21 of the 30 core cities we operate in. In the second quarter, transactions completed collaboratively by specialized agents on our platform accounted for 40.4% of total transactions in the stores that implemented this strategy, a 7.7% increase from the first quarter, which indicated more frequent collaborations among our agents. Most notably, in Chengdu, 21.7% of transactions were completed collaboratively among specialized agents. And store efficiency increased an average of 17% by the end of the second quarter, comparing with stores not implementing specialization strategy. We also continue to develop new products to empower the agent to our platform. For example, We are testing a new application named Base Impact , which we piloted in Shanghai in the second quarter. Base Impact is a digital interactive tool to have agents interact with customers, presenting structured and visualized information at a glance on a large pay screen when they are communicating face-to-face. Base Impact significantly promoted standardized agent operations and enhanced offline information and services, prolonging overall customer interaction time by 29% and accelerating the process of building mutual trust between agent and customers. With these benefits, at the end of the second quarter, over 30% of agents have adopted based in PEN as their main offline service tool in Shanghai. With respect to new home transactions, according to the National Bureau of Statistics, GTV of new home transaction market in the first half of 2021 increased 39% year-over-year and was down 13% compared to the second half of 2020. In this context, GTV of new home transaction services reached RMB 841.7 billion in the first half of 2021, up 77% year-over-year, and the GTV of connected stores increased by 85.4% year-over-year. During the past quarter, we continue to enrich online content for new homes. By the end of June, we have enriched online content for all new home projects on our platform with a minimum of 100 description fields completed for each new home listings. As part of commitment to providing authentic and comprehensive housing information, We also added a model describing our favorable factors of new home projects, facilitating more informed purchasing decisions. We are also making steady progress with our new home business conduct improvement plan. We also endeavor to offer five-door commitment to developers, including no-customer journey hijacking, no customers matching, no bribery, no collection of consumer funds, no fax in adversary. As of June 13, 97.4% of our partners, developers, entered into Five Dome's commitment agreement with us. Moving to our emerging services. In early June, we were surreal to announce the acquisition of Shengdu Home Renovation. We first tapped into the home renovation industry in 2019 through the launch of our home renovation brand, Feiwo. As we continue to deepen our understanding of this industry, we have developed an even stronger belief in the vast growth potential of China's home renovation market. The home renovation industry is of a considerable size approximately RMB 7 trillion in total. However, there is scarcity of high quality services providers and the lack of industry standardization and scientific management. As a result, it is difficult for the industry participants to effectively scale and earn profits, and they have to fight for survival in the industry. incapable of meeting consumers' increasing high demand for quality. As housing transactions shift from new homes to existing homes, the industry customer base also changes from new home buyers to existing home buyers and residents in existing homes, adding more complexity and costs for conventional renovation companies to acquire customers. Despite the industry backdrop, Shengdu is one of the very few high-quality companies in this industry. Founded in 2002 and headquartered in Hangzhou, Shengdu has a long operating track record and a large customer base in eastern China. along with an experienced management team and a significant industry know-how. In addition, as one of the earlier practitioners of the full service module in the home renovation industry in China, Shengdu excels not only in marketing and products, but also in supply chain management and execution, with strong management and robust internal control. Chengdu promotes the core value of taking good care of customers, which strongly resonates with ours. As the existing home market becomes more active, consumers demand for high-quality products and services increase. and technologically empowerment growth, we believe that the industry is now at a critical turning point by seamlessly integrating the rich experience of Chengdu's team in the industry with our customer acquisition capabilities, self-developed standardized data infrastructure, and our belief and the credit to promote development through vertical penetration and the horizontal expansion. We are looking forward to making a difference for consumers and the service providers in home renovation industry. At the same time, our in-house home renovation service BayWall Home Renovations, which is being polished as a minimum variable and the products as MVP maintain maintain robust growth in Beijing. They were completed 834 home renovations in the second quarter, an increase of more than 10-fold year-over-year. R&D is also a top priority, and we continue to make key investment to upgrade our technology to further streamline our process and enhance digitalization For example, in the second quarter, we launched Home SaaS system version 1 that provides support through file modules, sales, BIM design, delivery, supply chain, and the middle office management, further enhancing the end-to-end standardization and digitalization of our home renovation services. In summary, Baker is firmly upholding and supporting China's policy and local regulations opinion. Housing is for living, not for speculation. We are also cooperating with regulatory authorities in dismantling false listing and discouraging speculative purchase, which helps stabilize land price housing price and market expectations and promotes the steady and healthy development of housing market, according to Baker Research Institute, which credit tighten and control measures such as price caps in various regions. Overall home sales, I expect to slow down further in the second half of 2021. over 20 years operating history has proven that a market with balanced supply and demand provides the best foundation for our company's long-term development. With our mission of promoting admirable service, joyful living, and our founding principle to pursue a better industry structure, we will take on more social responsibilities. We will empower agents and host our friends friendly environment for communities and we are committed to having younger generation with affordable living through rental and other innovation solutions. We strive to fulfill more social responsibilities with a long-term goal to have industry progress, thereby creating long-term value for the broader communities without noting We are approaching the first anniversary of Baker's US IPO. I still remember the letter I wrote to the entire Baker family on the listing day last year. I mentioned in the letter that all institutions have their own ups and downs. The calmer an institution behaves during glorious moments, the stronger and more capable it will become. when weathering difficult times. Looking back, the capital markets have been volatile in the past year and went through waves of fluctuation. As a witness of all these ups and downs, we are more firmly believing in the power of our mission, admirable services, joyful living. We will continue to always look inward to search for new areas of improvements, create values for society as our outputs, and stay strong and optimistic all the time. Thank you all very much. With that, I would like to turn the call over to our CFO, Xu Tao, for a closer review of second quarter financials. Thank you.
