Prepared remarks
Hello, ladies and gentlemen. Thank you for standing by for KE Holdings First Quarter 2026 Earnings Conference Call. I am Siting Li, IR Director of KE Holdings. Please note that today's call, including management's prepared remarks and Q&A session, will all be in Chinese. Simultaneous interpretation in English will be available on a separate line. Operator instructions: please note that the conference call is being recorded. The company's financial and operating results were published in the press release earlier today and are posted on the company's IR website. With us today, we have Mr. Stanley Peng, our Co-Founder, Chairman and Chief Executive Officer; and Mr. Xu Tao, our Executive Director and Chief Financial Officer. Mr. Xu will provide an overview of our business updates and our financial performance. Then Mr. Peng will share more on our strategic transformation and insights. 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 Beike's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Please refer to the company's press release, which contains a reconciliation of the unaudited non-GAAP measures to the comparable GAAP measures. Unless otherwise stated, all figures mentioned in today's call are in RMB. Certain statistical and other information relating to the industry in which the company is engaged to be mentioned in this call has been obtained from various publicly available official or unofficial sources. Neither the company nor any of its representatives has independently verified such data, which may involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such information and estimates. For today's call, management will use Chinese as the main language. Please note that English translation is for convenience purposes only. In the case of any discrepancy, management statements in the original language will prevail. With that, I will now turn the call over to our CFO, Mr. Xu Tao. Please go ahead.
Thank you. Hello, everyone. Thank you for joining our Q1 2026 earnings call. First, let me summarize the financial highlights of the quarter. In Q1, our non-GAAP operating profit reached RMB 1.67 billion, up 45.1% year-over-year and 416.2% quarter-over-quarter. Non-GAAP operating margin stood at 8.8%, reaching the highest level in the past seven quarters. The optimization of our cost and expense structure in 2025 has been reflected in our operating profit in Q1 this year and we expect it to provide long-term positive support to our operating performance going forward. Guided by the strategic focus on balancing scale and efficiency, we have rolled out new initiatives, including refining depth operations and technology-driven empowerment. In Q1, the contribution margin of all of our core business lines improved year-on-year, reflecting the translation of our cost structure optimization efforts in 2025 into our income statement. We believe this is a structural improvement rather than a cyclical one. Even with a year-on-year decline in revenue in Q1, our contribution margin continued to expand, validating the release of profit elasticity. Meanwhile, our operational efficiency continued to improve: the absolute amounts of R&D, selling and administrative expenses all decreased both year-on-year and quarter-over-quarter, marking the effectiveness of our refined management and cost control measures. Driven by the simultaneous improvements in both gross margin and operating expense ratios on a year-over-year and quarter-over-quarter basis, we saw a further release of operating leverage with a non-GAAP net profit margin hitting a record high for the past seven quarters. In addition, we continue to deliver on our commitments to shareholders. During the quarter, we spent around USD 195 million on share repurchases, an increase of about 40% year-over-year. This move not only represents ongoing returns to shareholders but also underscores our firm confidence in the company's sustainable and steady development over the medium to long term. Turning to our key financial metrics for Q1. Due to the high base from the real estate market in the same period last year, the group's GTV and revenue declined year-over-year. GTV was RMB 711.2 billion, down 15.6% year-over-year. Revenue was RMB 18.9 billion, down 19% year-over-year. That said, we achieved a meaningful improvement in operating efficiency. The group's gross margin reached 24.1%, up three percentage points year-over-year, driven by gross margin expansion and improved operating efficiency. Our net margin also increased year-over-year. In the first quarter, GAAP net income was RMB 1.26 billion, up 46.7% year-over-year, while the non-GAAP net income was RMB 1.61 billion, up 15.7% year-over-year. Now let me provide you some more details. For our existing home transaction services, business scale declined year-over-year due to the high base in the same period last year, while profitability continued to improve. In Q1, GTV reached RMB 534.4 billion, down 7.9% year-over-year and up 10.9% quarter-over-quarter. Revenue from existing home transaction services reached RMB 6.1 billion, down 10.7% year-over-year and up 12.7% quarter-over-quarter. The GTV declined less than revenue year-over-year, mainly because of the higher proportion of existing home transaction GTV facilitated by connected agents, where revenue is recognized on a net basis as platform service fees. On a quarter-over-quarter basis, revenue growth outperformed GTV, mainly due to improvement in Lianjia's commission rate. In particular, platform service revenue increased by 3.8% year-over-year and 12.5% quarter-over-quarter, outperforming the overall GTV and demonstrating the resilience of our platform model. Despite the year-over-year decline in revenue scale, contribution margin for the existing home transaction services reached 41.3%, the highest level in the past seven quarters. It was up 3.2 percentage points year-over-year, mainly attributable to the decline in fixed labor costs driven by optimization of