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Operator
Hello, ladies and gentlemen. Thank you for standing by for KE Holdings, Inc.' 's fourth quarter and full year 2022 earnings conference call. At this time, all participants are in a listen-only mode. Today's conference call is being recorded. I would now like to turn the call over to your host, Ms. Satine Lee, IR Director of the company. Please go ahead, Satine.
Satine Lee
Thank you, operator. Good evening and good morning, everyone. Welcome to KE Holdings, or FACUS, fourth quarter and fiscal year 2022 earnings conference call. The company's financial and operating results were published in press release earlier today and are posted on the company's IR website, investors.ke.com. On today's call, we have Mr. Stanley Pohn. our co-founder, chairman, and chief executive officer, and Mr. Tao Xu, our executive director and chief financial officer. Mr. Peng will provide an overview of our strategies and business developments, and Mr. Xu will provide additional details on the company's financial results. Before we continue, I refer you to our safe harbor statement in our earnings press release, which applies to this call as we will make forward-looking statements. Please also note that Bayco's earnings press release and this conference call include discussions of unnoticed gap financial information as well as unnoticed non-gap financial measures. Please refer to the company's press release which contains a reconciliation of the unnoticed non-gap measures to comparable gap measures. Lastly, unlike otherwise stated, all figures mentioned during this conference call are in RMB. With that, I will now turn the call over to our Chairman and CEO, Mr. Stanley Peng. Please go ahead, Stanley.
Stanley Pohn
Stanley Peng Thank you, Siti. Hello, everyone. Thank you for joining FACR's first quarter and full-year 2022 Audience Conference Call. For the past two years, the industry has faced unprecedented challenges, but every venture will pass, and the spring will come as promised. In January and February, people around the country quickly emerged from the pandemic. At the same time, the real estate market began to recover. By the end of February, existing home sales on our platform had rebounded sharply, reaching a level close to the same period in 2021, the most active year for existing home transactions. Sales of new homes have also increased significantly year over year, returning nearly to the post-lockdown level in 2020. As we transcendence this realm of market correction, our firmly held views have been proven correct and our underlying capabilities have been validated. First, our market neutral view and the persistence in that view has been proven. As part of our digital service platform for the housing industry, professional agents must act as a counterbalance of her mentality and down market cycles. This means they must not blindly follow the crowd or engage in hype. Rather, they must evaluate the market objectively, multidimensionally, and rationally. They must be a stabilizer for the market and never magnifying anxiety. The market has been in a downward trend since the middle of 2021. But through it, We have always believed that a consumer's desire for better living will not change and the market will return to a normalized level. We also see opportunities in the market recovery. Therefore, with a stable state of mind, we quickly made a series of inventory adjustments to cope with short-term fluctuations and prepare for market recovery. We launched a one-body-to-win strategy, transforming from scale expansion to quality growth and implemented a series of measures to reduce costs and enhance efficiency. We protected the Commission collection and operation security of source providers on our platform, provided them with tools and capabilities in order to support them through the truth of the cycle. In addition, hundreds of our measurement members went to the frontline to help with the battles Our market-neutral view has allowed us to strengthen our muscles and watch for our recovery when the market was in a downturn. Facing the current market in recovery, we will continue practicing our market-neutral view, acting as a counterbalance against market-changing behaviors. Since significant market volatility harms the industry in the long run, we hope to facilitate and oddly market recovery. Second, the credibility of BIG as a platform has been further validated during the large market fluctuations. We established the BIG platform in 2018. In order to open up the capabilities we have accumulated during 20 years to the industry, we have constantly refined our protocols, ecosystems, and digital infrastructure to further unlock the ACA network effect and the skill effort of our platform, providing support for customers, service providers, and industry partners such as developers, helping them to better interact, cooperate, learn from one another, and achieve win-win results. This run of market vitality is the first major task we have experienced as a platform We have delivered more stable profitability than before by proving our ability to expand our business, which demonstrates our strength as a digital service platform for the housing industry. We have also prepared the momentum needed for the industry long-term development. High-quality industry supplies have been protected and stabilized. and the low quality and efficient supplies, not only on our platform, but also outside our platform, have accelerated their exit, which is a good thing for the entire industry. We proved our more stable profitability In 2022, the national existing home market CTV fell by 31% year-over-year, and sales of about 100 new home developers fell by 42% year-over-year. However, our annual non-GAAP net profit backed the trend and achieved a year-over-year increase of 24%. Our operating cash inflow grew by 135% in 2022. against the significant fluctuations in the external market, we have demonstrated the stability of profitability and power of our platform model. We also tested out our platform's sustainability. In 2022, the first year for us to advance our OneBody2Win strategy, our home renovation and furnishings contracted sales reached RMB 6.9 billion increased 31% year-over-year on our pro-forma basis, also backing the market trend. This result benefited from our network infrastructure of stores and agents, our digital transformation capabilities for low-frequency, complex, and heavy decision-making industries, and our full integration with Shandong in Beijing, two ways accounted for more than 10% of our revenue in 2022. increasing from less than 3% in 2021, while our one body provided more than 90% of their customer leads. The ability of our platform to extend to a wide range of sources around the sector of leading has been initially validated, showcasing the high replicability of our industrial capabilities and our ability to meet more and more complex needs of our customers. This represented a solid step in our never-ending innovation and development. Sir, our view on the accelerated arrival of the era of agent empowerment and