spk07: Thank you, Stanley. Thank you, everyone, for joining us. I would like to provide a brief overview for the second quarter of 2021 financial results. Before we discuss financial results, I would like to reiterate what we mentioned in last Q4 and Q1 running call. Since our business operation had been seriously negatively impacted by COVID-19 outbreak in Q1 of last year, a meaningful portion of transactions had been shipped to Q2 of last year. We suggest that investors should look at and compare our financial performance as reflect our business progress. Therefore, I will discuss both Q2 and the first half financial performance here. Our net revenue increased by 20% to RMB 24.2 billion in Q2 from RMB 20.1 billion in the same period of last year, exceeding both high end of our guidance and the street consensus. The increase was driven by the total GDP growth of 22.2% to RMB 1.2 trillion in Q2 from RMB 1.0 trillion in the same period for last year. For the first half of 2021, our max revenue increased by 64.6% to RMB 44.9 billion from RMB 27.3 billion in the same period for last year. driven by the total GTV growth of 72.3% to RMB 2.3 trillion from RMB 1.3 trillion in the same period last year. In particular, our net revenue from receiving home transaction services increased by 4.9% to RMB 9.6 billion in Q2 from RMB 9.2 billion in the same period last year. Primary attributable to 11.7% increase in GTV of existing home transactional to RMB 652 billion in Q2 from RMB 583.5 billion in the same period of last year. For the first half of 2021, our net revenue from existing home transaction services increased by 57.9% to RMB 19.8 billion from RMB 12.6 billion in the same period of last year. driven by a 70.1% increase in GTV of existing home transactions to RMB 1.3 trillion from RMB 779.2 billion in the same period of last year. Our next revenue from new home construction services increased by 31.9% to RMB 13.9 billion in Q2 from RMB 10.5 billion in the same period of last year, primarily attributable to an increase of 32.3% in GDP of new home transactions to RMB 498.3 billion in Q2 from RMB 376.6 billion in the same period of last year. For the first half of 2021, on net revenue from new home transaction services, increased by 70.4% to RMB 23.8 billion from RMB 14 billion in the same period of last year, joined by a 70.7% increase in GTV of new home transactions to RMB 841.7 billion from RMB 493.1 billion in the same period of last year. Our next revenue from emerging and other services. increased by 50.6% to RMB 0.7 billion equal to RMB 0.4 billion in the same period of last year. The increase was primarily attributable to the increase of our penetration level in the company's financial services around the housing transaction services and the increased number of home renovation units completed through the company's platform. For the first half of 2021, organized revenue from emerging and other services increased by 68.9% to RMB 1.2 billion from RMB 0.7 billion in the same period of last year. Cost of revenues increased by 38.6% year-over-year to RMB 18.8 billion in Q2 from RMB 13.6 billion in the same period of last year. Gross profit was RMB 5.3 billion in Q2 compared to RMB 6.6 billion in the same period of last year. Growth margin was 22.1% in Q2 compared to 32.5% in the same period of last year. The decrease in growth margin was mainly because, one, market in Q2 of 2021 had a more ordinary performance compared to the same period of last year, as a significant portion of transactions, especially in-home transactions, shifted from Q1 to Q2 of last year, all due to the COVID-19 pandemic, resulting in a higher base of growth margin in that period. In Q2 of 2021, its in-home sales market was affected by a series of market cooling measures that led to a relatively low contribution from its in-home transaction revenue to total net revenue of the company, resulting in a lower total contribution margin compared to the same period of last year. Three, proportional new home construction complete by connected agent and other cell channel increase in Q2 compared to the same year of last year, resulting in a lower new home contribution margin in Q2. For the first half of 2021, gross profit increased by 43.9% to RMB 10.1 billion from RMB 7.1 billion in the same period of last year. Operating expenses for RMB 4.2 billion in Q2 compared to RMB 3.3 billion in the same period of last year. General administrative expenses for RMB 2.2 billion in Q2 compared to RMB 2.0 billion in the same period of last year, mainly due to an increase in share-based compensation expenses. Sales and market expenses for RMB 1.2 billion in Q2 compared to RMB 788 million in the same period of last year, mainly due to increase of the online and offline advertisements and branding campaigns, as well as increase of high company business development. Research and development expenses for RMB 775 million in Q2 compared to RMB 524 million in the same period of last year. mainly due to the increase of high-counting experienced R&D personnel and increased share-based compensation expenses. Total share-based compensation expenses for RMB 436.2 million in Q2 compared to none in the same period of last year. Income from operation was RMB 1.1 billion in Q2 compared to RMB 3.3 billion in the same period of last year. Operating market was a 4.6% in future compared to 16.3% in the same period of last year primarily due to the relatively higher gross profit margin in the second quarter of last year as we discussed the gross profit. And the last operating expenses incurred in that period due to travel and increased by 28.6% to RMB 2.1 billion from RMB 1.7 billion in the same period of last year. Excluding non-GAAP items, our adjusted income from operation was RMB 1.7 billion in future, compared to 3.4 billion in the same period of last year. Adjusted operating margins was 6.9% in Q2 compared to 17.1% in the same period of last year. Adjusted EBITDA was RMB 2.6 billion in Q2 compared to RMB 3.8 billion in the same period of last year. For the first half of 2021, adjusted income from operations increased by 64.6% to RMB 3.2 billion from RMB 2.0 billion in the same period of last year. Net income was RMB 1.1 billion in Q2 compared to RMB 2.8 billion in the same period of last year. The excluding non-GAAP items, our adjusted net income was RMB 1.6 billion in Q2 compared to RMB 3.0 billion in the same period of last year. For the first half of 2021, adjusted net income increased by 68.8% to RMB 3.1 billion from RMB 1.9 billion in the same period last year. Net income attributable to AE Holding Inc. open shareholders increased by 5.6% to RMB 1.11 billion in Q2 from RMB 1.05 billion in the same period last year. was RMB 1.6 billion in Q2, compared to adjusted net income attributable to KE Holding Inc. of RMB 2.9 billion in the same period of last year. For the first half of 2021, adjusted net income attributable to KE Holding Inc. increased by 68.7% to RMB 3.1 billion from RMB 1.9 billion in the same period of last year. Diluted net income for ADIs attributable to KD Holding Inc. ordinary shareholders was RMB 0.9322 compared to RMB 2.12 in the same period of last year. Adjusted diluted net income for ADIs attributable to KD Holding Inc.' 