Lianjia's agent and store scale as well as improved organizational efficiency. The contribution margin also increased by 0.9 percentage points quarter-over-quarter, mainly driven by operating leverage from revenue recovery in Q1 with fixed labor costs remaining relatively stable. For new home businesses, business scale declined year-over-year due to a high market base in the same period last year, while profitability improved year-over-year. Q1 GTV reached RMB 145.9 billion, down 37.2% year-over-year and down 29.5% quarter-over-quarter. New business revenue was RMB 5.1 billion, down 37% year-over-year and 30% quarter-over-quarter. The year-on-year and quarter-over-quarter GTV performance was largely consistent with revenue, reflecting our stable monetization capability for the business segment. Even amid significant fluctuations in scale, Q1 contribution margin of the new home business was 25.7%, up 2.3 percentage points year-over-year, benefiting from cost structure optimization brought by refined operations. It fell 2.6 percentage points quarter-over-quarter, mainly due to the high base and one-off factors in the previous quarter. For home renovation and furnishing services, Q1 revenue reached RMB 2.3 billion, down 20.6% year-over-year and 35.3% quarter-over-quarter. The year-on-year and quarter-over-quarter revenue decline was due to our proactive exit from low-quality and inefficient customer acquisition channels as well as cities with poor economics. The contribution margin of the home renovation and furnishing business was 36.2% in Q1, up 3.6 percentage points year-over-year, mainly driven by material cost savings from our continued efforts in centralized purchasing and tender-based local procurement as well as labor cost savings from improved order assignment efficiency. On a quarter-over-quarter basis, contribution margin increased by 7.4 percentage points mainly due to material cost savings and a low base effect from certain one-off factors in the previous quarter. For our home rental services, revenue in Q1 reached RMB 500 million, representing a slight year-over-year decline of 1.5% and a quarter-over-quarter decline of 7.4%. The decline was mainly due to the continued iteration of Carefree Rent toward our lighter and lower-risk product model with a higher proportion of home units recognized on a net revenue basis, which had a temporary impact on reported revenue scale. However, this doesn't change the growth strategy or trajectory of our managed rental units and service capability. As of the end of Q1, the number of rental units under our management exceeded 740,000 units, representing an increase of around 47% year-over-year. Meanwhile, contribution margin for our home rental services business reached 14.8% in Q1, up 8.1 percentage points year-over-year and 4 percentage points quarter-over-quarter, marking the sixth consecutive quarter of sequential improvement. This was mainly attributable to two factors. First, the proportion of products recognized on a net revenue basis, which have higher contribution margins, continued to increase. Second, labor cost per unit declined driven by productivity improvements enabled by AI and a more specialized division of labor. For emerging and other businesses, net revenue in Q1 was RMB 321 million, down 8.1% year-over-year and down 30% quarter-over-quarter. Now let me walk you through the specific key financial metrics for the quarter. Q1 store costs were RMB 571 million, down 20.3% year-over-year and 19.6% quarter-over-quarter, mainly benefiting from rental cost optimization and store network adjustments. For Lianjia, Q1 gross profit decreased by 5.4% year-over-year to RMB 4.6 billion and decreased by 4.1% quarter-over-quarter. Gross margin was 24.1%, up 3.5 percentage points year-over-year and 2.7 percentage points quarter-over-quarter. Gross margin expanded year-over-year driven by three factors: first, improvement in services contribution margin; second, a favorable mix toward existing home transactions, which carry a higher contribution margin; third, improvement in existing home contribution margin. Sequentially, the expansion was mainly due to a higher mix of existing home revenue and improvement in existing home contribution margin. Q1 total GAAP operating expenses were RMB 3.3 billion, reaching the lowest level in nearly three years, down 22.3% year-over-year. This was mainly attributable to operating leverage relief from improved organizational efficiency, strengthened financial discipline and optimized marketing spending efficiency. Operating expenses decreased by 33% quarter-over-quarter, partly due to the high base from one-time expenses related to organizational efficiency improvement and resource allocation in the prior quarter. Specifically, general and administrative expenses were RMB 1.7 billion, down 8.6% year-over-year, mainly due to a decrease in share-based compensation expenses. On a quarter-over-quarter basis, G&A expenses decreased by 24%, mainly due to the high base of one-time expenses in the prior quarter and lower expenses driven by improved organizational efficiency. Sales and marketing expenses were RMB 1.1 billion, down 39% year-over-year, mainly driven by improved organizational efficiency and more refined management of marketing and promotion expenses. On a quarter-over-quarter basis, sales and marketing expenses decreased by 43.9%, mainly due to seasonal factors and a high base of one-time expenses in the prior quarter. R&D expenses were RMB 493 million, down 15.6% year-over-year, mainly due to improved organizational efficiency and lower technical services fees. On a quarter-on-quarter basis, R&D expenses decreased by 31.1%, primarily due to the high base of one-time expenses in the prior quarter. Moving to our bottom line performance. Our GAAP operating profit was RMB 1.27 billion in Q1 compared with a profit of RMB 591 million in Q1 2025 and a loss of RMB 147 million in Q4 2025. The operating margin was 6.7%, a year-over-year increase of 4.2 