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spk00: Hello, ladies and gentlemen. Thank you for standing by for KE Holdings Incorporated's third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. Also, today's conference call is being recorded. I will now turn the call over to your host, Mr. Matthew Chow, IR Director of the company. Please go ahead, Matthew.
spk04: Thank you, operator. Good evening and good morning, everyone. Welcome to KE Holdings Inc. of Baker's third quarter 2021 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, www.investors.co.com. On today's call, we have Mr. Stanley Yongdongpeng, our co-founder, chairman, and chief executive officer, and Mr. Tao Xu, our Executive Director, and the Chief Financial Officer. Mr. Peng will provide an overview of our strategy and business development, 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'll make forward-looking statements. Please also note that Baker's earnings press release and this conference call includes discussions of an audit gap financial information, as well as an audit non-gap financial matters. Please refer to the company's press release, which contains a reconsideration of the audit non-gap matters to comparable gap matters. Lastly, unless otherwise stated, all figures mentioned during this conference call are infinity. With that, I will now turn the call over to our Chairman and the CEO, Mr. Stanley Peng. Please go ahead, sir.
spk03: Thank you, Matthew. Hello, everyone, and thank you for joining us today on our third quarter 2021 earnings conference call. Before I go into more details, let me first provide a big picture view of our industry. During the past quarter, the entire big housing transactions and services industry, including ourselves, faced a series of challenges. At the new and existing home and land market experienced substantial corrections, transaction rules, marketing making a historical corner. The industry collectively made difficult but correct adjustments. Not only is economic growth driven by high leverage not sustainable, but it will also negatively affect people's lives and create systematic risks. result correction creating the developer's business model that were based on high turnover, high leverage, and a high housing price. Our national policy, goal of housing is for living, not for speculation. That encourages both housing purchase and renting will become a castle in the sky. If the housing transactions and service industry blindly expand, in scale without offering some professional services, it will be unable to ensure service quality nor adequately protect our consumer rights and an efficient housing market will be impossible. When we talk about do the right things even if it is difficult, we are referring to instance where there is an opportunity to undertake daunting tasks with a weak payoff in a short time, but will prove to generate great value in the long term. As a participant of an industry in need of reform and under guidance of the Chinese government's policy to correct market instability and create more equitable housing circumstances, it's a big hostility to shoulder the responsibilities for the great good rather than solely serving our business needs. We firmly believe China's housing industry is facing crucial development opportunities. A promising era for existing homes and better living is coming up upon us at an accelerated pace. With that backdrop in mind, let's talk about the industry and overall performance of our company in more detail. A series of policies such as purchase restrictions, loan quarter limits, sales restrictions, reference prices, financing limitation, payment restrictions, and recent ad alerts from several developers have also dragged down market sentiment. The result has been a significant downtrend in the existing home transaction market in first tier cities and more second tier cities. GTV of existing home sales market declined 41.6% year-over-year, while GTV of new home sales market declined 14.1% year-over-year in Q3. During the shock market downturn, the ecosystem of the brokerage industry worsened quickly. The total number of brokerage agents on our platform shrunk, and the brokerage stores faced severe challenges. In Q3, the number of stores on our platform with a trailing 12-month CTV exceeding the line of RMB 15 million become 3.3% quarter over quarter, accounting for 33.7% of total stores. Our mission is to promote admirable services and joyful living in China. We have come to a point where our corporate culture, organization capabilities, and our two decades of successful operations play a pivotal role as we move ahead. We have a strong team of senior managers taking charge at the divisions, provincial, and city levels. These dedicated leaders average more than 10 years' usual services at a big club. They see better industry developments as their personal responsibility. With their seasoned team and great determination, we are confident we can navigate the tough market cycle and come out even stronger. During the third quarter, we implemented a range of measures to ensure stable operations and a sufficient income for high quality store owners and agents. We strive to inspire owners and agents to make the right choices, provide quality services in the face of challenges, and deliver on their commitment to take care of customers against interferences. We believe the key is focus and collaboration. First, we have resolutely promoted our agent specialization strategy. increasing productivity through remaining focus. Second, we are diverting more resources to new home sales and rental services. Third, we further encourage cross-brand, cross-stock collaboration and cooperate among existing and new home sales and rentals. We also promote joint efforts between new and seasoned agents, as well as between functional functional teams, and the business team. Together, we keep our feet on the ground and carry on. During the third quarter, the number of Canadian stores on our platform increased 2% quarter over quarter to 53,946, and only 1.7% of stores on our platform closed due to a market correction. We also facilitate some store merges to improve productivity. Advised low efficiency stores based on a target diagnostics and dropped some non-cooperative stores from our platform. This also demonstrates that there is increasing stickiness among Canadian stores on our platform. And a growing number of stores outside of our ACM have joined us for support. during the down cycle. 29% of new stores that joined our AC network in Q3 were from external Fengjianghu stores, compared with 22% in Q2. The number of agents on our platform was 515,000 at the end of Q3, 6% lower than the previous quarter end. The decline was a result of increasing aging attrition resulting from the market correction. For the most part, this has been the industry normal, but also due to our initiatives in some cities to improve overall aging quality. As we implemented various mitigating measures in Q3, the aging attrition rate in Beijing and Shanghai remained lower at 3.9%, better than the four 4.7% we saw during the same period last year. Despite this broad challenges, our collaborative spirits continue to be the foundation of our business. In Q3, transactions on our platform completed. Through cross-door collaborations and the proportion of existing home listings Contributed by Nunley and Jack Nelly stores, both remain stable at 76% and 85.5% respectively. Moving to our quarterly performance and the measures we have taken with each of our business lines. With respect to existing home transaction services, according to Baker Research Institute, nationwide GTV for existing home sales decline 41.6% year-over-year in Q3. GTV for our existing home transaction was 378 billion RMB, with a year-over-year decrease of 34.3%. Specifically, GTV for our existing home sales decreased by 36.8% year-over-year, demonstrating a relatively resilience of our business in the down cycle. Function allocation is the foundation of our ACM. Division of labor brings focus, focus brings professionalism and competitiveness, and cooperate, bond these all together. To this end, we ask you, our aging specialization strategy, the overall 31,000 stores in Q3, covering over 300 Transaction completed collaboratively by specialized agents on our platform accounted for 29.6% of total transactions in Q3, up from 14.4% in Q2. We are also making strides in digital empowerment. We launched the Xiaobei existing home sales training camp which is an online standardized and intelligent