KE Holdings Inc. (NYSE:BEKE) Q4 2021 Earnings Conference Call March 9, 2022 8:00 PM ET

Company Participants

Matthew Zhao - Directions, IR

Stanley Peng - Co–Founder, Chairman and CEO

Tao Xu - Executive Director and CFO

Conference Call Participants

Piyush Mubayi - Goldman Sachs

Ashley Xu - Credit Suisse

Thomas Chong - Jefferies

Operator

Hello ladies and gentlemen. Thank you for standing by for KE Holdings Incorporation's Fourth Quarter and Fiscal Year 2021 Earnings Conference Call. At this time all participants are in listen-only mode. Today's conference call is being recorded.

I'll now turn the call over to your host, Mr. Matthew Zhao, IR Director of the company. Please go ahead, Matthew.

Matthew Zhao

Thank you, operator. Good evening and good morning, everyone. Welcome to KE Holding Incorporation's fourth quarter and fiscal year 2021 earnings conference call. The company's financial and operating results were published in the press release earlier today and are posted on the company's IR website, www.investors.ke.com.

On today's call, we have Mr. Stanley Yongdong Peng, 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 the 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 Beike's earnings press release and at 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 reconsideration of the audited non-GAAP measures to comparable GAAP measures. Lastly, unless otherwise stated, all features mentioned during this conference call are in Renminbi.

With that, I'll now turn the call over to our Chairman and CEO, Mr. Stanley Peng. Please go ahead, sir.

Stanley Peng

Thank you, Matthew. Hello everyone, thank you for joining Beike's fourth quarter 2021 earnings conference call. 2021 was a year of unprecedented hardship. With Lao Zuo's passing, the significant correction in the real estate market and the new paradigm for the internet-based platform economy, massive changes took place both internally and externally, posing many new challenges to our company.

However, this is not unchartered territory for us. Over the past 21 years, difficulties and change have accompanied us, and gotten us where we are today.

For an organization, it's not hardship when everyone within it is working together toward a common future goal. It's not hardship when the organization proactively resolves a problem it encounters and gets better and stronger from the experience each time. This is when hardship becomes a blessing. Rising to challenges, transforming through changes, and deriving more vigor and vitality in the process, is embedded within our DNA. This is also our stance and solution to address the current hardships. Market fluctuations have their own logic and inevitability. The many changes happening right now, or that will happen in the future, had their seeds sown a long time ago.

From a long-term perspective, the market will revert to its mean, and in the short term, the market will gradually recover. Our underlying belief about the housing-related industry has never changed - it is certain that digitalization catalyzes industry transformation, service providers are indispensable, and service quality builds customer trust that transcends market cycles.

It is also certain that the business model of our industry is characterized by slow, early-stage development, which means it will take time to establish a virtuous cycle. Yet once we move past the inflection point, business will take off very quickly. All the right things we are doing now, will surely sow the seeds for a better future. Therefore, we have a deep peace of mind, we are undisturbed by external fluctuations. And we propel ourselves to look inward for answers.

Be the enterprise of the era, that's our answer. At the end of 2021, we officially launched Beike's one body, two wings strategic upgrade. One body refers to our core, which is our existing and new home transaction services business, while two wings refers to our home renovation and furnishing offering, and our inclusive housing services. Through our upgraded strategic focus, we aim to fully energize our wings as we accelerate our core business's progress toward its goals, building an increasing presence in the wider housing-related services industry, reaching consumers more broadly and enduringly through a diverse array of services and product innovations, and becoming a new living services provider that makes home a better place.

By that, we are responding to the higher requirements put forward to us by our country and society in this era, catering to consumers' fast evolving demand from finding a place to live to a place of enjoy living as housing price stabilizes, and at the same time meeting an organization's need for continuous iteration and progress - it provides long-term vision for our talents that drives the organization to thrive.