quality service has been validated. With accelerated usage of low-quality and inefficient supply in the industry, we expect an increase in unit store productivity in the future. The trend of larger stores will become more pronounced, given their wide coverage of both home listings and community customer leads, and more diversified business operations, leading to stronger risk resistance. As such, store efficiency has become a key management variable, and high-quality agents are crucial to our operations. Store owners' abilities in store operations team management, as well as recruiting and energizing agents have become differentiating factors in successful operations. With respect to agents, the industry will not and should not be flooded with access capability. In the future, the industry will enter the era of efficiency improvement of existing capability and agent empowerment. The productivity of high-level agents is two times the industry median, which shows that the mid-level group of agents will become the most vital force in the industry in the future. We have always been and will continue to be committed to helping agents improve efficiency, obtain a decent and stable income, realize long-term employment, and pride themselves of their professionalism on our platform Therefore, we have been firmly moving forward with our large store strategy. In 2022, we supported and empowered the reorganization of over 3,000 stores on our platform. We also consistently strengthened the professional competencies of store owners. By the end of 2022, more than 6,900 store owners completed the study of our Baker Huajiao Academy. Moreover, we build out the store and agent ranking infrastructure with competencies ranking standards, which improve the management and operating capabilities of the platform and store owners, and assist in building an agent talent pipeline. We also advance the governance of existing and new home business conducts, resolutely cracking down on coincidences of wrong behavior. We set up a comprehensive monitoring mechanism to encourage customers, business partners, and platform employees to supervise and report violations such as off-platform transactions. We also fully implemented and jointly promised with new home developers that there will be no customer information leakage, customer poaching, and so on. and promoting the customer contact information to be provided throughout the showing process. All this works to enhance security in agents' operations. While the store and agent count on our platform declined in 2022, with the number of actual stores and actual agents at around 37,400 and 350,000. Respectively, the structure and efficiency of stores and agents on our platform continue to improve throughout our efforts. In the fourth column, the proportion of interactive stores in cities including Beijing and Shanghai increased by 5.5 percentage points year-over-year, and the monthly agents' true rate dropped to less than 5% for non-Lianjia stores and only 3.1% for Lianjia stores. Together as a group, we have gone through a difficult winter, and this experience has given us a lot of strength. Our team will be more determined than ever and become the backbone of the industry. It's also the most valuable asset of Baker. One who possesses a piece of land should have his piece of mind. Turning to our one body, our existing and new home transaction services. In 2022, we transitioned to a stage of quality growth from when of scale expansion. We quickly adjust our operation to improve efficiency and cut expenses, scaling down the P&L units for operation and management. With digital tools, we can check gross margin per order and personnel basis as well as profit for each store, which encourages business teams to focus on profitability indicators as well as cultivate cost-effective mindsets among managers at all levels. Driven by these initiatives, we significantly enhance our platform's operational efficiency and optimize costs and expenses. Moving to existing home transaction sources, according to data from the Baker Research Institute, Full-year GTV of existing home sales in China were RMB 4.83 trillion in 2022, dropping by about 31% year-over-year and declined by about 3% year-over-year in the fourth quarter, whereas existing home transaction GTV on Baker's platform fell by only 23% year-over-year in 2022 and lost by 1.5% year-over-year in the fourth quarter. We outperformed the industry amidst challenges thanks to our empowerment and the retention of high-quality store owners and agents, enhanced of the AC network defense, continuously deepening platform operations, and increased user value delivered to end-customer and business partners. For example, we rebuilt our platform's lease allocation mechanism For existing homes in 2022, the new mechanism allocates leads based on store-type performance scores, raising the percentage of agents matching with familiar home listings by 10%. It reduces the number of unproductive actions agents took to acquire leads, allowing them to be more focused. And as such, agents provided customers with more professional services, Next, moving to new home transaction services. On the market funds, according to data from National Bureau of Statistics, GTV of new residential home sales in China amounted to RMB 11.7 trillion in 2022, down 28% and 27% year-over-year for the full year and the first quarter respectively. GTV of CRIC's top 100 real estate companies fell by 42% and 30% year-over-year in 2022 and the first quarter. Respectively, in comparison, GTV of new home sales on our platform declined by 42% year-over-year in 2022 and by 26% in the first quarter. While our four-year GTV performance was in line with the market, we realized a right back of our new home and debt provision for the year, and our DSO hit the lowest, while our profitability reached a record high since our listing. This represents the excellent results of our core strategy, which is not compromising agents and consumers' interest in exchange for expansion. At the same time, we proactively strengthen our risk controls security and profitability. Specifically, we consistently integrated our developer risk evaluation system to manage business risk in a preemptive way. In the first quarter, commissioning an advanced model accounted for 44% of our total commission, doubling from the beginning of the year. It ensures the security of agents' receivable collection. The average number of homes sold by projects under the commission-in-advance model was 35% higher than general new home projects, reflecting that developers' sales through were also accelerated. The proportion of state-owned developers continued to rise, with their projects accounted for 45% of our new home revenues in the first quarter. Moving to our two-wind businesses. Over the past years, we validated our authenticity, our strengths and capabilities in the two-wind industry, and further demonstrated that our two-wind business are not only a natural fit for our whole business, but also feedback to it. 2022 was also a challenging year for the home renovation and the furniture industry. According