system for vocational training. The Xiaobai training camp simulates the interactions between agents and customers in VR and offline property assurance and provides performance evaluations, leveraging our AI capabilities. We can identify best practice in the process, as well as each agent's weakness for target training. In Q3, More than 125,000 agents took Xiaobei existing home trans-sales training in more than 1.2 million essential sessions. In the future, as we accumulate more data in existing home sales services, Xiaobei Training Camp can be used for broader vocational training fields such as new home sales and home renovation services. Turning to new home transactions, as we mentioned, The degree of correction in the new home market in Q3 exceeded our expectations. According to the National Bureau of Status, GTV or property sales decreased by 14.1% year-over-year in Q3. Our new home sale GTV was 410 billion RMB, down 2.5 year-over-year, performing much better than the broader market. the overall industry continued to trend downwards from July to September, leading to further buildup of pressure on sales through. On the other hand, brokerage penetration bottomed out in Q3 as developers became more reliant on brokerage channels to accelerate sales to preserve liquidity. This, in turn, benefited those new home sales channels that provide quality services, protect the interests of consumers, and hold strong agent mobilization capabilities. We can see this by looking at the increase in the number of new home projects for sale on our platform, which rose 36% from June to September, while our platform has been well recognized by developers, we continue adhering to high standards for project cooperation and performing end-to-end risk control to ensure timely and healthy payment collections. In our new home business, we have prioritized timely payment collections over scale expansion or any other metrics. In our view, timely collection always trumps commission rates. We strictly implemented an end-to-end risk management and control system, which enables response measures within 24 hours after a risk warning is treated. We do not expect to have significant risk in our new home business. We operate in a high independent fashion and have never relied on resources in domains or relationships for our growth. Our confidence comes from the southern of excellent stores and agents on our platform, and a strong customer recognition they have gained by performing high-quality services. We are also far ahead in digitalization and enrich online content for our new home business to provide consumer objective, neutral, personalized online content that narrows information gain. We are encouraging occupational generated content. or OGC, we are building an open platform to enable those professionals to supply comprehensive commentaries, positive or negative, and empower customers with more information and informed decision-making capabilities. This will further enhance the platform generated content, such as our housing dictionary. At the end of Q3, our housing dictionary had achieved 100% coverage of the target new home listings on the market. Notably, in Q3, we create China's biggest database describing unfavorable factors of new home projects. This lays the groundwork for Baker to bridge the information gap and provide truly reliable and useful new home content. We will never stop our pursuit of top quality services. During market corrections, we believe it is more important than ever to emphasize the governance of new home business conducts. At the end of Q3, our Five Don'ts commitment to developers have covered all developers in 66 cities, 11,191 new home projects in total. By mid-October, we identified a total of 47 misconducts and provided nearly 2 million RMB in compensation to developers, fulfilling our commitment to them. Moving to emerging services, in Q3, we steadily progressed home renovation business, including self-operated Beiwu and Shendu, which we are in the process of acquisition. Beiwu completed the renovation of 1,127 home renovation units in Q3 up 35% quarter-over-quarter, while the contracted sales of Shendu also increased more than 35% year-over-year by the end of Q3. Regarding its operations, they will achieve breakthroughs in empowering both services providers and customers in Q3. For service providers, Craftsman Academy, the industry's first full services vocational training base, opened in September. It aims to cultivate renovation professionals across the industry chain, nutrient designers, foremen, workers, and more. The focus is on general and professional competencies and leadership. In September, 394 foremen took part in the training. Long-planned by the shortage of high-quality services providers. Industry infrastructure, such as Craftsman Academy, is designed to upgrade renovation services standards and help industry practitioners achieve personal growth. Meanwhile, we upgrade our home thought system to manage and empower both foremen and workers. This upgrade allows even the construction process to be standardized, modulized, assessed, distributed, and managed to the finest granularity. Labor and materials are centrally deployed by the platform with an accurate and controllable budgeting process. For customers, they will launch 10 hard-to-hard service commitments in September. to address the renovation industry key pain points for customers. Our pledges include double compensation for malicious increase beyond the scope of the contract, double refund for under the table charges, triple compensation for using fake materials, compensation for delays, and six others covering alerts, covering areas of budgeting materials, construction, timelines, and services. In summary, in this round of corrections, we are accelerating our thinking on the additional value we can create for society and our social responsibility we should take. The answer has become increasingly clear. In China, people's yearning for a better life is reflecting in their desire to live and work with joy. To facilitate joyful living, we hope to provide a rich variety of high-quality and affordable housing services and products for those, including the fresh college graduates, low-income new urban citizens. Therefore, we are devoting more talent and resources to innovations and our rental services and a regeneration of older residential communities to facilitate work that is rewarding and fulfilling. With the government's support of vocational education, we have established a multiple layer training and education system for housing services providers. This includes the Original Force Academy for brokerage brand owners, Huachao Academy for store owners and a brokerage academy for agents, as well as Craftsman Academy for renovation services providers, as we mentioned earlier. Our goal is to have more home-related services providers with a path for long-term career development and cultivate more high-quality professionals and technical experts for the industry. All in all, despite the short-term impact on our business, and the industry at large during the market downturn. The overall trend in the housing market remains healthy. Lately, regulatory authorities have responded multiple times to market concerns. Consumers with reasonable funding needs are gradually being met. Meanwhile, by the accelerated introduction of a property tax pilot program, we believe that a long-term regulatory mechanism can be quickly formed. In turn, we see promoting the emergency of a new patch of existing homes and quality services sooner than we expected. The real estate sector in major developed countries accounts for approximately 10% to 12% of a country's GDP. Housing investment makes up only about 5% and the rest comprise a broader array of housing services. In contrast, the real estate sector contributes to merely 7% of China's GDP. This housing investment makes up a majority of China's real estate sector. This indicates massive potential for our domestic housing services industry. If the past five years have been the golden age of real estate development, then the next five years will be the age of joyful living, characterized by quality housing services. Short-term fluctuation imposed on long-term secular trends are simple noises. We follow our inner compass, and we will persist to become the leading comprehensive home services providers for the 300 million families in China. With that, I would like to turn the call over to our CFO, Tao Ge, for a closer review of our third quarter financials. Thank you.