Can we do this? If something is relevant to our mission and vision, and is something we have a strong desire and adequate ability to accomplish, we can. Why can we do this? Over the past 21 years, Lianjia expanded its single city presence in Beijing, to nationwide, and Beike grew from a pilot in Zhengzhou and several cities, to a platform operating in over 100 cities across China.

During this time, we iterated a complete set of methodologies to grow from zero-to-one for the industrial internet. We accumulated rich experience and learning, such as cultivating key capabilities in each stage and finding the right pace for the team. Sometimes you can't go too fast. If you want a tree to grow taller, you can't rush it to blossom or bear fruit. The aim needs to be higher and farther. Other times, you must speed up and keep running forward with all your strength to achieve fast iteration.

Our team is extremely adept at reflection and abstract thinking, which enables us to constantly learn from experiences, accumulate and improve. Our profound set of zero-to-one methodologies also give us full confidence in our expansion into new business areas.

Next, moving to our fourth quarter of 2021, our progress implementing the one body, two wings strategy and our future plans. Thanks to policy support, the market has shown signs of bottoming out since the fourth quarter of last year. However, it will take time for transaction volume to fully recover, and the industry's supply side to further contract in Q1.

According to data from Kongbai Research Institute, as of the end of last year, the industry's number of agents had contracted by at least 30%-40%, with wide variations across cities. In comparison, on the Beike platform, we had 51,000 connected stores by the end of the fourth quarter, up 8.7% year-over-year and down 5.4% quarter-over-quarter. The number of active stores exceeded 45,000, up 4.4% year-over-year and down 8.3% quarter-over-quarter. The Quarter-over-Quarter store reduction was mainly due to fewer newly added stores during the market down cycle, as well as stores merging to stay competitive.

At the end of the fourth quarter, we had around 455,000 agents on our platform, a decline of 7.8% year-over-year and 11.8% quarter-over-quarter. Active agents were around 407,000, down 8.7% year-over-year, 13.1% quarter-over-quarter and 18.6% lower from its peak in the second quarter in 2021, which was in-line with our expectations. Our resilience compared with the broader market was largely owing to our ACN mechanism and agent specialization, which brought our agents more opportunities to take part in transactions and more stable income.

This, together with the base compensation guarantee to high-quality agents provided by solid store owners, empowered our platform with stronger agent retention capability and resilience.

Meanwhile, given the lower housing transaction volume in the fourth quarter, we temporarily cut back our online advertising budget and experienced a decrease in platform traffic. In the fourth quarter, we had 37.4 million MAUs on the Beike APP and mini program, down 32% year-over-year. Nevertheless, as the market recovers, we expect our online traffic to resume growth in 2022.

Moving on to existing and new homes. Regarding existing home transaction services, according to data from Beike Research Institute, GTV of existing home sales market dropped 43% year-over-year in the fourth quarter and GTV of existing home transactions on Beike's platform was RMB354.6 billion, down 39% year-over-year, of which existing home sales declined 41%, slightly better than the overall market. Existing home transaction volumes in some key cities have started to bottom out. We believe the key to successful brokerage business operations is collaboration and focus.

In 2021, we established rules such as agent specialization and agent and store ranking systems, refined our existing home sales leads allocation mechanism, and directed agents and stores to focus on homeowner retention through platform resources deployment. All of which enable us to lead agents to focus and collaborate, strengthen the superior and exclude the inferior.

We are also firmly committed to investing in industry infrastructure. As of the end of last year, we started to operate 298 contract service centers in 30 key cities, and over 90% of the existing home transaction signing processes were completed in these centers. As part of our infrastructure, these centers not only improve customers' signing experiences, ensure funds safety, but will also become one of the best scenarios to direct traffic to our emerging business segments.