to data from the China Building Decoration Association, the total revenue of leading home renovation and furnishing companies in 2022 decreased by about 9% year-over-year. Our home renovation and furnishing business generated contracted sales of RMB 6.9 billion in 2022, rising by 31% year-over-year on our pro forma basis. Among our contracted sales, 33% were attributable to core business customer referrals. On top of this, in April 2022, we launched our new retail sales of home furniture and furnishing strategy, which leverages our full service innovation offerings. New retail home furnishings contribution to our total contractor sales grew from 12% in the first quarter to 26% in the first quarter of 2022. further retaining the platform's business beyond low-frequency transactions. With respect to our rental services in 2022, the number of rental units managed by our home rental services exceeded 120,000, with over 17,000 units under decentralized leasing management or carefree rents. More than 90% of this was contributed by core business customer referrals. Clearly, the mobilization and the empowerment of our core business has enabled our Two Wins business to substantially outperform the market. Meanwhile, the broad market space of the Two Wins business, as well as the recognition from customers and society, greatly boosted Agile Professionals' value. And more importantly, rest fresh, enduring vitality into our organization, setting the stage of boundaries possibilities for us to unleash our potential. Leveraging our digitalized transformation endurance in decision-heavy industries with low transaction frequencies, complex processes, and a focus on offline operations. We have been working to resharp the home renovation and the furnishing industry. Through digitalization and online operations, we scroll to standardized construction practice while restructuring the home renovation, construction, and customized furniture delivery process. We establish a quality-based service provider management and incentive mechanism, as well as our other dispatching system as part of our scientific management capabilities. Additionally, our home, SAS 2, will also take part in these initiatives to lead and implement industry digital transformation. In December 2022, 80% of our orders in key cities were automatically dispatched. Our renovation delivery cycles were shortened by five days from previous year. and our A-rated service providers' retention rate reached 97%. These capabilities will help us to grow with quality. In 2022, we worked even harder to fulfill our society's responsibilities and be an enterprise of the era. As the only private enterprise selected among the first group of affordable rental housing operations services enterprises in Chengdu, we have provided more than 1,700 rental homeowners and talents with superior leasing operations services, including leasing brokerage services, as of the end of 2022, leaving behind a year of challenges but also rewards. We are ready to embark on a new journey in 2023, facing the recent notable market recovery We will maintain a consistent strategy for our core business based on our market neutral view. That is, on top of cost reductions, efficient enhancement, and risk controls, we will continue to deepen our operations and improve our ecosystem to capture high-quality growth opportunities. In 2023, we will work to enhance our long-term capabilities, which require persistence. and continuous investment in areas such as business conduct governance services and product delivery or home renovation, and incremental efficiency enhancement of our existing core of agents. Through these efforts, we will seek and fill the gap between our capability and the needs of consumers and service providers, fulfilling our society's responsibilities to be a great company in the hearts of the society and the people. Thank you. Next, I would like to turn the call over to our CFO, Paul, to review our first quarter and full-year financials.
Stanley Peng
Thank you, Stanley, and thank you, everyone, for joining us. Before discussing more detail about our first quarter and the full-year 2022 financial results, I'd like to provide a brief update on the housing market in 2022. In 2022, China's housing market encountered representative challenges. affected by the frequent disruption from the pandemic, microeconomy softened, and the customers' uncertainty around the future's expectations heightened. These factors dampened buyers' home purchase willingness and their ability to pay, while also impeding the transaction process. Additionally, in the new home market, consumers' confidence in the housing product delivery hit a toll, giving the spillover risk among real estate developers. All of Bob greatly diluted the positive effect of the favorable policies, resulting in a profound and sustained market correction. Facing the predicament, we took decisive actions and seek answers from the frontline operations, sharpening our focus on the sense of business, risk control, and efficiency enhancement. We managed to achieve a strategic transformation in 2022 to high-quality growth from scale expansion. Particularly, we reported a smaller contraction in net revenue compared with the market adjustment, realized significant year-over-year growth margin increase, and trend-backing non-GAAP net income growth, effectively mitigating the impact of the micro conditions, especially in profitability and cash flow, further strengthening our leading position in the industry. Let's change to the financial details for Q4. Our net revenues will be 16.7 billion in Q4, exceeding both the hand of our guidance and the street consensus, mainly because, first, people's day-to-day lives, as well as existing home transactions, normalized after the pandemic peak in some core Chinese cities at the end of December. Second, the existing home market in Chengdu and some cities in Yangtze River Delta performed well in Q4, leading to a year-on-year increase for non-lianjia existing home revenues from their lower base in 2021. Third, new home sales settlement performed well in Beijing and Shanghai in Q4, under our sales conversion initiatives. In particular, our net revenues from existing home transaction services decreased by 11.8% year-over-year to RMB 5.3 billion in Q4. Our GTV of its in-home transactions actually increased by 1.5% year-over-year in Q4, with the GTV by Connect agent increased by 24.3% year-over-year in Q4. Nevertheless, they were recorded on a nice basis in revenue, while GTV from Lianjia decreased as top tier cities took a heavier blow of COVID in Q4, and they were recorded on a gross basis in revenue. Our next red news from the new home construction services decreased by 26.8% year-over-year to RMB 8.3 billion in Q4, primarily due to the decrease of new home GTV of 26.1% to RMB 263.5 billion in the period. Next red news from the home renovation and furniture, or RMB 2.1 billion in Q4, compared to RMB 58 million in the same period of 2021. primarily because we completed the acquisition of Chengdu, as well as organic growth of this line of business. Our net