spk05: Thank you, Stanley. Thank you, everyone, for joining us. I would like to provide a brief overview for our third quarter of 2021 financial results. As we guided in the second quarter's call, in past several months, we saw a sharp drop of the overall property market, including land auction, new home market, and existing home market. Amid unprecedented crackdown on speculation, with a ray of occuring measures, from credit tightening to reference home price being rolled out. just had to adversely impact our operational and financial results in Q3. Though we are experiencing an unexpected and sharp market downturn, we still want to emphasize our three fundamental beliefs towards this industry. First, housing is one of the largest and most complex industries in China and a prime candidate for digital disruption. Second, agents are and will continue to be indispensable to transactions and can be empowered to thrive. The third, professional and cost services build customer trust and transcend market cycles. We are confident that our continuous effort in maintaining the best cost service by supporting our agents and further upgrading the infrastructure in housing transactions and services will help us go through these cycles. and further improve our service quality, efficiency, and business scale. We maintain a long-term view in pursuing our mission to transform the housing transactions and services industry in China by leveraging our people, data insights, technology, and platform. Turning to our financial details in Q3, our net revenues was RMB 18.1 billion in Q3. compared to RMB 28.5 billion in the same period of last year, exceeding the both high end of our guidance and the straight consensus. The year-over-year decrease was primarily attributable to the decline in total GDP of 28.9% to RMB 830.7 billion in Q3 from RMB 1.05 trillion in the same period of 2020. In particular, our net revenue from existing home transaction services, or RMB 6.5 in Q3 compared to RMB 8.8 billion in the same period of 2020, primarily due to a 34.3% decrease in TQV of its in-home transaction to RMB 378.2 billion in Q3 from RMB 576.1 billion in the same period of 2020, led by a slowdown of its in-home market which was affected by serious market cooling measures, especially loan quota remits in Q3. Our net revenue from new home transaction services increased by 2.5% to RMB 11.3 billion in Q3 from 11.1 billion in the same period of 2020, primarily attributable to a moderate increase of new home transaction commission rate while the GTV of new home transactions was RMB 410.1 billion in Q3, compared to RMB 420.7 billion in the same period of last year. Our net revenue from emerging and other services was RMB 610 million in Q3, while RMB 625 million in the same period of 2020, primarily due to a decrease of net revenue for financial services around the existing home transaction services. which was partially offset by a 29.4% increase of net revenue from the renovation services. Cost of revenues was RMB 15.3 billion in Q3, compared to RMB 16.2 billion in the same period of 2020. Gross profit was RMB 2.8 billion in Q3, compared to RMB 4.4 billion in the same period of last year. Gross margin was 15.2% in Q3, compared to 21.3% in the same period of 2020. The decrease in gross margin was mainly due to a lower contribution margin of existing home transactions led by a decrease in net revenue from existing home transactions and a relatively flat fixed compensation cost for the entire agency. Operating expenses were RMB 5.1 billion in Q3 compared to RMB 4.1 billion administrative expenses were RMB $2,412 million in Q3, compared to RMB $2,649 million in the same period of 2020, mainly due to the decrease in share-based compensation expenses, which was partially offset by the increase of personnel costs and by-debt provision. Sales and marketing expenses were RMB $1,202 million in Q3, compared to RMB mainly due to the increase of high-counting business development personnel. Research and development expenses were RMB 1,043 million in Q3, compared to RMB 789 million in the same period of 2020, mainly due to the increase of high-counting experienced research and development personnel. In addition, we recognized the impairment of full wealth of RMB 397 million in Q3, compared to new in the same period of 2020. Based on more conservative and longer-term view of outlook of the business of previous acquired assets, we conduct a comprehensive risk assessment and asset evaluation and made sufficient impairment provision accordingly. Loss from operations was RMB 2.3 billion in Q3 compared to loss of RMB 81 million in the same period of 2020. Operating margin was negative 12.7% in Q3, compared to negative 0.4% in the same period of 2020, primarily due to, one, a relatively lower gross margin in Q3 compared to the same period of 2020. Two, the increase of a percentage of total operating expenses at net revenue in Q3, primarily due to the decrease in net revenue along with the relatively fly to recurring operating expenses and additional impairment of who well, as well as severance provision of RMB 250 million incurred in Q3 compared to the same period of 2020. As cooling in long gap items, our adjusted loss from operation was RMB 1,435 million in Q3. Compared to adjusted income from operation, RMB 1,740 million in the same period of 2020. Adjusted operation margins was negative 7.9% in Q3 compared to 8.5% in the same period of 2020. Adjusted EBITDA was negative RMB 550 million in Q3 compared to RMB 2,248 million in the same period of 2020. Net loss was RMB 1,766 million in Q3 compared to net income, RMB 75 million in the same period of 2020. That's including non-GAAP items. Our adjusted net loss was RMB 888 million in Q3, compared to adjusted net income, RMB 1,858 million in the same period of 2020. Net loss attributable to KE Holding Inc. ordinary shareholders was RMB 1,765 million in Q3, compared to RMB 271 million in the same period of 2020. Adjusted net loss attributable to KE Holding Inc. was RMB $887 million in Q3, compared to adjusted net income attributable to KE Holding Inc., RMB $1,857 million in the same period of 2020. Diluted net loss for ABS attributable to KE Holding Inc.' 