Turning to new home transaction services, the new home market declined 20% year-over-year in the fourth quarter and GTV of new home transactions on Beike's platform dropped 24%, slightly underperforming the market, mainly as we cut back our new home transaction business due to the liquidity risks of developers to ensure the long-term health of our business. From short-term perspective, it will take more time for the overall new home market to recover. As risks in the new home market continued to accumulate in the fourth quarter, we have prioritized new home risk management to ensure safe home handovers to buyers and payment collection by service providers.

With the premise, we also hope to help developers through higher sell-through efficiency. The key to improving sell-through is to provide a work environment that gives agents a sense of security with the knowledge that they will receive their commission on time. And their transactions will not be broken by any misconduct such as client information leakage that has prevailed in the industry.

In 2021, we continued to promote new home business conduct improvement plan, establishing infrastructure and comprehensive procedures to prevent, intervene, trace and penalize misbehaviors. We investigated and dealt with over 3,000 incompliant cases throughout the year. Agents were feeling safer doing new home sales business.

We further developed our systems and tools to enhance agents' capabilities. Our Xiaobei training camp also enhanced agents' familiarity with new home projects and their ability to introduce them to customers. 98% of agents in the pilot program used our Xiaobei assistant at night to answer questions on their behalf and picked up the conversation the next day, significantly reducing the loss of customers at night.

Looking forward, regarding our one body, the housing transaction services business, we have a committed goal in mind and a clear path to get there. Our goal is to offer a better customer experience and gather more capable and ethical agents, store managers and brands. And the path leading to this long-term target is simple - taking care of our customers and helping service providers take care of customers, empower agents and raise their professional ethics, improve store quality, and become friends with the communities.

In 2022, the first target for our core business segment is to nurture capable, ethical and dignified service providers and advance their professionalism. Second, we will pay more attention to improving the platform operating efficiency of our home transaction business, we will continue to improve organizational flexibility to quickly respond to any changes and take measures accordingly to either increase or rein in expenses. Third, the strength in our body will facilitate the development of our two wings as we build a highly efficient customer referral model to our new businesses.

Next, moving to our progress and plans for our two wings new businesses development. We define 2021 and 2022 as the years during which our home renovation and furnishing services business group takes root. We believe that consumers' demand for home renovations and furnishings will continue to grow as housing prices stabilize. In this market, helping service providers is the key to enhancing consumers' experience. Standardization and digitalization, along with renovation product upgrades are at the core of improving service providers' capabilities and delivery quality. In developing our renovation and furnishing offering, we started with the hardest part in the home renovation process, delivering a high-quality interior construction finish.

Over the past few years, we've laid the groundwork for this business. This part of our business seemed slow, but once we nail it, it will take off quickly. We've already advanced from zero to one in the home renovation business - we are determined, our team is confident and motivated by the positive feedback from consumers. And we have built a replicable regional model. Shengdu is the most significant piece of the puzzle we have found, which allows us to replicate our model more rapidly at scale to go from 1 to 100.

In 2021, we built up our capabilities to support expansion in a standardized manner at a larger scale. In building our underlying capabilities, we instituted a scientific management approach with respect to scheduling, transaction orders, and cooperation mechanism. We officially rolled out the Home SAAS Version 1 system covering the entire home renovation business with multi-modules that could enable process standardization and enhanced process productivity. For example, its BIM Version 1 system, has become the industry's first product covering design rendering, detailing and modulization into a bill of materials.

Bolstered by our strong capabilities, Beike's self-operated home renovation business Beiwoo has become an industry leader in terms of construction standards and construction cycles as well as process management and control.

In 2021, we delivered our tender offer to Shengdu Home Renovation, China's leading home renovation and furnishing services brand, and the transaction has been approved by the SAMR. As of the end of 2021, Shengdu had more than 110 stores in 31 cities nationwide. We kicked off the preliminary integration between Shengdu and Beike. Shengdu has an absolute leadership position in the industry when it comes to size, organizational management, internal cost control and supply chain management.