's ordinary shareholders was RMB 1.3722 compared to RMB 2.23 in the same period of last year. As of June 30, 2020, One, the combined balance of our cash, cash equivalent, restricted cash and shorting investment amounted to RMB 59.2 billion or USD 9.2 billion. Additionally, as of June 30, 2021, the balance of our long-term cash items mainly included in long-term investment amounted to RMB 8.8 billion or USD 1.4 billion. During the second quarter, a slew of city-specific policies and severe market cooling measures were rolled out in order to effectively stabilize the land price, home price, and market expectations. We expect the second half of this year to be one of the most stringent periods in past decades in terms of unprecedented conditions such as intensified policy launching, the variety of tools applied, and the number of regulatory involved. From the supply side, three rail lines to developers, two rail lines to financial institutions, concentrated land auction in 22 cities, and the reference price for homelessness have impacted both new home and in-home transactions. From demand side, tightening up the mortgage practice and the land lease approval period has significantly extended the transaction cycle. while the insurance of reference price and purchase restrictions has led to cooling down of consumer expectations. Those measures will promote stable and healthy development of the real estate market in the long run, while they will also bring the shortening of uncertainties. As a result, raised by the real estate market will cool down moderately in the second half of this year. In the face of this challenge, we formally uphold those policies and measures and support government to crack down on housing speculation in some certain overhanging cities to stabilize the market. We believe the longing for the joy of living and better housing creates a foreign demand from the customers. We have experienced several times of market ups and downs in the past two decades. Nevertheless, the company always becomes better and stronger when we pass through those cycles. This is also the root cause why Baker and Lianjia could be divided so well today. According to Baker Research Institute, nationwide GTVL is in home sales market. It's despite to fall over 40% year-over-year in the subculture. We will advance our agent specialization strategy using home sales sectors to ensure more business opportunities are accessible to our agents. Incentive license supports store owners to introduce multiple benefits in an effort to smooth out market cycle disruptions to agents' income and retain talent in the industry. Meanwhile, nationwide GTV of new home transaction market This is by 2.5% year-over-year in the third quarter with the price tightening and the purchase curve intensifying. We will continue to invest in and develop professional new home agents, improving business conduct, and enriching online content for new home sales sector. We believe with market expectations stabilized after rounds of measures issued, as well as increasing sales through demand from developers in the traditional peak season, opportunities are still sufficient in new home sales sectors for us in the second half of this year. Based on above considerations, Looking forward to the third quarter of 2021, we expect our net revenue to be between RMB 14.5 billion and RMB 15.5 billion, representing a decrease of approximately 34.6% to 29.4% from the same quarter of 2020. This forecast concedes the potential impact of recent real estate-related policies and measures. and the company's current and preliminary view on the business situation and market conditions, which is subject to change. Nevertheless, although our top-line growth guidance has been slowing down, mainly due to its no-circumstance, we are confident that our strong mode in the collaborating network we uphold in quality services and input efficiency will help us to continuously outperform the market. The foundation to pursue the downturn depends on the face of the team, whether we believe we have the ability to change the corner, whether we believe that sticking to our profession will eventually pay off, whether we believe the aspirational call will drive us out of starting space. This kind of phase is what truly matters in difficult times. Meanwhile, based on above-mentioned market trends and our deep experience going through several market downturns, as well as a strong sense of mission to take on more social responsibility. The second half of this year, we will continue to put our efforts into companies' infrastructure and emerging businesses. We will increase our support to incubate them standing out in the industry and go through this difficult time together. We will also contribute more value to society by speeding up our exploration in home renovation and furniture business and applying our efforts in rental housing services for young people and new city drivers. Therefore, we recently foresee that we will commit more investment into our new business development in the second half of this year. In summary, although our performance cannot go against the market general momentum instruction, we still strongly believe in what Lao-Fu mentioned in our post-practice. We focus on indigenous factors and minimize external influence. Matching through noises and market volatilities, we believe it is our fundamental value rather than external circumstance that is the key to continuous success of Bayco. Compared to our near-term financial performance, We devote more efforts in developing and investing in our long-term capabilities, even though it might take time to achieve the financial returns on those investments. In fact, the longer it takes and the more difficult it is, the more excited we become. That concludes our prepared remarks. We would like now to open the call to questions. Operator, please go ahead.