revenues from emerging and other services increased by 152% year-over-year to RMB 1.1 billion in Q4, primarily attributable to the increase of net revenues from our rental property management services and financial services. Gross profit increased by 40.4%, to RMB 4.1 billion in Q4. Growth margin increased to 24.4% in Q4 from 16.4% in Q4 2021. The increase primarily due to A, a shift of revenue mix towards its in-home transaction services and home renovation and furnishing, with a relatively higher contribution margin than new home transaction services. B, A higher contribution margin for both existing and new home transaction services as a result of effective cost control. And C, a relatively lower percentage of costs related to the store and other costs of net revenues in Q4. Operating expenses decreased by 9.6% year-over-year to RMB 3.7 billion in Q4. General and administrative expenses decreased by 18.6% to RMB 1,792 million, mainly due to the decrease of the provision for credit loss and the personnel cost and overhead. Sales and marketing expenses were RMB 1,333 million in Q4, compared to RMB 809 million in the same period of 2021. This increase was mainly due to the consolidation of Chengdu. Research and development expenses decreased by 31.1% to RMB 509 million, mainly due to the decrease of personnel cost and the share-based competition as a result of decreased high cost. Income from operations was RMB 387 million in Q4, compared to loss from operations of RMB 1,184 million in Q4 2021. The increase in gross margin and the decrease in operating expenses have brought about the increase in operating margin to 2.3% in Q4 from negative 6.7% in Q4 2021. Our non-GAAP income from operations was RMB $1,339 million, with non-GAAP operating margin reached 8.0% in Q4 compared to negative 2.2% in the same period of 2021. Adjusted EBITDA was RMB 2,164 million in Q4 compared to RMB 484 million in Q4 2021. Net income was RMB 372 million in Q4 compared to net loss of RMB 933 million in Q4 2021. Non-GAAP net income was RMB 1,547 million in Q4 compared to RMB 42 million in the same period of 2021. Turning to our financial detail in fiscal year 2022, our net revenue decreased by 24.9% year-over-year to RMB 60.7 billion, while the GTV declined by 32.3% to RMB 2,609.6 billion due to the soft market sentiment and the COVID-19 disruptions. Our gross profit reported a narrower decrease of 12.9% year-over-year to RMB 13.8 billion. Gross margin increased by 3.1 percentage points to 22.7% in 2022. Our loss from operations was RMB 833 million in 2022 compared to loss from operations of RMB 1.4 billion in 2021. Our waiting margin was negative 1.4% in 2022 compared to negative 1.7% in 2021, primarily due to a relatively higher gross profit margin, which was partially off-site but increased spending in home renovation and furniture and emerging and other services in 2022 compared to 2021. Non-GAAP income from operations was RMB 2.3 billion in 2022 compared to RMB 1.4 billion in 2021, Non-GAAP operating margin was 3.8% compared to 1.7% in 2021. Of net loss was RMB 1,397 million in 2022 compared to RMB 525 million in 2021. Non-GAAP net income was RMB 2,843 million in 2022 compared to RMB 2,294 million in 2021. Now, I'd like to highlight the following financial highlights for the full year. Firstly, China's real estate market experienced a severe adjustment in 2002. According to Baker Research Institute, the existing housing market fell 31% in the year, while data from CRC showed new home sales from the country's top 100 developers tumbled 42%. However, due to our diversified business structure, and the better retention of high-quality service capacity. Our annual GTV saw a milder fall of 32%. Thanks to the stronger monetization ability of our new home and this in-home business, as well as the increase in the proportion of the home renovation and the furnishing services with a higher monetization rate, our revenue declined by only 25% year-on-year, a much smaller contraction compared with the market adjustments. More encouragingly, our non-GAAP net profit saw a transparent growth of 24% for the full year of 2022 under a series of cost optimization measures. The value of the platform has supported us in achieving impressive results in profit quality management. Secondly, our one-body business, which is the home transaction services, delivered a strong performance in profitability and financial health. and achieved remarkable results in cost and expense optimization. In terms of the cost control, the fixed cost of our one-body business fell by over one-third year-on-year in Q4, and the variable cost as a percentage of revenue dropped around 6 percentage points year-over-year. In the face of the market downturn, we also made a forceful measure to scale down the P&L unit for operation management encouraging the business team to focus on the profitability indicators through the performance evaluations. For Lianjia, we made a considerable effort in 2022 to deepen this operation and achieve notable results. Proportion of loss-making stalls declined by 7 percentage points in 2022 from 2021. Under Lianjia, to connect the stalls, agent productivity ratio in cities, including Beijing and Shanghai, increased to 1.3 in 2022 versus 1.2 in 2021. Then just improvement in agent composition efficiency also helped reduce our cost. In addition, in 2022, we continue to expand the strategic collaborations with the state-owned developers, with projects from those partnerships accounting for 45% of our sales in Q4. rising from 28% in Q1. The proportion was 41% for the full year of 2022. On top of this trend, we still managed to have a new home acquisition rate increase moderately in 2022. Although the profitability of our existing home transaction services fluctuated quarter over quarter due to the pandemic impact, on a full year basis, the contribution margin of existing home business reached 39.8%. up 2.8 percentage points from 2021, driven by stronger operating leverage due to the fixed cost optimization and higher revenue contribution from platform services. As our revenues from using home services continue to expand, we expect this business will improve further in profitability. In the full year of 2022, the contribution margin of new home transaction services reached 23.6%. up 4.4 percentage points from 2021, mainly driven by the increased percentage of high profitability projects and the significant fixed cost reductions, validating our strategy of strictly balancing risk and profits in a high volatile market. In particular, new home contribution margin climbed to 26.2% in Q4, hitting another record high since our listing, supported by incremental improvements in the new home market in some high-tier cities. With the increase in its in-home and new home contribution margin, our gross margin for the full year of 2022 responded notably to 22.7%, up 3.1 percentage points year-over-year. Thirdly, in terms of the operating expenses, while maintaining our investment in new businesses, including home renovation and furniture, Our total non-GAAP expenses in 2022 declined by 20% year-over-year to