Beike has unique capabilities in digitalization, standardization of complex industry processes, and customer acquisition in home renovation and furnishing, not to mention a sizable talent pool of industrial internet professionals. Our combined companies are leveraging our respective advantages to generate substantial synergies and build China's number one home renovation and furnishing brand to empower the entire industry.

Looking forward to 2022, we hope to accelerate the expansion of our home renovation and furnishing business as well as the development our underlying capabilities. With respect to building our capabilities, first, we will improve our ability to provide high-quality services through establish of middle-office capabilities, guarantees and training.

Second, we will focus on improving capabilities of construction delivery from both online and offline. Third, we will establish standardized operations, to construction delivery process, service provider certification and so on. We will also continue to iterate our Home SAAS to Version 2 system, and invest in our talent pool.

Supported by our upgraded underlying capabilities, we will actively expand our home renovation and furnishing business in nine cities where Beike's housing transaction services have core advantages. Our housing transaction services will refer customers to our two wings businesses. In the pilot cities, our home transaction services already contributed 30% of the new businesses' customer leads in the fourth quarter.

We are optimistic we can achieve further breakthroughs in 2022 after integration, fostering remarkable growth for our overall home renovation and furnishing business through the large-scale connection with high-quality service providers, plus customized home furnishing production and sales on the back end.

The second wing in our one body, two wings strategy is inclusive housing services. It carries our affection and devotion to our country and responsibility to society. It mainly covers home rentals, plus a wide range of value-added home services.

The housing supply gap is a prominent problem for new urban residents, young adults and low-income groups who are in the most urgent need of improving their living conditions. The national policy specifically encourages both home purchase and renting. We will deeply participate in this industry in the future, increase high-quality rental housing supply and elevate the quality of the industry through diverse solutions and broad external collaborations, providing real solutions to livelihood problems and improving living environments inclusively.

Our inclusive housing business is divided into three categories - general home rental brokerage services, lite rental property management services, and centralized serviced apartments, plus value-added home services. In 2021, over 2.5 million general home rental transactions were completed on our platform, up 41% year-over-year. In the second half of 2021, we launched a rental commission fee reduction campaign for fresh university graduates in cities such as Beijing and offered our support to more than 1,600 university students in finding their first homes after graduation.

The lite rental property management service managed more than 11,000 units in 2021 on average, up over 51% year-over-year. As to infrastructure, we promoted post-rental housekeeping services by providing a comprehensive variety of convenient home services for tenants and realized penetration of over 80% in the pilot program.

In 2022, we will deepen our exploration of diversified solutions for inclusive living from both the supply side and the user end. We will make efforts in diversified models to add over 100,000 rental units for new urban residents, young people and low income groups. On the consumer side, we plan to provide a comprehensive guarantee system for all types of tenants, this, coupled with diversified home services offer, will provide tenants with a safe and high-quality rental experience.

Lastly, it is a great honor for us to do business in China's housing-related services sector, a fertile ground full of promise. No matter what weather comes our way, we will give back to this land, to our society and people through our inclusive housing initiative and more diverse solutions in the future. We, as an organization, will forever strive to go ahead and stay open.

With that, I would like to turn the call over to our CFO, Xu Tao, for a closer review of our fourth quarter and full year financials.

Tao Xu

Thank you, Stanley. And thank you everyone for joining us. Before discussing more details about our fourth quarter and fiscal year 2021 financial results, I would like to provide a brief overview of the housing market in 2021.

Beginning in the second half of 2020, overall housing prices began to rise sharply, fueled by an economic recovery and overzealous expectations in the capital market. In order to cool the red-hot housing market, the government introduced a variety of policies with unprecedented frequency and intensity, most notably tightened credit measures. These measures precipitated a steep decline in the volume of existing home sales, declining 47% in September compared to June. This in turn negatively impacted the new home market, since approximately 40% of new home transactions rely on funds from existing home sales.