's ordinary shareholder was RMB $1.5 million in Q3, compared to RMB $0.33 million in the same period of 2020. Adjusted diluted net loss per ADS attributable to KE Holding Inc. ordinary shareholders was RMB 0.75 in Q3 compared to adjusted diluted net income per ADS attributable to KE Holding Inc. ordinary shareholders, RMB 1.38 in the same period of 2020. As of September 30, 2021, the combined balance of our cash, cash equivalent, Restrict cash and short-term investment amounted to RMB 52.7 billion or USD 8.2 billion. Additionally, as of September 30, 2021, the balance of our long-term cash items, mainly including the long-term investment, amounted to RMB 15.9 billion or USD 2.5 billion. As we mentioned at the beginning, although there have been some turbulence in the housing market recently, which brought significant negative impact to our business in the short run. It is also a chance for us to take moments and look inward, focus more on the essence of our business and refine our management, and dispute resources more effectively, paint the way for us to access opportunity and allocate for the long run. Our decades of experience going through numerous challenges would give us capability to remain steadfast against the market volatilities while caught with its agility. In face of market downturn, we closely observe market change and timely adjust our business strategy to ensure the rapid implementation of those adjustments. Our initiative includes a more focused on efficiency, cost management to boost synergy, and allocated resources more efficient-oriented than the risk-awareness. There are some measures in these three aspects to ensure the company's better operation of the new normal. For example, we introduced the new operation metrics, including the number of active store and active agents on our platform to better reflect our business progress. Furthermore, we attached great importance on account receivable collection by building a comprehensive risk control mechanism to closely monitor and evaluate the developer's credit college changes. In third quarter, we have both better provision for all remaining receivables related to every grant and several other developers with a negative public opinion in order to reflect their recent credit quality changes. Turning to Q4 guidance, according to Baker Research Institute, nationwide GTV office in-home sales market is bound to fall over 47.4% year-over-year in the fourth quarter. Meanwhile, nationwide GTV of new home transaction market is despite to see 20.1% year-over-year in fourth quarter. Based on above consideration, looking forward to fourth 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 31.6% to 36% from the same quarter of 2020. This guide reflects the potential impact of recent property market-related policy measures and the company's current preliminary view on the business and market conditions, which is subject to change. Over the course of this year, despite many challenges we have encountered, we have been and will continue to weather the turbulence, just as it provokes us to focus on ourselves, neglect the noise, Inspiring every individual in our organization to fight, fight, fight, and never ever give up. We will never give in. We will not back down. And never stop doing what we know is right. We fully embrace the policy change and strongly believe the instance of housing for living, not for speculation, will bring a long-term favorable environment for the industry. We will stick to our path with the full commitment to serve our clients better. We are confident that we will stay resilient and have our value recognized. This is what we have been doing, not perfectly, but we are on our way. That concludes our prepared remarks. We would like now to open the call for your questions. Operator, please go ahead.
spk00: Thank you. Ladies and gentlemen, if you wish to ask questions, please press star 1 on your telephone and wait for your name to be announced. And for the benefit of all participants on today's call, please limit yourself to one question. And if you have additional questions, you can re-enter the queue. If you are going to ask a question in Chinese, please follow with English translation. Thank you. And the first question we have is from Liping Zhao from CICC. Your line is now open.
spk01: Stanley, Tao Ge, Matthew, good morning. I have two questions about the market. The first question is, how does the management look at the recent market? Because at the current level, there have been some signs of improvement. So, has the policy been established? If it is transmitted to the trading level, when can we see the growth of the trading volume? And the other question is, many people in the market now think that the supervision department is pushing out the smoke system in order to I will translate for myself. I have two questions here. Firstly, we have seen marginal improvements in terms of falling housing mortgage rates recently. What do we think of these positive signs, and can we expect the real estate market to bottom out regulation-wise in the near term? Speaking of transactions, when will we see a rebound in terms of transaction volume? And secondly, investors are concerned about the state-owned property listing systems, which are regarded by some as replacements for third-party brokerage platforms. What do you think of the government's attitude towards the neutral positioning of real estate brokers? Thank you.