percentage points and a sequential uptick of 7.4 percentage points. Q1 non-GAAP income from operations totaled RMB 1.67 billion, increasing 45.1% year-over-year and 416% quarter-over-quarter. The non-GAAP operating margin was 8.8%, a year-over-year increase of 3.9 percentage points, mainly due to an increase in the gross margin and a sequential increase of 7.4 percentage points mainly due to the decrease in the operating expense ratio and an increase in the gross margin. Finally, GAAP net income totaled RMB 1.26 billion in Q1, up 46.7% year-over-year and 1,425% quarter-over-quarter. Non-GAAP net income was RMB 1.61 billion, up 15.7% year-over-year and 211.5% quarter-over-quarter. In terms of the cash flow and balance sheet, we recorded a net operating cash outflow of RMB 1.5 billion in Q1. Our operating cash flow was lower than our profit and performance, mainly due to timing factors related to the payment of accrued employee compensation from the previous year. Excluding the impact of this timing factor, our operating cash flow performance was broadly in line with our profitability. In Q1, the turnover days of accounts receivable for our new home business was 64 days, largely stable year-over-year and remaining at a healthy level. In addition, even after spending approximately USD 195 million on share repurchases during this quarter, our broader cash balances excluding customer deposits remain at approximately RMB 65.6 billion. Supported by our solid cash reserves we placed great importance on shareholder returns. In the first quarter, we spent around USD 200 million on share repurchases with a number of shares repurchased representing around 1% of our total shares outstanding as of the end of 2025. Since the launch of our share repurchase program in September 2022 through the end of the first quarter of 2026, we have cumulatively spent around USD 2.7 billion on share repurchases with a number of shares repurchased representing around 13.5% of the company's total shares outstanding before the program began. In summary, in the first quarter, we delivered on our operating commitments and achieved a meaningful enhancement in our operating capabilities through proactive cost structure optimization, technology-driven empowerment and more refined management. Looking ahead, we'll continue to uphold the principle of maximizing the company's overall value as our core priority. We will allocate resources around our long-term strategic direction rather than pursuing local optimizations and shorter-term gains. At the same time, we'll use data and business fundamentals as the basis for decision-making, maintain our clear ROI discipline for key investments, and direct resources to areas where we can better enhance the customer experience and service efficiency. Now I'll hand over the call to our CEO.
Well, thank you, Mr. Tao. Now I would like to welcome all of you for joining us at KE Holdings' 2026 first quarter earnings call. In the first quarter, we saw encouraging early signs across the property market. The existing home market, in particular, experienced a noticeable spring rebound after Chinese New Year with transaction momentum into deal conversion, buyer decisiveness and seller sentiment all improving in some key cities. Price expectations are moderating toward a rational level, and previously pent-up move-up and trade-up demand is now beginning to clear the market in an orderly manner. That said, divergence in core cities and market segments remains pronounced, and we are still in the phase of structural adjustment and confidence rebuilding. We're not reading too much into one quarter's data nor are we disheartened by the continued volatility inherent in any cycle. More importantly, consumers are placing greater emphasis on authentic living needs, asset quality, and long-term lifestyle fit. The overall industry is now evolving towards a more stable, healthy and sustainable path. Our company's operational quality is also on the rise despite a high base in the prior year period. Q1 GTV and revenue declined year-over-year, yet adjusted net income climbed 15.7% year-on-year. Now we have seen three notable improvements. First, efficiency gains in Q1: Lianjia's nationwide per capita transaction volume rose 26% year-over-year with per capita commission up 8.5%. From January to April, cumulative per capita commission increased 20% year-over-year, comfortably outperforming the local real estate transaction market. Second, no compromise on scale: our platform's existing home transactions grew 12% year-over-year, and non-Lianjia existing home transactions rose 16% year-over-year, markedly outpacing the market. In Beijing and Shanghai, where Lianjia posted the strongest per capita efficiency gains and market penetration also rebounded from the second half of last year. Third, improved profitability: the group's adjusted operating margin recovered to over 8.8%, up 3.9 percentage points year-on-year, while adjusted operating profit rose by approximately RMB 500 million year-on-year. These measurable Q1 improvements stem from our relentless pursuit of efficiency-driven growth. This is not merely about cutting investment, controlling costs or downsizing to boost profits. It means fundamentally reevaluating which services truly solve consumer pain points in today's market, which providers can deliver sustainable value and how our platform amplifies that value through technology, mechanisms and resource allocation. At the end of March this year, we announced a new round of strategic and organizational restructuring. This transformation rests on one fundamental premise: the housing service industry is undergoing fundamental changes. An industry creates value by solving for what is scarce. For years, China's housing market was defined by rapid growth, tight supply and strong expectations of rising prices. Listings were the scarce resource; value came from controlling listing information and the path clients took to reach them. Consumers wanted to