The financial health of many real estate developers worsened, triggering debt defaults from some high-profile, large-scale developers. This brought a significant blow to the debt market, making it even more difficult for many developers to issue new debt to repay old ones. With concern for a rippling debt scenario, many local governments curbed developers' funds withdrawals from escrow accounts, leaving some developers in a serious cash shortage position.

The combined negative consequences of all of these factors were many. Firstly, more developers faced debt default risks in the second half of last year. Secondly, cash-strapped developers stopped payments to both upstream and downstream suppliers. Thirdly, some developers started to liquidate their valuable assets, including Sunac who sold Beike's shares in order to strengthen their cash reserve. Developers also offered hefty discounts to promote quick project sales and clear inventories. Fourthly, land sales slumped as developers stayed on the sidelines.

Facing these headwinds, beginning in Q3 the China housing market froze across the nation. Rapidly deteriorating conditions prompted policymakers to fine-tune some regulations starting in Q4, pledging to promote the healthy development of the housing market and better meet the reasonable demand of home buyers.

Since then, marginal relaxation in credit measures have brought some signs of a thaw. The volume of existing home transactions has picked up slightly, while new home transactions are still pending developer's short-term liquidity status. We expect the market sentiment will gradually recover in the first half of 2022. Although the market recovery was still nascent and fragmented in Q4 with muted overall transaction volume, we were able to utilize the opportunity to optimize our execution, and lay the ground work to be better positioned for further market recovery, as was reflected in our operational and financial results in Q4.

Turning to our financial details in Q4. Our net revenues were RMB17.8 billion in Q4, compared to 22.7 billion in the same period of 2020, exceeding both the high-end of our guidance and street consensus. The decrease was primarily attributable to the decline in total GTV of 34.6% to RMB732.4 billion in Q4 from RMB1,120.0 billion in the same period of 2020 due to the market downturn.

In particular, our net revenues from existing home transaction services were RMB6 billion in Q4, compared to RMB9.2 billion in the same period of 2020, primarily due to a 39.4% decrease in GTV of existing home transactions to RMB354.6 billion in Q4 from RMB584.7 billion in the same period of 2020.

Our net revenues from new home transaction services decreased by 12.2% to RMB11.3 billion in Q4 from RMB12.9 billion in the same period of 2020, primarily due to a 24% decrease in GTV of new home transactions to RMB356.8 billion in Q4 from RMB469.2 billion in the same period of 2020, which was partially offset by a moderate increase of new home transactions commission rate.

Our net revenues from emerging and other services were RMB0.5 billion in Q4, compared to RMB0.6 billion in the same period of 2020, primarily attributable to the decrease of net revenues from financial services.

Cost of revenues was RMB14.9 billion in Q4, compared to RMB17.2 billion in the same period of 2020. Gross profit was RMB2.9 billion in Q4, compared to RMB5.4 billion in the same period of 2020. Gross margin was 16.4% in Q4, compared to 23.9% in the same period of 2020.

The decrease in gross margin was mainly due to one, a continuing shift of revenue mix towards new home transaction services with lower contribution margin two, a lower contribution margin of existing home transactions led by a relatively higher percentage of fixed compensation costs for Lianjia agents, and three, a relatively higher percentage of costs related to store of net revenues in the fourth quarter of 2021 as a result of the incremental rise in rental fees of contract service centers opened in 2021 and the increased depreciation and amortization costs.

Operating expenses were RMB4.1 billion in Q4, compared to RMB4.2 billion in the same period of 2020. General and administrative expenses were RMB2,202 million in Q4, compared to RMB1,884 million in the same period of 2020, mainly due to the increase of provision for credit losses.

Sales and marketing expenses were RMB809 million in Q4, compared to RMB1,323 million in the same period of 2020, mainly due to the decrease of the brand advertising and promotional marketing activities. Research and development expenses were RMB738 million in Q4, compared to RMB714 million in the same period of 2020, mainly due to the increase of headcount in experienced R&D personnel, which was partially offset by the decrease of share-based compensation expenses.