spk05: Thank you. We will now begin the question and answer session. To ask a question, you will need to press star one on your telephone. To withdraw your question, please press the pound or hash key. For the benefit of all participants on today's call, please limit yourself to one question. And if you have any additional questions, you can re-enter the queue. If you are going to ask the questions in Chinese, please follow with English translation. Please stand by while we compile the Q&A roster. First question comes from the line of Li Pingchao of CICC. Please go ahead.
spk01: Hi, Stanley. Thank you for accepting my question. My question is about the commission rate. Because there were some rumors about the commission rate, such as the cap. 我不知道公司对于这个问题怎么看。 然后我们未来几个 quarter 它的用金率的变化或者说 outlook 或是怎么样的。 然后我自己快快翻译一下。 Good morning, Stanley and Tao Ge. My question is related to the commission rate. There were some rumors circling around market saying that there might be some limit on the agent commission rate. So how should we expect What's the view from management and how should we expect the commission rate in coming quarters? Thank you.
spk07: Thank you, Li-Ping. This is Tao. Regarding the recent rumors, there have been lots of rumors about the King Home South Commission rate recently, especially the WeChat Moments screenshot, which was wildly spread in many social network groups three weeks ago. The rumor was sent by a junior person from a parasitic broker company, which is doing skipping orders in Shanghai, which was false news with ulterior motives. Meanwhile, we have been in close communication with the relevant authorities and actively reporting related issues to them. The clear response from the Ministry of Housing and Urban Rural Development is that so far there is no such information in restricting housing transaction commission fee. I hope make this clear. So I know we also, we do think the real estate market is very different with K-12 education sectors, with a different intention from the regulator. Being a fair and a public service is the key to the education sector, while the housing for living, not for speculation, is the key for the housing sector. Therefore, reducing the building up of long-term mechanics in the housing market to contain housing prices from excessive hikes is the goal, rather than continuing housing transactions and related services. The stabilization of the housing price aims to suppress the wealth, impact, and wide impact of people's livelihoods and their consumptions. On the other hand, recent policies are all aimed at supporting long-term health growth of the population and the improvement of the population structure. On the stable housing price and long-term supply demand balance market, to live better and continuously improves our living conditions, which is a solid foundation of sustainable and healthy growth of population. Therefore, we believe a market environment which is benefit for Baker's long-term development remain unchanged. In summary, as I mentioned this point for several times, I want to make clear again, the commission rate reflects the service quality and transaction efficiency, and service commitment. Charging a reasonable rate without quality, service commitment, We will continuously invest our infrastructure and agents' professional training, offer more subsidies to support recognized stores, developments, and agents' education in order to bring more value to the industry. We believe the overall commission rate on our platform will remain relatively stable. Hope this clarifies.
spk05: Thank you. Next question comes from the line of Biyush Mubai from Goldman Sachs. Please ask your question.
spk02: Thank you for taking my question. Your company has been through 20 years in the real estate market in China and been through multiple cycles. We'd be grateful if you could take us through some of the past cycles that you've been through and how long it has taken you to come out of those cycles from a negative growth rate to a positive growth rate. And if you could spell that through on a quarter by quarter basis, how long can the quarter be? How many quarters can the negative growth rate be before you come out? based on, let's say, the last two or three cycles, that would be very useful for us to better understand. And while we completely understand that you're in sync with the government objective for pricing and price stability in the market, if you could just go through where the vulnerable points have been, where the volumes have declined very sharply, and where those points will start to stabilize, i.e., we start to see no further declines coming through, And if you could take us through where you are in Shenzhen in the last quarter or next quarter, that would be great. Thank you.