spk05: Secretary, let me address your question. Regarding your first question, the decision and the deployment of the long-term mechanics of the real estate market are accurate and effective. We have witnessed the largest ever regulatory package in terms of the quantity and the type of policy, including restriction on property purchase, loan, sales, pricing, land auction, irrational price cut, financing, and payment, as well as the potential property tax. Accordingly, the property market across China quickly froze in Q3. Its in-home sales market dropped 41.6% year-over-year in GTV, on par with our guidance in last earnings release call. The decline of the new home market was larger than our previous expectation, down around 14.1% year-over-year. The downturn in Q3 was a crosswalk rather than one single segment. showing a trend effect from the credit tightening to the cooling off of existing home sales, and then to the new home sales and land market, where price cut in turn further weighted the existing home sales expectation. As the expectation and the behavior of market participants resonated, led to a pattern of credit crunch, impeded transaction, and downward revision of expectations. In particular, transaction volume of existing home sales market continues to drop month over month in Q3 to a long-term historical low, with some cities to a 10-year low record. Housing price fell wildly, and our home buyers' insurgency index has fallen to a low level since 2019. The largest impact comes from the sharp fluctuation in loan origination cases. At the first year adopting the housing loan concentration management, we saw a mismatch between the credit supply and the market pace. The average loan origination cycle continued to extend in Q3, 77% longer than the same period of last year. A large number of downstream transactions have also been affected. In the same time, a total of 14 cities introducing the existing home reference price policy. Some payment requirements for the house purchase were raised, while the residents' expectation on property price and overall market sentiment has been significantly dampened. On the other hand, new home sales in China also dropped sharply in Q3. From July to September, the new home sales area sold in China decreased by 9.5%, 17.6%, and 15.8% year-over-year respectively. Market in September was the worst one in seven years. The new home sales market and the existing home sales market are highly correlated. In China, around 40% of new home buyers come from the improvement amount of the existing home owners. The extended loan cycle and the wait-and-see sentiment for the in-home sales market affect the purchase price for the new homes. The new home price falling and the heightened risk in certain developers further deepens the wait-and-see sentiment among the buyers, led to new home sales market to cool down remotely. As for new home sales channel in Q3, a season during the so-called cashless kins Developers were motivating sales channels wildly to accelerate the sales through and leading to an increased penetration rate for the sales channel. However, risks in new home sales channels are also mounting up because developers squeeze their suppliers' working capital, resulting in delayed payment of accounts payable or so-called accounts receivable to the suppliers due to some industry suppliers. Looking to the incoming policy and the regulations, in short, policy assurance are expected to peak off, and the market enters to a period to digest the previous market curves, and we believe it is unlikely for further policy tightening up. In terms of the housing price, according to Baker Research Institute, at the end of this September, Housing price dropped 1.5% on average from the highs this year, with some cities capping out the price cut. In terms of deleveraging to improve the financial housing, in 2020, 40% of 100 listed developers successfully lowered their risk rate versus 2019. In Q3 2021, residential housing leverage repulsed to a nine-year slope. In October, our Vice-Premier of State Council, Liu He, said that the reasonable capital demand in real estate industry is being met, and that China will seek to change the path towards health development. At the same time, other financial regulators also respond to market concerns. Given the effective regulation results and the falling transaction volume and the price, we foresee a significant lower frequency of the policy tightening ahead in Q4 versus last quarter, with the pace of the real estate crisis supply being stabilized, which may bring some marginal change to the market. But policy impact on the market sentiment will last for a considerable period of time. From the long-term perspective, China's economy upgrade from a high-speed growth model to a growth and sustainability-balanced one. We still see an all-around tightening of real estate and financial policies. The acceleration of pilot property tax reform signals the advancement of long-term mechanisms and the unchanged pursuit of deleveraging and de-risking both sides' resident and divider ends. Despite the inevitable shortening pains, We expect to see a healthier and more orderly road to the market in the future. So based on our observation, as I mentioned, the downward pressure on the existing home and the new home market will continue beyond Q3. Looking to our Q4 2021, the GTV of existing home sales market is likely to further decline, down nearly 50% year-over-year, and 25% quarter-over-quarter. Meanwhile, the GTV of the new home sales market will drop by 20% year-over-year. For 2022, GTV is expected to drop by more than 10% for its in-home sales market and slightly for new home sales market. The up-through the GTV level for its in-home and new home market are expected to bottom out in Q1 2022. In the second half of 2022, As the market fully prices the regulatory policies and the stabilized reggie demand will come in and the natural market recovery process will start. Therefore, I want to reiterate our position to the market. Don't underestimate the power of the policy to correct market deviations. And don't underestimate the supporting power of market supply-demand dynamics. Regarding the new home sales market vis-a-vis the mounting shortened debt repayment pressures, developers will push themselves to promote sales and create cash. From the long-term perspective, as developers shift from financing-driven to operation-driven in a sales-focused approach, they will face higher requirements on product developments and target sales. Given the increasing divergence across cities, Developers increasingly customize the cell strategy and the comprehensive use of the cell channel should be a clear long-term trend. Namely, an increasing penetration rate of a new home cell channel will come in as a clear long-term trend. It also presents more opportunities for Baker to pursue full-cycle partnership with developers. In short, the unprecedented policy regulation and the rapid market cooling-off in 2021 brought a profound market correction. Over the longer horizon, the market is not as bad as what we perceive at this moment. In terms of annual volume, the market-wide transaction volume this year will still pass the growth versus last year, while the policies such as the in-home reference price have not changed the long-term supply and demand dynamics. As a mismatch between land, credit supply, and home purchase should be gradually improved, So from long-term perspective, market fluctuations are normal. But the long-term mechanism being in place, either an overheated or overcrowded market will normalize to the period of supply-demand balance. Regarding your second question, so I would like to say at the central government level, a well-established administrative information system the real estate market orders. And a robust real estate transaction administrative system can help governments to effectively collect property listing and transaction data, take effective decision and regulatory actions and avoid a wild swing in the market due to potential land policies. Also, it can help governments to address the issue of fake property listing and the vicious competition haunting the industry. that's contributing to the better performance of the service provider and benefit for those who commit to quality service like Baker. As a consistent advocate and beneficiary of the regulated and the collaborative market, Baker formally supports government to upgrade the administrative systems and is working with government department in Beijing, Nanjing, and Sarawak cities. At the government level, Local real estate e-administrative system dates back to 2012. Since then, real estate e-administrative system with similar function have been established in nine cities, including Beijing, Shanghai, Chengdu, and Xiamen, according to current statistics. So for the purpose of this