know where the listings are, what they cost, whether they can get one, and whether they can close fast. So the earlier brokerage industry organized naturally around listings. For KE Holdings, we are trying to make sure that the industry's core is now within our adjustment and what we believe now matters most. And now it is the ability to guide decisions. Value creation is upgrading from organizing supply to delivering decision support and housing advisory services. So what consumers really need today is to make sure that they make the right decision with high-ticket risks and sorted information so that they can make well-informed decisions. For buyers, decision support means helping them understand whether, where and what truly fits. For owners, consumer questions have also changed. Their core anxiety has shifted from 'Can I get one? Am I getting it wrong?' to 'Should I even buy right now? How do I weigh school districts against the community and living comfort?' and 'Which of these options best fits me?' For buyers, decision support means helping them understand whether to buy or not, where to buy and what truly fits. For owners, it means helping them present value, price right, find the right buyer and increase closing certainty. AI will accelerate this shift. It will rapidly commodify pure information sorting and shallow matchmaking while further amplifying the value of service providers who can guide decisions. It can also turn top agent expertise into platform capabilities. For us, our real-world scenarios, service network, transaction groups and continuous data feedback give us the opportunity to combine with AI and build a deep moat. So the strategic restructuring we announced this year is neither short-term cost-cutting nor a defensive move. It is about reorganizing production around the new scarce resource. KE Holdings is evolving from a platform that organizes transactions into one that supports higher-quality housing decisions, redefining the very paradigm of value creation in this area. Here, the key is to be more professional, and professionalism for us is simple: it is decision support. What exactly does it take to be more professional? Three things. First, the key organizational change towards better professionalism is to get managers back into the front line. We have 500 core managers and 2,534 directors who are, in theory, our most capable, highest-leverage people. Yet today, many spend over half of their time in meetings, pricing metrics and cranking out reports. The management systems, metrics and processes we built once drove our growth and made the industry more efficient. But any system that doesn't center around consumers' real needs risks becoming an end in itself. That is why a critical part of this transformation is sending managers back to the front line to re-understand consumers, re-understand what being a service provider means and redefine their own professional values. In Beijing, our regional director Zhang has done what I consider truly returning to the front lines. He manages 16 commercial districts and 12 stores. Every week, he reviews listings in person. Every week, he joins live interviews. Every Saturday, he holds office hours. So every time he was involved, efficiency improves. There was an owner and an agent in deadlock over a small price gap and the deal stuck for ages. When Zhang stepped in, he stopped talking only about price and started asking: why are you selling, where are you heading next, and what is this money used for? He discovered that the owner didn't need a better price — they needed a trade-up plan — so we helped them rethink their housing options, ultimately driving both the new home purchase and the existing home sale. He feeds store and competitive data into AI to generate diagnostic reports, shifting from rating metrics to prescribing solutions. The oversight has given way to sparking specific problems and helping fix them. Next, he's building a knowledge base across district, store and individual tiers, qualifying property details, customer profiles and listing presentation playbooks. Second, service providers must become more professional. In the past, agents were essentially generalists. They took every client, handled every need and touched every stage of the deal, and the model worked when listings were scarce and deals moved fast. But today, AI is rapidly flattening the traditional agent's edge in process, scripted talk and policy know-how. At the same time, customer needs are clearly segmented: school districts, luxury upgrades, new homes, asset disposition, leasing, renovation, etc. Each demands a different knowledge base and service approach and a trust-building process. True professionalism in the future will be defined by three things AI cannot do: understanding our clients' real pain points and needs; efficient support that helps them think through trade-offs — this is analytical and proposal capability; and delivering reliable, accountable recommendations — accountability for high-stakes decisions. These three capabilities can only grow in real-world scenarios. So to make our service providers more professional, the first thing we need to do is train them from testing knowledge to hands-on drills and case-based reviews. The system will also capture frontline best practices and, with AI, structure them for people to study and benchmark against. Second, judging whether service providers are professional may shift from a static exam or certificate to how they serve clients over time and what clients say about them. AI can track a service provider, analyzing their service process and client feedback, making their professional capabilities visible, evaluable and capable of continuous accumulation and growth. Third, the platform must turn nonstandard services into products. Much of our best service used to depend on individual know-how, but these skills are scattered, inconsistent and hard to replicate. The platform's job is to qualify this expertise into