spk07: Okay. Because this first half is a very booming season in 2021, so after the over-booming first quarter, the crisis starts to tighten in the second quarter. And many regulator policies were introduced in some other city like Shenzhen, which has led to a start of the market downturn. For the second half of this year, we expect the overall market to continue cooling down. Currently, we reasonably foresee the property market will be under more pressure in Q3 compared to Q2 and the last Q4. In terms of credit supply, we expect the regulation to remain tight in the second half of this year, resulting in continuously rising mortgage rates, further extending long approval and the lending cycle. For the sinking home sales market, we expect it will be largely affected in this Q3 by credit tightening and other regulations such as the reference price cap taking effect, causing overall sinking home sales market GTV in the second half to slow down. And in terms of the new home sales market, the Q3 is a traditional week season. efficient new home supply, we believe the new home sales might take a slowdown quarter over quarter in this Q3, but would recover in this Q4, supported by the seasonal stress. We expect second half GTV for the new home sales market to dip by 10% year-over-year for the market. Developers will be more reliant on the broken channels in the second half of this year, given the slowing down of its in-home transactions, which add to difficulties in developers' customer acquisition. So for Beiko and Lianjia, we have a 20-year history. We have undergone at least seven times market cycles and ups and downs. So I want to invite our chairman of sports, Stanley, to give some color on this for further elaboration.
spk04: Yeah, this is Stanley. Let me answer your question in terms of the cyclical trend and how we view those kind of cyclicals impact to our business. Stanley. Yes, because I think when we were in the market, we once wrote a sentence. My industry is a week, everyone says this is a weekly industry, right? But in fact, if you put three years together, you may see it more clearly. For example, in terms of years, or in terms of seasons, or in terms of three years, in fact, the results are very different. In fact, why do you say that? I want to share with you first. How is the weekliness of this industry produced?
spk06: Yeah, when we IPO, we actually have been discussing a lot with the investors in terms of how we can view our business cycle, right? Whether we should look at that in a quarterly basis or in an annual basis or in even like a three-year basis. We truly believe the three years is pretty much like a cyclical, which is more representative of our business cycle.
spk04: Yes, I think a lot of analysts or investors may also Actually, I don't know much about this industry. So when I first encountered this situation, I may feel a little uncomfortable. But I can share with you how this fluctuation occurs. In fact, for any city or industry, it has its own growth path. Or let me give you an example. For example, let's take a city as an example. For example, Beijing or Shanghai. Each city has its own maturity. The industry has a maturity. For example, in Beijing, there are 8 million to 9 million houses in total. If the exchange rate is 1% every year, it is a relatively low time. If the exchange rate is 4%, it is a relatively high time. So the market has a steady line, which is like a relationship between quantity and price. For example, in Beijing, if the amount of transaction per month exceeds, for example, 25,000 sets, a huge change will occur at this time. The price of the house will rise rapidly, and the amount of transaction will also rise rapidly. If it is below 20,000, the price of the house will not rise rapidly, and the sales volume will be relatively stable. This is a critical market situation.
spk06: I think in terms of our business momentum, a lot of analysts and investors do not quite understand that. That is why when we are facing the first cycle after our IPO, people feel unsafe on that. So for me, I can explain that more details in terms of those kind of volatility, right? So when we look at each of the, you know, no matter which city or which industry, they all have their own growth paths, right? So we look at the, you know, the materiality in a more macro of the models for our business. For example, in Beijing city, there are roughly like 8 million to 9 million of the existing homes. And if we look at the turnover rate, it's around like 1%. It normally represents it's a low level in the industry. And 4% normally represents it's more like highly traded of the market. So that actually also to be matched with the scalability within that kind of market. For the normal conditions, normally we think for the Beijing, it's about $25,000 of the transaction volume per month will be more normalized of the level. If we look at a certain period, which is significantly surpassed of those $25,000 volumes, the housing price actually will hike very quickly. And then followed by that, the transaction volume also will be followed.
spk04: We can see that in the past 20 years, the bottom line of the 20-year trend is that every city has a stable trading volume around its trading volume. If the trading volume exceeds the stable trading volume, the price will rise significantly. So you will find that the trading volume around the city's stability is fluctuating for two years. The price will be relatively stable, or the price will rise slightly. The price will rise slightly, or the price will rise slightly. The price will rise slightly, or the price will rise slightly. The price will rise slightly, or the price will rise slightly. The price will rise slightly, or the price will rise slightly. The price will rise slightly, or the price will rise slightly. The price will rise slightly, or the price will rise slightly. The price will rise slightly, or the price will rise slightly. So at this time, there will be a corresponding policy, so we will find that the industry has been stable for three years in a week, and then the price and quantity of the first two years will increase rapidly in the third year, and then the corresponding policy will be issued, and then it will start to enter three years again. This is the whole tempo of the past.
spk06: So in summary, seeing each of the cities, we have a so-called very, you know, the normalized of the transaction volumes. And if the transaction volume significantly has been surpassed or lower than those kind of, you know, the market normal condition, the price will have, you know, will follow by that to have significantly changes. When we look at the three-year cycle, normally the first year and the second year, the transaction volume will be relatively stable. But if there's a certain period, suddenly we see some of the transaction volume increase followed by the price increase, then the price will significantly increase compared with the first two of the years. Normally, it will be much higher than the 8%. of the level, which is pretty much in line with the GDP growth, right? So what we normally monitor is approaching to the third year of every cycle. The price will significantly increase, and then the transaction volume also will be impacted by that. So the authorities will be, normally will have the certain kind of measures came out with those kind of situations. And in order to cooling off of the price hike. So when we look at the overall trend in the three-year cycle, normally it will be more like a very stable of the overall transaction volume and with normalized price condition in the market.