system, we want to clarify, firstly, Government have no intention to directly intervene in the transactions, and are in a better position to govern the market through a well-regulated commercial institution to navigate through the various transactions. Transaction processing involves significant risk, which can be shouldered by commercial players or governments. On the contrary, The right engagement in transaction by association of government requires a significant commitment of talent and financial resources, including formulation of rules, research and development investments, and continuous system maintenance and iteration, and is also exposed to the risk in the transaction process. Secondly, governments are digitalizing the livelihood service, including the social security, housing, vehicle, health care modules, a property listing module has been included in the local e-administrative system of Hangzhou and Shenzhen, which is introduced as a part of the normal local e-administrative system upgrades. Thirdly, there have been hand-in-hand transactions without an intermediary across the country. Taking Hangzhou, for instance, from 2019 to September of 2021, an average 20% of transaction volume comes from hand-in-hand type of brokerage-free transactions. mostly between the family and the friends. Such upgrades that the administrative system in place can steer those transactions into a more convenient and safe process. In terms of outcome, the deliverables of a complex information system or transaction system depends on the level of improvement of consumer experience and transaction efficiency. As well as the talent and the financial resources to meet and the operational experience accumulated over time. Baker's proven track record across cities that have been deployed online in the information system for years also demonstrates that a standardized market actually contributes to the rise of the court agents. A standardized marketplace with authentic property listing has the most direct impact to those who attract traffic through the fake listing. and those who rely on the malicious competition and unethical order of customers dealing to prioritize on a quality service-minded platform. We believe that along with upgrades of e-administrative system and further market standardization, efficient supply will be further squeezed out by benefiting quality service providers. Brokerage-free transactions tend to remain stable in terms of absolute volume, as most of them are not affected by the change in the market conditions, like the transfer between family members. So we recently saw in Hangzhou, the upgrade of the government's online sitting home listing system has significantly impacted local transactions, like YYJ and the baker's brands locally. And for Shenzhen, based on What we know so far, the function of Shenzhen Real Estate Information System mainly includes, first, only a QR code generated for property. Only a QR code generated for property, firstly, based on the government information system. Can the property owner publish their listing in other website? In this way, let's ensure the fake property listing frequency on the platform can be further dispelled. This is good for Baker. back for so-called amazing website. And the property owner is required to engage exclusive sales side agent within a given period of time. This transformation against the marketable listing agent model in industry helps to solve the problems of unethical order, stealing at the low qualities, low price competition that have been plagued the industry. The system is designed to purify the industry environment and standardize the home consumption market. Now, on Baker's platform, consumers are accessible to more home listing and agent information, while agents can seek efficient collaboration supported by the platform rules and infrastructure. Baker's core platform value and operation capability are benefiting from those launched government e-administrative systems. Thank you, Libby.
spk01: Thank you, Tao Ge. That's very clear.
spk00: Thank you. We have the next question from the line of Miranda Zhuang from Bank of America. Your line is now open.
spk02: Thank you. 早上好,Stanley 总 涛哥,Matthew 哥。 感谢今天的分享和接受我的提问。
spk03: First of all, the decoration industry is very similar to real estate trading. It is a relatively large industry, and the experience of these industries is very poor. It is very difficult to solve this problem, so we generally like or are good at solving such a problem. Of course, for home decoration, the core is what we value. The first point is that Chinese consumers will pay more and more attention to the quality of housing. I think this is the basic aspect. Why is it like this? Because in the past, the era of housing prices rising rapidly, the era of gold, has passed. Next is the era of a good life. How to live better will become the core. This is the first point. So this point is getting clearer and clearer. A better life. The second is that such an industry can be re-advanced through scientific management. Through digitalization and Internet thinking, we can reconstruct this industry in depth. This is becoming more and more clear. And in the past, the practice of the shell can be used for decoration. This is the second point. The third point is that the service providers of the entire industry will become products of this industry. They will complete their own upgrade and professionalization process. This is also the third point we see. So the above three reasons we are very sure why we want to enter this field. But I want to tell you that this industry is naturally a fast industry. For example, it can grow very quickly. Why is it called NAR correct? That is, you see that this path is right. But if you want to do it, there are many, many challenges in the process. Of course, I think we have a belief that our way and method, including the value of this industry, Yeah, let me quickly translate. So this is Stanley. Let me quickly address your question. So firstly, the home renovation and decoration business is very similar like the housing transaction business, meaning
spk04: the overall industry size are very big, but overall the user experience are extremely worse. So we do believe in this industry we have a lot of opportunities can continue leverage what we have accumulated in the past two decades. So for the home decoration business, we do have a couple of the takes in terms of the overall outlook. Firstly, the overall China customers will continue more focused on the qualities. We do believe that will be the fundamental, right? Because for the, if you look at the recently, the policy trend, definitely the golden times for the, you know, the new homes, it's pretty much has been passed. So the next era for it definitely will be the, you know, the people is more focused on the joyful living. So we do believe the opportunities will be, arising from this kind of transition period. Secondly, we do believe the scientific management will continue help us and also help the industry to upgrade, especially followed by some of the other initiatives, for example, like more digitalization. We do believe we can restructuring and continue our practice about those kind of scientific management into the home decoration and the renovation business. And thirdly, it's about the value, about the service providers in the home decoration and the renovation business. If you look at the overall, the conditions for the service providers in the home decoration and the renovation industry is still relatively low. So by doing the continuous training as well as the upgrade for those kind of professionals we do believe it will be help us to continue help those kind of service providers to further improve their professional career as well as the whole professionalism for the whole industry so in summary we do believe the decoration home decoration renovation business is not a naturally so-called fast industry right it means we continue to dedicate to doing the things difficult but right. Behind that, that means there will be a lot of challenges as well as difficulties we will be facing. But we do believe our faith, as well as our opportunities, as well as the method we actually have been accumulating in the past two decades will bring the continuous value into this industry. And meanwhile, from the cognitive side, I think some people is talking about the difficulties for the home decoration business, whether it could be sometimes like a 1 billion RMB revenue in one city, and whether a company could achieve like a 10 billion RMB of the revenues overall. So we do believe, I mean, definitely there will be some of the new players emerging from that industry and to reach of those kind of 10 billion of RMB round new milestones in the foreseeable future. And definitely Baker also, we have a lot of opportunity to achieve that as well.