products, tools and processes so every consumer gets consistently great service and every agent is properly equipped. For sellers, we're pushing decision support further upstream to cover the entire sales cycle before listing. We help owners understand the market, comparable properties, likely buyers, and fair price ranges so agents can craft a shopper sales plan. After listing, we feed back information that actually matters to that specific property, helping owners make informed calls on pricing, pacing and strategy. For owners with different needs, we are testing differentiated products through owner segmentation and listing tiering; for example, community open-day events concentrate exposure and buyer feedback. For owners ready to sell and entering price negotiations, 'Commit to Sell' uses deposits, online bidding and system comparisons to cut down back-and-forth and help both sides reach agreement faster. A recent 'Commit to Sell' deal illustrates this very well. An owner in Beijing's Desheng district had a property worth over RMB 10 million. She was torn on price but more anxious about locking in a sale before the month's end. In the past, this meant endless showings, price ping-pong and stalled deals. But 'Commit to Sell' compresses everything into a clear window: the owner puts down a deposit, the listing gets concentrated promotions and buyers bid online, and everyone knows the clock is ticking. The winning buyer wasn't even first in line, but with transparent rules and a firm deadline, she bid online on a Friday evening and closed at the owner's price. The buyer saw an opportunity, the seller got certainty, no price slashing — just a product mechanism that matched a real seller, a real buyer and an agent who knew the property and the market. For buyers, we're also pushing services earlier. Today, clients enter a content-driven pre-decision phase long before they need an agent. They search everywhere, but credible, mutually structured guidance is very scarce. So they need professional support as a reference in their decision-making. We're putting our frontline leaders — managers, directors and district heads who know the market and consumer base — on the front lines of content creation and building a tiered content matrix with the platform. We're not trying to turn them into influencers chasing traffic; rather, this pushes them to truly present their expertise about communities, listings, transactions and clients already in their head. Simultaneously, before the client reaches the agent, we are adding a more neutral decision service layer through middle-office service roles combined with AI experts in legal, finance, school districts and high-end properties. We help the client conduct clarification of needs, purchasing power calculation, risk disclosure, preliminary asset planning, then we match these clear, better-understood needs to the most suitable service provider. Therefore, we'll pivot to a more precise matching stage. I want to say that AI is not a single tool, but a new organizational capability. For instance, with our application-building platform for frontline employees, staff simply describe their needs using natural language and AI helps generate and deploy the application. As of the end of April, the platform has covered over 7,100 employees with more than 4,400 applications seeing actual traffic and total business surpassing RMB 4.12 million. So this is proof that tools originating from the front lines are being utilized by the business and organizational resources will traditionally flow toward real problems. Furthermore, one city is piloting a new collaboration model: business experts define scenarios, function staff design the skills and the scenario engineers provide tool and API support. A three-person squad can simultaneously advance over 20 specific scenarios. In the past, the business proposed ideas then waited for development. Now whoever best understands the scenario participates in its definition and rapid iteration. In this way, frontline expertise is no longer just a personal experience; it can be amplified and institutionalized by AI. Beyond property transactions, I would also like to briefly talk about home renovation and leasing. Q1 contract value and revenue declined year-over-year, primarily due to our proactive focus on specific cities in China since last year coupled with new home market volatility that also impacts demand. However, we are more focused on the underlying capabilities on the path to monetization and profitability. In Q1, the contribution margin of home renovation reached 36.2%, up 3.6 percentage points year-over-year, with the losses narrowing significantly. Over the past year, we have done substantial fundamental work in product modernization, digitalization of tools, supply chain centralization for procurement and other improvements, driving the business from being highly nonstandardized toward becoming more stable, replicable and manageable. For our leasing business, units under management reached 740,000 in Q1, maintaining rapid growth. The share of net-method products rose quickly. The profit and margin contribution from Carefree Rent increased from 6.7% in the same period last year to 14.8% now. So through product structure optimization, AI empowerment and organizational process restructuring, the leasing business proves that a seemingly fragmented, operationally heavy business can also enhance efficiency and gradually form economies of scale. Looking further ahead, we aim to center our efforts on communities to reconstruct long-term operational capability. Stores in the future will gradually upgrade to community housing service nodes, and agents will evolve from single-transaction roles into client managers capable of deploying platform capabilities across existing homes, new homes, leasing, renovation, design and delivery. Regarding how investors can track this progress: I believe there are several metrics. First, core business efficiency and operational