spk04: Yes, so we will see that the past is like 2008, 2011, 2014, 2017, and the end of 2020. Basically, it's like this. That's a cycle every three years. So this is the cycle of this industry. But there are a few things that have changed around it. Although the cycle is called cycle, but the first house price will rise steadily and interestingly in the process, but there will be some fluctuations in the process. Second, the maturity of a city is changing. For example, I mentioned that when a city is under a certain rhythm, For example, if the exchange rate is 1%, then the market will not be stable. As the market continues to mature, the exchange rate may reach 2% or 2.5%, but it is still relatively stable. For example, the US exchange rate may reach 3.5% or 4% this year, but it is still stable. This is a sign of the maturity of this industry. When the trading volume of a city can still bring about a stable price, this is a big trend. So this is the fundamental reason for the fluctuation.
spk06: So that is why in the past decades, we look at a similar kind of pattern in the year of 2008, 2011, 2014, 2017, and now it's 2021. So approaching to those kind of year end, we're facing like a cyclical of the challenge. But there has two of the characteristics I want to mention here as well, right? So firstly, you know, the housing price normally will remain in relatively stable in a relatively long time horizon, but will continue goes up more orderly based on those kind of demands. And secondly, the materiality in those kind of cities or areas also will be changing, followed by the materiality of the market. For example, like, you know, maybe in the past of the cycle, 1% will be the stable level, but now may change to the 2% or even higher. In the US, this year, we look at 3.5% to 4% of the turnover rate, but the price is still relatively stable. So that will be a very strong symbol for the materiality of this kind of industry.
spk04: Yes, so you can understand the first question that my colleague just asked. In fact, the biggest policy in the housing sector is that housing is not noisy. is that housing prices should not rise rapidly. This is the biggest policy in this industry. So we will see, for example, with the adjustment in 2017, for example, in Beijing, in the 19 months from 2015 to 2016, housing prices rose by 62%. In Shanghai, from 2014 to 2016, in the 18 months, it rose by 65%. When the market encounters such changes, a new policy will emerge. So, in response to the previous question, Stability is the most important thing in this industry. So, in the assistant industry, the most important thing is stability. The most important thing is the stability of the price itself. It's not that the price doesn't rise, or that the industry doesn't need it. Rather, as long as the price is stable, it is a stable growth. In fact, it is the best line of development in the industry. And for Becker, we are not against this policy itself. 我们也希望行业平稳的发展, 这样的话对整个的平台也是最为有利的。 Yeah, so I want to reiterate what we have been mentioned in the prepared remarks.
spk06: So we think in the, and we truly believe in the housing industry, the biggest key role from the government's perspective is remaining the housing is for living in, not for speculation, right? So the purpose behind that is definitely related to the, you know, the stable price. But the stable price doesn't mean it will be, you know, not increasing. It's more represent for the stable increasing, right? So it's not imply any impact of other and bring other social matters. So we have the example in the history. For example, like in Beijing, the last cycles bring the very serious matters is because of Beijing's housing price actually has been up 62% within a 16-month time. And for Shanghai, also the similar kind of trend is the housing price up to 65% within 18-month times. So after that, it's all brought by the various theories of the measurement from the regulators. So that's also a very good testament, right? We truly believe for this industry, The biggest political and the biggest thing is how we can remain the whole industry, especially the housing price stable. And if we are not against this kind of trend, definitely we believe we can take a benefit on that. And those kind of supply and demand balance market, it also will be the best of the environment for the bakers for the development.
spk04: I also want to share with you how we have experienced these scenarios. If you know about our development experience, it is actually very interesting. Every year, the year of policy adjustment begins. In 2008, 2011, 2014, and 2017, our next year will generally do something that seems to be difficult and correct today. In 2008, the market was not good. In 2009, we began to do scientific management. In 2011, the market was bad. Then in 2012, we started to do the real estate agent, which is to make a profit in customer experience and online. In 2014, the market was low. Then in 2015, we started to do nationalization. In 2017, in fact, in 2018, we started to do Beike. Why did we make such a choice? Mainly in every policy year, we mainly think about two things. The first thing is that no matter how good we did in the past, may not necessarily mean that we are really good. It may be because of other reasons. So we will suddenly find that many times, because of many conditions, we are doing well. So we need to think further about what value we can create. This is a very important thing. So this is the first thing. The second thing is that it will actually make us look at the long term. Why is it called long-termism? Because it only believes in long-termism after it has gone through many ups and downs. So long-termism, for Beck, is because after many ups and downs, we will believe more and more. Because believing in something is not so easy. You have experienced it. You have experienced some choices. You have to do it. Including what we are doing now in 2021, right? We are looking at, for example, around housing, there are more and more services about social responsibility, right? In fact, we can see clearly today that these things are what we should do. We should create value. So this is what we think when we face this moment internally.