spk03: So what we will do in the future? First of all, we will upgrade a lot of these from online to offline processes. Through digitalization, to make the industry more standard. Secondly, through scientific management, to implement scientific upgrades to this industry, including digital upgrades. Thirdly, to train and improve the service providers accordingly. In general, the field of home appliances is very large, and now the experience is very poor. Experience has a lot of space, and this is also a very difficult battle. But for us, although our mission is So in summary, as I mentioned before, so we do continue to focus on the three part of our efforts, right? So firstly, how we can rounding up the home services, we can further improve the SOP management
spk04: as well as by upgrading the whole service procedures by the continuously digitalization. Secondly, the scientific environment will be our key focus as well. By doing this, we can continuously improve the efficiency for the whole industry. The third part, and most importantly, is how we can continue to bring the value to the service providers into the home decoration and renovation services and continue to improve their professionalism as well as improve their dignity for the work. So all in all, as I mentioned, in general speaking, in terms of our home renovation and decoration services, we'll continue to focus on how we can further improve the overall customer's user experience. We do believe that's a very tough campaign for us, but we have the trust as well as the confidence we can continue to bring our mission into reality, which means the service provider with dignity as well as joy for living ultimately. Thank you.
spk03: I would like to add to the above question. Actually, many people have speculated, for example, the government system, because there were a lot of rumors in the past, right? Anyway, there are a lot. Although it is getting clearer and clearer, I think this business is becoming clearer and clearer. Any small problem has a big problem underneath it. If you catch the big problem, the small problem will naturally be solved. We see that the biggest policy in China's entire housing industry is to keep the rents low and to rent and buy together. In fact, there are two signs for us. The first is that the stability of policy will become more and more important. In fact, what kind of market is the best for shell? In fact, the policy is more and more stable. So we also see a lot of policy changes this year. But the future trend is that the policies will become more and more stable, including such as real estate taxes. Many of these policies will make the entire industry more and more stable. This is the most advantageous for the development of shell. The second is to rent and buy together, including what we have been seeing recently, rent. A lot of these are actually for shell calls. Shells need to provide more value. This is the case. Shells can participate in it, including rent. The solution of rent in the whole city, including in this to maintain a more stable market. Yes, so I think this is the biggest policy in China or the biggest fundamental point. So in this matter, I think we and the government are in the same boat. And we are also very supportive, or to practice, to pay a lot of rent and pay enough rent. So if you think about it from this point of view, in fact, many of these so-called assumptions, many of these points are not self-evident. So just now someone asked about the influence of the system on us. We believe that the core principle is to maintain these policy points. The second point is to improve the efficiency of the industry and the experience of the consumers. As long as we can grasp these three points, under the policy framework, improve the experience of the consumers, improve the efficiency of the industry, then it will naturally have vitality. If we can't bring changes to these three points, or provide value, then this organization itself has no value. So I want to add to what you just said.
spk04: This is Danny. I also want to give you additional colors in terms of the previous question regarding to the so-called, you know, the government administrative systems rumor, right? So what we do believe is definitely there will always be, you know, the bigger problems underneath of the smaller platforms, right? So in order to better to see what the intention behind of the government, we need to look at the, you know, the policy trend in China. If we look at the general policies in China, definitely there are two major parts. One is house for living in, not for speculation. Another one is the encouraging of both of the housing purchase and the renting, right? So based on those two of the fundamental policies, as well as add on the recently trends such as the pilot program for the property tax, we do believe during that kind of, you know, the ability of the policy trend, the Baker's value will continue shine since we can provide the very comprehensive solutions and which is quite in line with those kind of policies trend going forward. And meanwhile, we do believe our, as we mentioned before, so our, the fundamental orientation for our business is also quite in line with the two of the policies direction, right? And under those kind of assumptions, we do believe some of the rumors will definitely fade away in the market. And as far as we can continue to hold on, adhere to the policy, continue to improve the efficiency as well as improve the user experience, we do believe the Baker's value will continue to shine and will continue to bring the value into the whole industry. Thank you.
spk02: Back to you all.
spk00: Thank you. We have the next question from John Lam from UBS. You may proceed with your questions.
spk06: Thank you. Thank you, Manager. I have two questions for you. First, I would like to ask about the impact of the anti-fraud tax on buyers and sellers, and their buying behavior. In addition, have you heard about the details of the anti-fraud tax? Another question is about the competitive pattern of the industry. I have two questions. The first question is mainly on the property tax. So how the property tax affects the buyers and also the sellers sentiment and also their purchase behavior. And also not sure if management hear anything regarding on the implementation details of the public tax. Second is regarding on the competitive landscape. So first, on the one hand, we have seen centralized have massively layoff people, about 7,000 people. And also the senior management also left the company. But at the same time, a major online news media company, Toutiao, they also announced to enter into the property agency sector. So how the management viewed the property agency competitive landscape? Thank you.