RMB 11.8 billion. The productivity of the platform operation teams in terms of their support to frontline agents increased by 20% year-over-year by end of 2022. For new home business, we continue to promote the commissioning development model to ensure more secure commission collected by platform agents and speed up the project sales through Commissioning in advance accounted for 44% of our total commission in Q4, up from 20% in Q1. In Q4, commissioning in advance accounted over 36% of commission from state-owned developers and 49% of that from private developers. Under such efforts, in 2022, we had a buy-debt provision written back of RMB $206 million for the new home business and RMB $21 million for the whole group, compared with the better provision of RMB 1.3 billion in 2021. This reflects our principle of adopting the most prudent accounting treatment, while emphasizing the achievements under risk control management with a sharp focus on receivable collection and improving the sense of the security of agents. Fourthly, our home renovation and furnishing business has gained considerable traction Benefiting from powerful synergies between Baker and Chengdu, our performer revenue for 2022 amounted to RMB 6.2 billion. Revenue totaled 2.1 billion in Q4, up 13% quarter-over-quarter. Specifically, four-year contract sales in Hangzhou and Beijing exceeded RMB 1 billion each, with Hangzhou achieving city-level profitability and Beijing breaking even in the second half of 2022. Our leading goals in these top cities demonstrate our ability to achieve the fast breakthroughs in scale during the dry-cell stage while making notable improvements in profitability. Aided by our further supply chain build-out, quality delivery, and digitalization capabilities, we are confident that we will accomplish the high-quality expansion in more cities. Fifthly, our cash position and cash flow remain robust and sufficient, and we have a sound capital management. At the end of 2022, to combine the balance of cash, cash-like items, total RMB 78.3 billion, all U.S. dollar 11.4 billion, up by RMB 1.1 billion from end of September, and RMB 7.3 billion from end of 2021. among which the combined balance of our cash, cash equivalents, restricted cash, and short-term investments was RMB 61.1 billion. The balance of our long-term cash-like items, mainly included in the long-term investments, amounted to RMB 17.2 billion. Our net operating cash flow was RMB 2.6 billion in Q4, remaining positive for the fifth quarter in a row. Moreover, We have a zero deposit in Silicon Valley Bank under Credit Suisse. We have maintained a steadfast commitment to risk control and the receivable management. Cash collection from New Home Business has exceeded the New Home revenue for six quarters in a row, totaling RMB 35.9 billion for the full year, with cash-to-revenue ratio at 1.25. New Home DSO was at 64 days in Q4. shortening by 14 days from Q3 and 28 days from the same period of 2021. Turning to the guidance of the first quarter of 2023, we expect total net revenues to be between RMB 18.0 billion to 18.5 billion Q1, representing an increase of approximately 43.4% to 47.4% from the same period of 2022. This forecast concedes the potential impact of the recent real estate-related policies, the macroeconomic recovery status, as well as release of the pent-up demand in 2022. It constitutes its current and preliminary view on our business situation and market conditions, which are subject to change. Entering Q4 of last year, policy relief initiatives were rolled out on a large scale on both supply and demand side. In early December, COVID-19 curves were optimized, and since then, infections have quickly peaked out, driving an uptick in the property market. Notably, since the beginning of this year, home prices ended, sequential decline, transactions started to rebound. We think this should be viewed rationally and objectively. The recent uptick can be attributed to two factors. One is the higher sales volume partly generated by the released pent-up demand once the pandemic situation eased, which further illustrates that the housing demand can only be default, not eliminate. The other reason is that the market expectation has gradually improved against the backdrop of macroeconomic recovery and the successive introduction of supportive policies. As an eventful 2022 passed in the wake of numerous unexpected shocks, The main policies seen in this year will be pressed forward with a pragmatic approach to promote the economy recovery and revive the market confidence. Supporting the housing upgrades is on the top of initiatives for responding to domestic demand. As an enterprise, we will remain equally practical and rational and always uphold market-neutral view. Studied long-term market development is aligned with the fundamental interests of the consumers, the government, and the industry. It has been and will continue to be our belief that the industry's enduring value is built upon stable transaction volume and prices rather than fluctuations, as market stability leads to sustainable transactions which accentuate the value of agents, and the agents should be the counter force to the market's ups and downs. This is our social responsibility as well as professional dignity. In 2023, our one-body, two-winds strategy will drive more diversified developments and continue scale its function, which poses a higher requirement for our operational stability, resources allocation, and profitability. As such, Our finance strategy will remain focused on the essence of business operations on the basis of optimized cost and expenses structure in 2022. This year, we will reap profits from efficiency, the purpose is growth, and continue to improve the service quality. At the same time, we will continue to strictly control the risks, balance the relationship between the efficiency, receivable collection, and the skill goals. and promote cooperation with upstream and downstream under the condition of safe accounts receivable. Under the neutral market view, we are fully confident in the housing market's stable development in the long run. This does not provide a stable environment for our long-term development, but also offers a great opportunity for us to further elevate the quality of our operations going forward. We will continue to forge ahead with enduring strength in our hearts and face headwinds with tenacity and optimism, powered by our relentless pursuit of creating indispensable value for the vast living service sector and our society. That concludes my prepared remarks. We would like now to open the court to your questions. Operator, please go ahead.
Operator
Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you are on a speakerphone, please pick up the handset to ask your question. For the benefit of all participants on today's call, please limit yourself to one question, and if you have additional questions, you can reenter the queue. If you are going to ask the question in Chinese, please follow with the English translation. Today's first question comes from Timothy Zhao with Goldman Sachs. Please go ahead.