quality. Second, pilot programs in community operational units and our actions of putting managers into the front line. Third, productization of buyer and seller services. Fourth, adoption of AI across the organization and its improvement on customer experience and operational efficiency. Fifth, the expansion from single transactions to long-term community operations and long-term value. Sixth, long-term incentive direction and organizational stability. These are not short-term commitments, but rather a framework to guide our transformation progress. These decisions cannot be accomplished in a single quarter. We are planning this round of transformation across a multi-year cycle. Our principles are clear: pilots come first without blind expansion; we're going to have prudent operations, ensuring core business operational quality and cash flow remain stable and continuous; constantly optimizing service provider division of labor, resource allocation, AI tools, seller service products, buyer decision service layers, etc. In conclusion, I would like to summarize Beike's long-term value in one sentence: the industry is transitioning from finding listings to making decisions, and what Beike must do is upgrade our platform capability from organizing transactions to supporting higher-quality residential decisions. The significance of Q1 results lies not only in margin improvement, but also in validating that a virtuous cycle can be formed among organizational efficiency, per capita efficiency gains, service provider structure optimization and platform growth. Going forward, we'll continue to invest resources, mechanisms, AI and product capabilities where genuine customer value is created, driving Beike to forge more stable, higher-quality and more sustainable long-term value. Thank you, everyone. We will now open the floor for the Q&A session.
Operator instructions: First question comes from Thomas Chong from Jefferies.
Questions and answers
We noticed that the existing home market saw a spring rally in Q1. What were the main drivers? How does it compare to the previous year? And also, is this trend sustainable?
Thank you, Thomas, for your question. Compared with previous rebounds, this round of recovery stands out in three ways. First, it's not just a short-term volume bounce driven by policy stimulus. It reflects genuine demand being released as the price correction has lowered the price barrier to homeownership. Second, it's not just a simple case of trading price for volume; we are seeing prices stabilize at this stage. And third, it's not only buyers coming back to the market; seller expectations and supply mix are also showing incremental improvement. So this recovery is now more resilient than we have seen in the past. Looking at volume and price performance: first, existing home transactions on our platform grew 12% year-over-year in Q1, and in March set a new all-time monthly record, up 21% year-over-year. At the same time, core cities showed clear signs of phased price stabilization. According to Beike Research Institute, existing home prices in Tier 1 cities rose 1.5% month-over-month in March, marking two consecutive months of sequential growth. In Beijing and Shanghai, prices increased by 3.8% and 3.3%, respectively, during Q1. We see three factors driving the shift. First, policy: the government's signal to stabilize the housing market has been clear; measures such as tax optimization and housing provident fund adjustments have reduced transaction costs. Second, after deep correction, the entry barrier for homebuyers has come down substantially. In March, the rental yield across the top 50 cities rose 40 basis points year-over-year to 2.8%, and the spread versus mortgage rates continues to narrow. Housing is gradually regaining its appeal. Third, on the demand side, a combination of policy support and lower prices brought previously hesitant buyers back to the market, driving the recovery in transactions. More importantly, we're seeing market expectations and supply-demand structure improving on the margin. On the one hand, buyers are making decisions faster: the conversion rate from viewing to transaction has improved. On the other hand, seller expectations are stabilizing, and pressure to cut prices has eased. In Q1, the share of sellers willing to offer sharp discounts for a quick sale fell by three percentage points quarter-over-quarter and new listings in March were down 14% year-over-year. Looking at transaction mix, upgrade demand remains a long-term driver. Seasonal factors like residential registration and school enrollment, combined with targeted policies favoring lower-priced homes, led to a seasonal increase in the share of first-time homebuyers in Tier 1 cities. From a long-term perspective, upgrade demand has continued to rise and now is approaching 60%, making it a core driver of the market. Heading into Q2, market transaction volume came down seasonally from its March peak but the pace of adjustment has been more moderate than the same period last year. In April, year-over-year growth in existing home transactions on our platform expanded further to over 30% and the absolute volume hit a second-highest record, showing resilience. In terms of price, Beike Research Institute data shows that existing home prices in the top 50 cities held steady month-over-month for a second consecutive month in April. In Tier 1 cities, prices are up 2.8% cumulatively from January through April, with Shanghai up 5.9% and Beijing up over 4%. The trade-up chain is also recovering since April: larger mid- to high-priced homes have accounted for a slightly higher share of transactions in core cities, indicating a recovery in upgrade demand and providing support to market resilience. Overall, we believe existing home transaction volumes should continue to grow year-over-year in Q2. On pricing, core areas in Tier 1 cities have relatively solid support, but broader nationwide stabilization will need a few more months of data to confirm.