spk05: Thank you, John. Let me address your first question regarding the property tax. Recently, as indicated in an essay published by President Xi on Journal Qiushi, China should strengthen the regulation and adjustments over the high-income class, proactively and prudently promote legislation and reform on property tax, and ensure effective implementation of our pilot program. We believe that the government will definitely and duly respond to the scope of the pilot property tax to more cities. the State Council is authorized to carry out a pilot property tax reform in certain regions. Property tax, as a new local tax package, well plays a fundamental role to narrow down the gap between the rich and the poor. Considering the requirements proactively and prudently, promoting the legislative reform on property tax coupled with the current market correction system late September, amid the falling existing home sales volume and price, as well as the mounting risk in developers. We recently see a current focus on stabilizing expectations and preventing an overcrowded market. As expected, the scope of pilot property tax will extend to most cities, applicable to all existing residences and the incremental. Nevertheless, the focus of the property tax should be on multiple residents or the residents with higher total value or the high unit price. Fully consider the affordability of the household to ensure the basic living needs, while attaching importance to change the wealth gap among the household to better achieve the goal of common prosperity. The introduction of property tax will have significantly shortened impact on the market. Some owners of multiple residents may sell part of their properties, leading to a higher market supply and hence a wait-and-see sentiment among buyers in the short term. However, from the long-term perspective, transaction volume is predicted on housing supply and demand fundamentals. The rationale launch of the property tax by laying a solid foundation for effective common prosperity will contribute to stable long-term market expectation and prices. Only in such scenario with a stabilized price rationalize the market and smoothen the fluctuation in the long run can reggie demand be further unleashed, resulting in a higher home turnover rate, better affordability, and the roofs for R1, and hence a potential growth in transaction volume. Regarding the current market situation for Betadance and Centreland, let me talk about separately. Let me talk about Betadance first. And obviously for the country like Betadance with cross-industry traffic advantage, it is a natural impulse for them to try to multiply their traffic in different areas. We believe that both investment community and Xinfuli fully understand that In an industry with low frequency, high value transactions, and a long decision-making process, the value provided by the online traffic module is relatively limited and cannot truly meet the customer's demand for information. Without a thorough understanding of the customer and the industry, even traffic advantages are difficult to convert to transactions. To integrate an online module with an offline module, one cannot resort to short-term such as unfair competition and capital-based disorderly dysfunction, including setting low commission rates, high rebates, unrealistic binding valuation promises, and definitely false propositions which were not sustained and could cause antitrust violations. In part, in the last year, mega internet companies and developers entered into the industry with a high profile, all walked away later with rational disapproval. PMO Haofang and Fangchabao are good showcase for their reference. In this industry, there must be more than one business model and more than one company that can be successful. Although forward, there is only one way to success. We believe in the value of taking good care of the consumers. We believe in the value of sharing successful experience and infrastructure to the industry and empower and enhance the industry efficiency. We believe in the value of protecting the interests of the service providers, paying commission in time, and to work with a sense of security and fairness. We believe in the value of the hundreds of thousands of excellent service providers who have been serving the community for many years and established this unique moment in their home services. And we believe in the value of time. This is what we have been doing, not perfectly, but we are on our way. Last but not least, if Betadon still decide to move to the offline transactions, especially under the current market moment, we believe that we'll have the license learned from the market and the players who truly understood this industry like Beko. And for the central plan, and I do source news, I cannot comment on our multiplayer's decision and behavior, but I would like to say the key and high quality service provider represents the most valuable assets of the industry. During the period of downturn, Baker will formally support the retention of our key and high quality service provider through our compensation and benefit system. team culture and organizational capability and the business strategy developed over years. Meanwhile, Baker's existing commission mechanism and the network effect allow each agent to have much more opportunities to participate in transactions and secure more stable incomes than those on the other platforms and helps in enabling collaboration and shared success. As a result, The overall turnover rate of agents and the percentage of store closure on the platform are significantly lower than the industry average. We are more resilient in the downturn and have the ability to outperform when the market recovers. As the market is in the downturn, the industry production capability is shrinking and the performance of the store on Baker performance also has an impact. The number of stores below the minimum sustainable level of turnover, the so-called bright line, the annual GDP of about 50 million, on the platform continued to rise, and the percentage of stores above such level decreased from 37 in Q2 to 33.7% in Q3. So we don't know the overall turnover rate of the industry, but we can imagine how depressed the industry is. In the downturn cycle, The trend of huddling together to keep warm in the industry is more evident. We noticed that the cooling of the market promotes more stores and agents who were reluctant to join the platform finally joined the Baker platform. The number of brands connected to Baker increased to 300 in the third quarter, and also the percentage of newly added stores from its new home sales channel increased greatly from 22% in the second quarter to 29% in third quarter. The percentage of stock closed due to the poor management, poor operation in Baker, only 1.7% in Q3 compared to 1.1% in second quarter, indicating no large-scale stock closure. Most third-party store owners chose to stay with platform in downtime cycle and operate conservatively by dismissing inefficient personnel and the soundbite merge store and the percentage of store merge on the platform increased from 0.8 in second quarter to 1.4 in the third quarter. In the third quarter, our number of client store and agents and the turnover rate was 8.8%. compared with 8% interest quota, the turnover rate of Lianjia in Beijing and Shanghai remains stable. While the turnover rate of non-Lianjia agents increased by 1% quota of quota, then remained flat compared to last Q3. The average turnover rate in the industry is 15% on normal days, and it will get worse in long-term cycle. The turnover rate of agents on Baker is still considerably lower than the industry average. So based on our judgment of the market, the industry production, based on our judgment of the market, the industry production capability will continue to shrink, and it is expected the turnover of agents will be bulging out First quarter of 2022. Consequently, we would like to see the turnover of putting performance store and agent increase significantly in line with the market trend, but outperforms the market conditions. Okay. Thank you, John. Thank you.
spk00: Thank you. We are now approaching the end of the conference call. I will now turn the call over to your speaker host today, Mr. Matthew Chow, for closing remarks.
spk04: Thank you, Aubrey, Terry. Thank you once again for joining us today. If you have 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. You can disconnect. Thank you.
spk00: Ladies and gentlemen, that does conclude our conference for today. Thank you all for participating. You may now all disconnect.
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