Timothy Zhao
Yes, thank you, Benjamin, for taking my question, and congratulations on the strong results to end the year. My question is on the industry outlook. Could Benjamin share your updated outlook for the existing home and new home market for 2023? And it's actually related to the strong growth of the existing home volume in China over the past two months. Could you share some color on how much about the rebound is from the pandemic demand? And how sustainable do you think is the current run rate in the existing home market? Thank you.
Stanley Peng
OK. Thank you, Timothy. Regarding the recent market performance, uncertainty caused by COVID-19 recedes the Chinese resident mortality has a shift back to the pursuit of the well security and the growth from precautionary saving and the risk aversion. In terms of the real estate policies, there were over 1,000 stimulus policies released across country in 2022, compared to roughly 450 tightening policies in the year of 2021. As a result, support for market recovery is accumulating We saw increased policy support in December and January, when almost strong second-tier cities loosened their home purchase and mortgage restrictions. Among these cities, for example, Zhongguan and Foshan implemented the full relaxation. To some extent, these policy changes have a support of bulging out in the market. According to recent real estate market data, consumer sentiment towards the housing market also has significantly improved on the demand side. For existing home sales, weekly transactions on our platform before the Chinese New Year holiday in January were close to those in July 2021. And the monthly existing home TTV on our platform in February was close to the historical high in March 2021. Among that, the GTV of Tier 1 cities in February was just 8.6% lower than the peak of March 2021, while the GTV for the stronger Tier 2 cities and the weaker Tier 2 cities, plus Tier 3 and Tier 4 cities, grew 11.3% and 5.5% from the 2021 peak, respectively. Particularly, stronger Tier 2 cities showed a strong momentum with Chengdu, Suzhou, Nanjing, Zhengzhou, and Tianjin all exceeded the high point of March 2021 by 20%. This strength was partly due to the one-time release of the pandemic demand accumulated during the pandemic. For new home sales, it also demonstrated a notable recovery trend. Our new home subscription growth turned positive in January, growing 20% year-over-year. In February, our new home subscription increased by 148% year-over-year from the lower base in 2022, reaching the level of June 2021, driving a year-on-year new home sales growth since February of this year. Regarding the housing prices, despite the very strong momentum in transaction volume, fortunately, we haven't seen significant fluctuations in housing prices. Prices for both existing and new homes ended a long streak of the monthly decline across the country, and in February, the existing home price grew 1.6% quarter-over-quarter, but it still posed a year-over-year decline of 5%. As the increasing number of customers leaves their homes for upgrading demand amid relaxed government policies this year, the number of listed existing homes nationwide grew 10% year-over-year. The ample existing home listing keeps the market supply and demand relatively balanced. We still hold the neutral market view. The recent rebound in transaction volume demonstrates the housing market's high resilience and elasticity on the demand side. This short-chain rebound was driven by several factors, including normalized transaction demand, one-time carving of the accumulated pent-up demand during the pandemic flares up, and even earlier release of future purchase needs from the customers who are concerned with the potential housing price rise. These factors lead to the sales volume being built up within a very short time. Speaking to a market-neutral view, we believe the market will gradually normalize and will enter into a more stable growth stage over the long run. Since March, we have also noticed that the weekly transaction volume of existing and new home subscriptions on platform began to steadily normalize. Regarding the future market, in terms of the market sustainability, based on our analysis of top 30 cities, we expect the market to be relatively stable in the future for fourth-tier cities. The average flow space of the house transact and the home buyers demographic since this year were very similar to the prior three years. This transaction has been driven mainly by the home upgrade and the reggie demand for the property within the flow area of 90 square meters. In addition, the distribution of purchase by local and non-local residents has also been stable. For second-tier cities, home upgrade demand was significantly stimulated. This drove a 3% increase in share of transacted house over 90 square meters, and a 5% increase in percentage of customer aged over 35, and a 4% increase in percentage of non-local home buyers. Going forward, such market might experience volatilities in the short term due to the structural change. Nevertheless, with the non-local taking root in these cities, more supportive policies and stabilizing housing prices. Home upgrade demand from the local residents might follow up and might bring solid demand support and help the market stabilize in the long run. For existing home market in 2023, based on our neutral market view, we prudently believe that the existing home market will grow by around 15% year-over-year in 2023, where the crisis remains relatively stable. We believe there is plenty of upside for the market given the transaction unit of Easting and New Home in China accounted only for 3.5% of the total number of Easting Homes in 2022. And the rate for Easting Homes was only 0.7% versus the normal rate, at least 1% historically. We need to consider the potentially unfavorable factors such as the impact from the global economy slowdown, growing geopolitical tensions, and the muted export growth on the macroeconomy and housing demand. For the new home market in 2023, we expect the total GDP of the market in 2023 to remain at the same level as in 2022. Housing project delivery has become less of a concern for consumers, with the deployment of the financing policies for developers and the improvement of their funding status, as well as the gradual resumption of the project construction. In the meantime, with the price stabilizing, home upgrade demand will return back to the new home market. The new home market recovery will further ease real estate developers' cash flow constraints. Recently, land auctions went wild in cities like Hangzhou and Suzhou, where several private developers appeared on the land auctions list. Private developer renewed enthusiasm for the land auction in more areas is also a critical indicator. Over past few years, China's housing market has seen great highs and lows. Looking back, short-term uncertainties are inevitable, and one mustn't be overly optimistic or pessimistic about the sub-trends. Yet, as we navigate through the highs of the market volatility and cycles, Our unwavering belief in the long-term outlook for the China housing market remains steadfast. We firmly believe that against the backdrop of the housing is for living in, not for speculation, the existing home market will increasingly take a standard stage, while new home operations demand a more refined approach, and the quality service will come to the forefront. The time for this change is approaching. Thank you, Kimsey.