spk06: So I can give you more examples in terms of how we can pass through those kind of, you know, the cycles and make ourselves stronger, right? So as I mentioned in my prepared remarks, like our journeys over the past 20 years, you know, tell us market corrections always create the opportunities. So if you look at our experience, normally in the second year, you know, when we experience those kind of cycles, so we can create some of the you know, the new initiatives and doing the right thing even if it is difficult, right? For example, you know, the cycle in 2008 and after that, 2009, we introduced a comprehensive scientific management, right? And after 2011 cycle, in the year 2012, we promote authentic listings. And after 2014 cycle, in the year 2015, we initiated our national-wide explorations, all et cetera, right? And every time when we go through the cycle, as I mentioned, so we always think about two things as a priority. The first thing is whether we already have been done all the things we have been done and whether we are worth of what we truly believe ourselves, right? Whether we are good enough to create value for the customers. And every time our answer is we can do better, right? So that's the first thing we always consider. The second thing is, you know, during those kind of cycles, that gave us opportunity how we look at the long-termism, you know, in a more deep nature, right? And make us more and more believe of those kinds of long-termism will bring the long-term benefit back to the company. So in the year of 2021, when we're facing this cycle, we also have more thinking around of the long-termism. For example, the services behind of the home or the housing topic and the renovation services, as well as how we can bring more social values when the companies become stronger and bigger, and how we can repay back to the local community. So that's all the thinkings and considerations that brought us for this cycle.
spk04: Yes, so from this year's perspective, for example, this time, like Shenzhen, the house price has risen significantly, including the data from the Bureau of Statistics, the price of the first house in China has increased by more than 30% in the first half of this year. The first time the price of a new house in China has broken 10,000 yuan. And in the past half of the year, the growth rate has exceeded two digits. So this is also a big background for this matter. So I want to tell you that housing is not noisy. This is the biggest thing in this industry. Because the price itself is the change of this industry. But the overall tone is to be stable. The housing price has to be stable. It doesn't have to go up or go down. It has to be stable. The land price has to be stable, and everyone's expectations have to be stable. The house has to be used for living, not for the factory. So I think that with these policies and the corresponding measures, it will actually bring a more stable environment for the entire industry. So there have been a lot of rumors in the past, right? For example, do we need these industries? These things are all nonsense. The core is to grasp the essence of how to prevent the irrationality of the price itself. This is not good for the whole thing. It is also not good for Bitcoin. So I think this matter itself, no matter how we look at it, after so many years, we insist on creating value. So that is why this year, when we look at the Shenzhen case, after the Shen family has been cracked down, as well as other things bring a new rational of the market for Shenzhen,
spk06: And meanwhile, we also looked at the survey from the overall new home market, right? This year's overall, the transaction volume has been up 30%. And the average of the price for the new homes in China also has been surpassed 10,000 RMB per square of the level, right? So that's all bringing the, you know, enough of the reasons for the authorities, you know, continue to apply some of the measurements to make sure that of the stable of the overall real estate market as well as the stable of the halting price. So again, when we talk about the halting price, it doesn't mean the halting price will not go up. But behind that, we truly believe it's more like a moderate growth and with moderate expectations. So all the things behind the whole philosophy will be quite important to the, I mean, obviously, the long term of the healthy condition for the industry. And meanwhile, you know, we also mentioned, you know, there are a lot of rumors, right, whether this, you know, for example, like agents industry should be continue exist, or whether, you know, we'll have the, you know, the further pressures, etc. But we truly believe those kind of rumors will be the totally nonsense, right. So as far as we can continue to provide the value to our customers as well as our, you know, the platform participants. So definitely, you know, we can continue to bring the value, you know, to the communities, especially those kind of, you know, the supply and demand balance market with a very stable of the housing price is also the best of the environment for the bakers for the development. So we will continue support of those kind of policy and continue to create value based on those kind of marketing environment. Thank you. So that's all the philosophies and my thinking behind your questions.
spk05: Back to you, operator. Thank you very much. Next question will come from Steven Tsai from Morgan Stanley. Please ask your question.
spk03: Hello, Mr. Guan. Thank you for accepting my question. My question is that there has been a risk of liquidity in the development of different sizes since this year. 那我们该怎么去衡量这在我们营收账款上的风险呢? 那像是我们目前有多少的Beta provision在账上, 那如果说这类的流动性问题持续扩大, 会不会影响我们之后在新房分销这边的用心率呢? 那我自己翻译一下吧。 Thank you for taking my questions. My question is related to the liquidity issue and concerns that some of the top developers and some smaller ones are facing. So how should we size the potential impact on the account receivable risk for our new home sales business? Maybe how much of that provision you have recognized on your balance sheet so far? And if this issue persists and escalates, would that affect the new home commission rates of our new home distribution business going forward? Thanks.