Next question comes from an analyst at CITIC Securities.
Congratulations on the noncyclical revenue uptick for the past quarter. My question for management: the company is advancing its strategic transformation. We noticed that you have been highlighting a program called 'Commit to Sell' in Beijing. Could you share an update on that progress? Are there any cases that validate the impact? And can it effectively improve transaction efficiency?
Thank you for the question. Some investors may not be familiar with this product yet. 'Commit to Sell' is one of the products under our homeowner-side service transformation in Beijing. It is still in its early pilot stage. So it's not a simple auction-style listing. It's a matching tool designed to help both buyers and sellers come down on the back-and-forth in negotiation. Sellers set a reserve price online and buyers place bids with a deposit; the system then matches bids against the reserve price to close the deal. It focuses on the bidding and closing stages. Even when the transaction doesn't go through, the bidding results provide incredibly valuable insights that feed sellers into making better decisions going forward. We have noticed that early signs are encouraging: transaction cycles have been shortened and homeowner satisfaction has been high. That said, the sample size is still quite small, so we are being prudent in how we read these early results. To put this in the context of our broader strategic transformation: in today's market listings are rising, buyers are more cautious, and homeowners essentially sell by playing the odds. They don't get a clear read on market feedback and they don't have many effective tools beyond cutting the price. That's why the core of our homeowner-side service transformation is to help sellers make better decisions throughout the selling process and improve the certainty of closing — namely, whether now is the right time to sell, at what price and through what approach. In practice, we are not building a single product; instead, we are identifying seller objectives, expectations and property characteristics and bringing services across the entire selling life cycle, covering listing, pricing, marketing, exposure, viewing, feedback and bid negotiation. 'Commit to Sell' is one of the pilot products designed for a specific group of sellers. These products continue to evolve based on seller feedback and market changes. The core idea is to match the right transaction path and the right service to each seller and each property rather than pushing every listing to the same playbook. From the pilot programs at hand so far, these products indeed improved price discovery and transaction efficiency. We're also piloting other services such as community open-day events designed to concentrate buyer interest. Going forward, for each of these new products and services we will continue tracking key operating metrics, including product adoption rates, transaction efficiency and agent productivity. I want to make one point especially clear: this new model does not diminish the value of agents; it amplifies it. It elevates the agent's role from passing along information and relaying offers to helping sellers assess price, identifying genuine buyers and building trust and momentum in the negotiation process. Every successful closing reflects the core value that a professional agent brings. Finally, I want to emphasize that this transformation is a long-term journey. Our approach is small-scale piloting, continuous integration and data-driven validation for the long run. If we can keep improving the decision quality of both sellers and buyers, there's significant room to expand service penetration and efficiency.
Next question comes from Timothy Zhao at Goldman Sachs.
My question is about the home renovation and furnishing business. We have seen some decline in this part of the business. Could you share what reasons are driving this decline? How do you make up for the weakening trends in this business? Given the current KPIs of this part of the business, what exactly are the major KPIs you're focusing on? And what progress has been made in that regard?
Well, thank you for the question. I want to explain three reasons. First is our business changes: we have shut down some of our traditional business parts. That is the first reason. The second is that we have narrowed down some parts of our furnishing and renovation businesses in certain cities as part of a quality-first strategy. The third reason is that we have seen a declining market trend and some reduction in demand for renovation and furnishing. Regarding how we read these declines: this year our focus is not on scale, but on optimizing the business model around healthy and sustainable profitability, offering personalized offerings under a clearly defined framework and improving fulfillment and delivery quality. These are important foundations for the next stage of growth. We have already seen tangible improvements in delivery capabilities and profitability. Going forward, we'll continue to deepen synergies with our home transaction services to improve conversion and gradually enhance revenue performance. This year, we are focused on three key areas: improving product capabilities and standardization, construction fulfillment and delivery standardization, and upgrading our design tools to improve efficiency. On the product side, our approach is not to view customer demand as a simple trade-off between standardization and personalization. Instead, we're using a two-dimensional product matrix to better address different customer needs. Vertically, we designed different packages based on budget levels and service depth, helping customers with different needs — from those seeking practical solutions to those looking to upgrade living quality. Horizontally, we break down customers' high-frequency lifestyle needs into modules such as style, storage and soft finishing. This allows customers to combine modules within a clear product framework and get solutions that better fit their family needs. At the same time, it allows us to improve efficiency, control costs and enhance unit economics through module reuse and SKU concentration, design tools and standardized delivery processes. In terms of construction fulfillment and delivery standardization, this year we have extended our professionalization of project managers to the work level. For certain key types of workers, we are moving away from a relatively loose labor cooperation model to a model based on platform selection, platform evaluation and platform coordination dispatch, where workers with stronger delivery performance and better customer feedback receive more jobs. This helps us build a more stable delivery workforce, creating a positive cycle among service quality, worker income and delivery consistency. In March, these professionalized workers in plumbing and electrical trade saw their average monthly order volume increase by over 50% compared with the average in the second half of 2025. At the same time, we continue to deepen development of our self-developed BIM design tools. We're promoting full-process digitalization of floor plan imports, solution design rendering, online quotation and construction joint output. This enables us to build a low-data loop on the platform, which in turn supports continuous integration of our BIM tool and helps improve design productivity. Overall, while the revenue side has been affected in the near term by adjustments and external demand volatility, we're seeing improvements in the underlying capabilities of the business. In particular, standardization and replicability are gradually being strengthened across key areas, and we believe revenue from our home renovation and furnishing business can stabilize and return to quality growth.