Operator
Thank you. Thank you. And our next question today comes from Harry Chen with Citigroup. Please go ahead.
Harry Chen
and this is harry chun from city group thanks management for the question opportunity and also congratulations on the very solid results for the fourth quarter and also for the whole year so my question would be that both the new home and existing home markets will be ensuring a healthier and a more stable development stage in 2023 Can management share with us whether the company will dynamically adjust its strategies in response to changing market conditions such as channel expansion to gain more market share? Where are your target markets this year, and will you expand through Lianjia or non-Lianjia stores? What is expansion strategy in markets where you have relatively low market share, such as Shanghai, Guangdong, and Fujian? And how will you deal with the competition with the local leaders? Thank you.
Stanley Peng
Thank you, Harry. Our view on the market share as we don't operate with market share as our KPI. The management team has always been adhering to the core principle of taking care of customers and helping service providers to be good to customers. Nevertheless, we must reach a certain skill threshold city-wise to realize the network effects and the skill effects of our core business. and to fully benefit from the extensibility of our agents and store network as an infrastructure around the living services. Therefore, we need to pay attention to scale, and we need to achieve sufficient scale through connecting and empowering our connected store and agents. For its in-home transaction services, this round of massive market correction has presented us with opportunities to scale faster. and we anticipate a greater number of customers while enjoying quality service offered by Baker this year. In the past two years, the market correction was long and deep, resulting in significant industry supply-side reductions in various regions. Still, we have better capacity retention. The number of active agents in 25 key cities even increased year-over-year at the end of 2022. we have a focus on retaining high-quality agents which allow us to benefit more from the market rebound during the recovery cycle. But this initiative in different cities, for our top-performing cities, we will continue to explore the opportunity in specific market segments such as middle to high-end market, suburban market, et cetera. In the cities with a competitive environment, we saw a business respond at a relatively fast pace starting in the second half of last year. With our better capacity retention, our business conduct governance, our focused operations, and our community expert training generated remarkable results. We have even bigger opportunities in the cities where there is still a lot of room for improvement in our skill, and the market is relatively fragmented. For example, in Shanghai, for trading on the market, our market penetration is still significantly lower in Beijing. To expand our business in the cities, we will actively implement a series of initiatives, such as establishing more connections to the high-quality service providers, investing in our brand and service quality, and strengthening operational efficiency. Regarding the new home transaction services, This year, we will consistently emphasize the risk aversion as top priority, as we did in the year of 2022 and 2021. We are not proactively loosening our risk controls or compromise the business security, especially the security of agents' receivable collection in exchanges, so-called platform scale expansion. But we will also make a dynamic adjustment depending on the market and the recovery of the developers As Delaprace's cash flow situation improves, their receivable payment tools will improve as well, which will lead to the upgrade to a written and bigger credit ranking system. The improved credit ranking will allow us to expand our cooperation, and the addressable market for our new home transaction services may also expand. Meanwhile, new home channel sales market has seen significant increase in concentration in the recent bond of market correction. Our better and safer receivable collection and healthy new home business conduct gain the trust from a larger number of service providers and agents on the sectors. That connects us with ACN and the Fangjiang Hu channel, becoming the cornerstone of the continued expansion of our new home transaction services as the market recovers. Thank you, Henry.
Operator
Thank you. And our next question today comes from with Barclays. Please go ahead.
Barclays
Thank you very much for taking my question. And let me add to my congratulations on the very strong results and the guidance. And you talked about improving efficiencies of your agents and of your stores. I was just wondering, could you talk about your target, if you have any? for the stores and agents for this year? And you have already improved their productivity quite a bit last year. How can you sort of improve their productivity further from here while sort of not losing the very strong cultural and the performance element of the equation? Thank you.
Stanley Peng
Mr. Shaw. Overall, we have no plans for significant dysfunction for our stores and agents. As we mentioned last quarter, our focus is on improving per-store and per-agent efficiency while enhancing the agent income, rather than pursuing a large-scale dysfunction. This approach will now change. Only when the income of stores and agents increases steadily can the industry retain high-quality people and achieve healthy development. Given the current trend of balanced supply and demand market, and the broader emphasis on the housing is for the meaning of speculation, we do not anticipate a significant increase in industry capability following this market recovery. Our plans for the agent and stores this year include the following. Regarding the scale, store-wise, we plan to focus on the large and high-quality stores. under drive the onboarding of Fangjianghu stores for new home sales to our platform as Connect stores. Agent-wise, we plan to recruit agents during the spring recruiting season in 2023. After which, we expect to maintain a stable agent count. This includes increasing of the proportion of middle-level agents and increasing the number of agents in few cities which need skilled function. Regarding the quality and the efficiency, let me talk about the store productivity first. In 2003, we expect to see a significant improvement in store productivity as a result of our ongoing efforts in large store and agent ranking system, business conduct governance, and the Huajiao Academy. We are committed to improving the management on loss making and the inefficient stores, and we believe that the inefficiency could be temporary. Regarding the agents' productivity, the general agent productivity has a huge room to improve in the long run. Beijing could be a benchmark, where our agents' productivity is three to four times higher than the industry average. For Lianjia, in 2022, excluding Beijing and Shanghai, Lianjia's agent productivity was 1.3 times that of connected agents, and our target this year is to further increase its ratio to 1.4 times. For Deyou and DecoConnect stores, although we will not set a specific target for agent productivity this year, we will improve a range of operating metrics to improve the agent productivity. Such metrics include cross-store, cross-brand cooperation ratio, accompanied home tours by home listing agents, price difference management between the listing and transaction prices and the ACN role split ratio for one transaction. In terms of the character, we believe in the value of taking good care of customers. We believe in the value of sharing successful experience and infrastructure to the industry to empower and enhance industry efficiency. We believe in the value of protecting the interests of the service providers, paying commission timely We believe in the value of improving the industry code of conduct and help developers and all participants to work with a sense of security and fairness. We believe in the value of our hundreds of thousands of accident service providers who have been serving the community for many years and established this unique mode in 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. Thank you, Mr. Strong.
