KE Holdings, the operator of one of China’s largest real estate brokerage networks, posted a surprise growth in its second-quarter profit as its Beike chain of sales agents handled more rental property, home sales and non-housing transactions.
Adjusted net profit rose 13.9 per cent to 2.7 billion yuan (US$377 million) in the second quarter, beating the 1.8 billion yuan expected by analysts in a Bloomberg poll. Sales jumped by 20 per cent to a record 23.4 billion yuan, beating analysts’ expectations by 9 per cent.
The strong performance, due to increasing transactions in the secondary market of lived-in homes and rental property, offers a rare bit of positive news amid China’s years-long property slump. The gross value of all transactions handled by Beike’s agents rose 25 per cent during the April quarter to 839 billion yuan, where lived-in homes made up more than two-thirds of sales, or 570.7 billion yuan. The gross value of new homes sold shrank by 20.2 per cent to 235.3 billion yuan.
“The growth potential for our home transaction service remains significant, and the business model and capabilities of our home renovation and furnishing and home rental services have also been validated”, Beike’s chairman and chief executive Stanley Peng Yongdong said in a statement to the stock exchange. “Our core goal is to build an organisation that can continuously progress from one success to the next. Our next step is to achieve sustained growth by driving a positive cycle of scale, quality, and efficiency.”
The rapid growth for non-housing transactions also contributed to Beike’s strong performance. Net revenue from home rentals almost tripled to 3.2 billion yuan in the second quarter.
Net revenue from home renovations and furnishing increased by 53.9 per cent to 4 billion yuan over the same period, as buyers of lived-in homes spent money to spruce them up, Beike said.
“Beike outperformed as it remains pivotal for developers to reach homebuyers through online channels, which allows it to charge higher commission rates amid broad market weakness,” said Morningstar’s China real estate analyst Jeff Zhang. “It rides on the synergistic effects between home transactions and related services to expand income streams, and benefits from robust demand for existing homes in wealthy cities.”
The results came after a set of supportive measures announced by Chinese authorities in May, including a 300-billion-yuan relending fund for local governments to buy unsold homes, which aims to clear the record housing inventory level and spur home sales.
China’s home transactions had a spurt of activity in June after the policy, before dissipating in July. Sales by China’s top 100 developers jumped 36.3 per cent to 438.9 billion yuan in June, before dropping by 36.4 per cent in July.
It also followed an increasing demand for secondary homes versus new homes, amid concerns over the ability of cash-starved developers in delivering their property off the plans. Sales of lived-in homes increased 5 per cent in the first-half, while new homes fell 21 per cent over the same period, according to an analysis published by China Real Estate Information Corporation (CRIC).
Secondary home sales accounted for 62 per cent of overall China’s home transactions at the end of June, according to CRIC’s data.
“We expect Beike to continue to outpace the sector in the third quarter, and [become] a long-term winner in the China property sector,” said Nomura’s analyst Dong Jizhou. “However, it may still face strong headwinds should there be no signs for a meaningful stabilisation of the primary and second-home sales nationwide.”
Nomura cut its earnings expectation for Beike for the financial years between 2024 and 2026, despite the strong performance in the second quarter, citing conservative outlook for large-scale stimulus on the country’s property sector in the third quarter.