Congratulations on the positive trend. There was a clear year-over-year improvement in profit margins across the company's businesses in Q1. How does management assess the sustainability of current margin levels and is there further room for improvement going forward?
Thank you, John, for the question. Our profitability improved significantly year-on-year in Q1, and gross margin reached 24.1%, up 3.5 percentage points year-on-year. Non-GAAP operating margin was 8.8%, up 3.9 percentage points — both at a seven-quarter high. This margin improvement wasn't driven by any single business or one-off factors. It is the result of a series of proactive optimizations across operating quality, resource allocation, cost structure and unit economics. Looking at each business in Q1, contribution margins improved year-over-year across all our core businesses. In our housing transaction business, the contribution margin improvement in existing home transactions came mainly from lower fixed labor costs and higher agent productivity. Fixed labor costs in existing home transactions were down 24% year-over-year in Q1, which was a key driver of margin expansion. This reflects the work we've been doing since last year on Lianjia, including refining store and agent scale, optimizing organizational structure and improving resource allocation efficiency. In the long run, further upside will come from continued gains in Lianjia store and agent productivity and resource conversion efficiency as our transformation progresses. In the new home business, more refined operational management reduced the overall variable cost ratio by 3.7 percentage points. Going forward, we'll innovate our sales model by providing developers with full life-cycle project solutions by leveraging our data, marketing and other capabilities, which will diversify our revenue mix and support stable profitability. In home renovation and furnishing, contribution margin improved mainly thanks to lower material costs and higher labor productivity. Since last year, we've been actively advancing centralized procurement alongside localized embedding. This has driven down prices on some materials by more than 20%, and those cost savings continue to flow through this year. We've also optimized our order dispatch system, routing more orders to project managers with stronger execution capabilities, focusing on serving platform customers and tightening their service radius to improve productivity per person. Looking ahead, as supply chain scale benefits continue to materialize and service provider productivity further improves, there's still room to optimize the unit economics of our home renovation business. In home rental services, contribution margin improved quarter-over-quarter, mainly driven by better unit economics in our Carefree Rent product and a structural shift into rental units accounted under the net accounting method, which carries a higher gross margin. As of the end of March, net-method home units accounted for over 40% of our managed inventory. Meanwhile, the improvement came from several drivers: higher productivity, which reduced internal costs and streamlined operational labor; better supply chain pricing, which lowered maintenance costs; and some seasonal factors as well. Looking forward, quarterly margins may fluctuate, but the shift toward higher-margin revenue combined with continued improvements in our products and operations leaves room for further improvement in the unit economics of rental services. On the expense side, total operating expenses in Q1 hit a near three-year low. The decline across all three expense lines was driven by improved organizational productivity and disciplined financial management, including refined control of marketing spend. On AI, we're maintaining a disciplined investment approach. We continue to invest in core business models and foundational AI capabilities while actively reviewing and reallocating resources from lower-ROI projects to areas with higher long-term value creation. This lets us keep investing in long-term capabilities on a solid financial foundation and supports sustainable function and continued opening of new and more efficient avenues for growth. For the whole year, our home transaction business has demonstrated great earnings flexibility; the profitability of our two wing businesses will continue to improve and our cost discipline remains firm. Our quarterly margins may show some seasonal fluctuations, but we are confident in year-on-year margin improvement for the full year. Thank you.
So thank you, Mr. Xu. With that, we conclude our Q&A session. Thank you once again for joining today's conference call. Should you have any further questions, please reach out to KE Holdings' Investor Relations team via the contact details listed on our website. This brings today's earnings call to a close. We look forward to connecting with you again next quarter. Thank you, and goodbye. Statements in English on this transcript were spoken by an interpreter present on the live call.