Barclays
Thank you, Taozong, for the insight.
Operator
Thank you. And our next question today comes from John Lam at UBS. Please go ahead.
John Lam
Thank you. And also congratulations for the results. So my question is regarding on the cost optimization. So we have seen that in the third quarter last year, the cost optimization was very effective. Is there any room for further improvement in the cost optimization? And also, can the expense result from the first quarter last year, 2022, could be used to infer the subsequent profitability? Thank you.
Stanley Peng
Thank you, John. For cost expense for our one-body business, we quickly implemented a series of cost reduction and efficiency enhancement initiatives in 2022. Consequently, The cost and expenses for our one-body business were optimized to reach the level in the year of 2019, which we believe is relatively sustainable. In terms of the cost control, in the fourth quarter of 2022, the fixed cost of our one-body business fell by 36% year-over-year, and its variable cost as a percentage of revenue dropped by 5.6 percentage point year-over-year. In terms of expenses, the total amount of non-GAAP operating expenses declined by 70% year-over-year, to the same level in the year of 2019. The expense reduction will be most significant if we exclude the impact from the consolidation of the Shendu. Commissioning in advance accounted for 44% of total new home commission in first quarter, up from 20% in the first quarter. This ensures the collection of the new home receivables mitigating the negative impact of the new home budget provisions on our expenses. In 2023, our platform's aid and productivity will see even greater improvements, and we will implement incentives to develop and retain our employees. We also hope to offset the cost of such initiatives through the continuous cost control of the non-personnel expenses. We hope to improve the agents' productivity with technology investments to reduce their time spent on low productivity matters. Hence, allowing them to get off work earlier, spend more time with their families, and contributing to further industry optimization as well as potential platform profitability improvements. All in all, our finance strategy for our one-body business will remain focused on efficiency. With optimized cost and expense level in 2022, we will support the cost-heap growth cost-effectively. Meanwhile, we will continue to strictly control the risk and strike a balance between the efficiency, receivable collection speed, and the scale expansion. With the ensured security of the accounts receivable, we will enhance our cooperation with partners in upstream and downstream. For 2Win's business, Regarding our home renovation and furnishing business, in addition to making sure its total loss ratio will not further expand, we will capture opportunities to reinforce our fundamental capabilities, including the products, supply chain, and the service delivery ability, and invest in high quality service providers. On the whole, we will reflect some of our redundant investment we made during the last round of market growth. And while continuing to promote our business goals, strictly control the cost and expense to balance the goals and the profitability. Thank you, John.
John Lam
Thank you. So can I ask one more question? So you also mentioned about the two wings. So what is your plan regarding on scale expansion and also efficiency improvement for two wings? In terms of the strategy for expansion and also the scale of investment, could I say that for the full-surface home renovation and furnishing model, you achieved the zero to one in 2022. Is 2023 a critical year to go from one to ten? Please share with us with key focuses and goals in 2023. Thank you.
Stanley Pohn
Okay. I will answer the question. 2022 was the year of our two wins for Ball and Tukutut. We have taken a solid step forward in both our home renovation and furnishing business and our rental business. It will still be a bad day in most cities. On the home renovation and furnishing side, our total contract sales backed the trend and increased by more than 30% year-over-year. With total revenue exceeding $6 billion in both Beijing and Hangzhou, we reached the first milestone of over $1 billion in annual contracted sales. And for rental services, we entered 30 cities in 2022, and the total number of rental units under management exceeded 120,000. In 2023, we will establish benchmark cities, achieve the breakthrough and make commitment investment to build long-term capabilities. In 2023, our tool-based business will build on the current momentum in the cities we enter. We will not be pursuing comprehensive and rapid scale expansion. First, instead of focusing on short-term and rapid scale expansion, we will continue to decisively invest in our long-term capabilities, including the ability to standardize services and provide better online appearances, as well as our online operations of the supply chain, digitalization capabilities, product specification for Chinese consumers, and professionalism of service providers. Second, based on these capabilities, we hope to achieve comprehensive scientific management, business need conversion, and operating efficiency improvement for both renovation and furnishing. We also expect to reduce the vacancy period for our rental units, improve consumer satisfaction, and enhance the efficiency of our service providers and our business. Our 2023 goal is to penetrate several key cities deeply and establish them as a benchmark, enabling our two wings to truly complete the Blackstone. In 2024, we will replicate and promote this benchmark to more cities. Yeah, that's my answer.
Operator
Thank you. Thank you. Thank you. We are now approaching the end of the conference call. I will now turn the call over to your speaker and host today, Ms. Cindy Lee, for closing remarks.
Satine Lee
Thank you once again for joining us today. If you have any further questions, please feel free to contact Bayco'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, Annie. Goodbye.
Operator
Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
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