spk07: OK. Thank you, Steven. For our collection, the status is very healthy. If we look at the DSOs company, in 2018, 2019, and 2020, our GTV of new home increased from 281 billion to 746 billion and to 1.4 trillion, respectively. But our DSO were 117 days, 96 days, and 103 days, respectively. So you will see, even the total top line, year-over-year, we doubled. But our DSO continuously dropped. Especially in this Q2, the DTV of the new home is almost 500 billion, but our DSO further improved to 92 days. The reason behind that is that the company has stringent revenue recognition criteria for new home sales. The company evaluates its whole payment rate for developers thoroughly, and they recognize the revenue for the high-risk developer on cash basis under CISO's accounting standard. That is, we do a very prudent revenue recognition. The county also adopts diversified measures to ensure the payment collection safety, including adoption of litigation preservation and other necessary measures. And we see continuous improvement in the accounts receivable collections. In this year, we recently foresee some developers, they may encounter some difficult time, and some of them will identify the high-risk developers. I will not mention the name at this moment, our platform. And I can share with one number, the total receivable from the so-called high-risk developer account receivables were reduced from 1.5 billion to around 800 million by the end of the second quarter. So everything continues to improve. And also I want to share this. In Beike, we are currently offering service for more than 7,000 projects and more than 240 developers across the country by the end of Q2. And the concentration rate is still healthy, and the top 10 developers count around 25.5% of the transaction volume. And from the top 100 developers, that counts around 63%. So we have a very low degree of business concentration, and the battery risk for a single developer is relatively low. And also, I want to share with you is the question is also related to our view to overall new home sales market trend. And I think recent restriction hurdle of the in-home production will ultimately impact the new home sales market. In order to improve the potential consumer conversation and the cash collection, the developer, they are more and more allocated resources and inventory to the channel sales, such as BACO. So the high demand of China sales fund developer will ultimately drive Baker's goals for our new home transaction service in the second quarter. And from Baker internally, we say the cash is the king. We put in tremendous efforts for the product verification and ensure all of the collections will be collected in time. Thank you. Thank you for the question.
spk05: The next question comes from Ashley Xu of Credit Suisse. Please ask your question.
spk00: Thanks, management, for taking my questions. Two from me. The first is about some initiative from some local government to establish a website where they require the brokers to upload authentic listings to that website. It's still ongoing efforts, so early stage, but just want to check on management view on how such efforts could potentially impact the way Beike functions or works. And second question is on regulations found mainly both in antitrust and also data security. How is those, how would those regulations impact backup? Thank you.
spk07: Thank you. Yes, we do, where some of the users are regarding the format, for example, Shenzhen, they have a so-called short-lived property platform. First, I need to, I want to clarify, the system, this regular e-government information system, that's not a so-called platform to do the transaction business. The key goal for this upgrade of the e-garment system is to obtain the first-hand information on property listing to effectively carry out regulation as a frontline watchtower to prevent the market from overheating. Actually, this is nothing new. In addition to Shenzhen, we notice other cities who are leading in urban service also have the same practice. For example, Hangzhou, we see they have the similar function and feature on their systems. This is not the new thing. Regardless of which new system or new format emerges, Our key focus will always be a better customer experience, transaction efficiency, and whether the listing price is authentic. Our underlying operating logic is highly consistent with this so-called e-commerce system because it will further enforce authentic listing and facilitate the cooperation among agents. This is also in line with our ACN because we see the ACN is the culture of the transparency, collaboration, and shared success. And we, in past decades, we introduced and then introduced authentic listing. While those companies rely on the fake listing and not mention the company name here and do the skipping order will face challenges. It's quite obvious who will benefit and who will face challenges. We believe the launch of such system will promote the housing competition in the industry. So we are not worried about this and we are fully uphold and support this. Your second question is for antitrust. Okay. Regarding the antitrust, first, we would like to clarify again the news from Reuters related to Baker two months ago was fake news. And currently, the company is not under any formal investigation related to antitrust issues, especially after we timely submit our self-inspection report like other 33 platform companies in May. Baker consistently operates within the bounds of laws, regulations, and rules. We always prioritize the interests of the user and spare no effort to achieve the win-win results through the cooperative mechanism. We insist and are committed to promoting the healthy development of the industry, developing and solving inauthentic property listing, and striving to be an outstanding company in full compliance with the rules and regulations. The good thing is the source is a round of frequent communication with government authority and the state administration for market regulations. As a corporate citizen, we are even more determined to take social responsibility as a top priority. At the same time, the government also gained a better understanding of Baker's business model and our contribution we have made to help industry grow and iterate in past 20 years. In addition, our diligent attitude in handling the self-inspection and other related matters and the efforts and the contribution we made to industry progress was well recognized by the authority. For example, our investment brand of 700 million in Shenzhen 4, a brand of big time, offers affordable and quality rental services for the young generation living in large and middle cities, and creates the most social value for local communication. One of these projects has been featured and reported by CCTV News, Xinmen Lianbo, on the 31st of July, which demonstrates a highly recognition from the authority. OK. I hope this clarifies your question.
spk05: Thank you. We're now approaching the end of the conference call. I'll now turn the call over to your speaker host today, Mr. Matthew Chang, for closing remarks.
spk06: Thank you, Operator. Thank you once again, everybody, for joining us today. If you have any further questions, please feel free to contact Baker'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.
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