Loss from operations was RMB1,184 million in Q4, compared to income from operations of RMB1,267 million in the same period of 2020. Operating margin was negative 6.7% in Q4, compared to 5.6% in the same period of 2020, primarily due to one, a relatively lower gross profit margin in the fourth quarter of 2021 compared to the same period of 2020. And two, an increase of the percentage of total operating expenses as of net revenues in the fourth quarter of 2021, primarily due to decreased net revenues along with the relatively flat operating expenses in the fourth quarter of 2021, compared to the same period of 2020.

Excluding non-GAAP items, our adjusted loss from operations was RMB398 million in Q4, compared to adjusted income from operations of RMB2,231 million in the same period of 2020. Adjusted operating margin was negative 2.2% in Q4, compared to 9.8% in the same period of 2020. Adjusted EBITDA was RMB484 million in Q4, compared to RMB2,897 million in the same period of 2020.

Net loss was RMB933 million in Q4, compared to net income of RMB1,096 million in the same period of 2020. Excluding non-GAAP items, adjusted net income was RMB42 million in Q4, compared to RMB2,001 million in the same period of 2020. Net loss attributable to KE Holdings Inc.'s ordinary shareholders was RMB930 million in Q4, compared to net income attributable to KE Holdings Inc.'s ordinary shareholders of RMB1,095 million in the same period of 2020.

Adjusted net income attributable to KE Holdings Inc. was RM45 million in Q4, compared to RMB2,000 million in the same period of 2020.

For the fourth quarter of 2020, diluted net loss per ADS attributable to KE Holdings Inc.'s ordinary shareholders was RMB0.78, compared to diluted net income per ADS attributable to KE Holdings Inc.'s ordinary shareholders of RMB0.93 in the same period of 2020. Adjusted diluted net income per ADS attributable to KE Holdings Inc.'s ordinary shareholders was RMB0.04, compared to RMB1.71 in the same period of 2020.

Even during the market downturn, we were still able to remain a strong cash position and gained positive cash flow generated from operating activities in Q4. As of December 31, 2021, the combined balance of the company's cash, cash equivalents, restricted cash and short-term investments amounted to RMB56.1 billion, or $8.8 billion. Additionally, as of December 31, 2021, the balance of our long-term cash items mainly including long-term investments amounted to RMB14.9 billion, or $2.3 billion.

Turning to our financial details in fiscal year 2021. Although we experienced a sharp market downturn in the second half of last year that significantly impacted our operating and financial results, we still achieved a resilient year-over-year growth of our top-line in 2021.

For the fiscal year of 2021, our net revenues increased by 14.6% to RMB80.8 billion from RMB70.5 billion in 2020, primarily attributable to a 10.1% year-over-year increase of our total GTV to RMB3,853.5 billion in 2021 from RMB3,499.1 billion in 2020.

Our gross profit decreased by 6.2% to RMB15.8 billion in 2021 from RMB16.9 billion in 2020. Our gross margin was 19.6% in 2021, compared to 23.9% in 2020. The decrease in gross margin was mainly due to, one, a continuing shift in revenue mix towards new home transaction services with lower contribution margin, two, a lower contribution margin of existing home transactions as a result of the higher percentage of the fixed compensation costs for Lianjia agents and the compensation costs for transaction support staff.

And three, a lower contribution margin of new home transactions led by the increased proportion of new home transactions completed by connected agents and other sales channels, and incremental rise in fixed compensation costs for expansion of dedicated sales teams with the expertise on new home transaction services in 2021.

Our loss from operations was RMB1.4 billion in 2021, compared to income from operations of RMB2.8 billion in 2020. Operating margin was negative 1.7% in 2021, compared to 4.0% in 2020, primarily due to, one, a relatively lower gross profit margin in 2021 compared to 2020, and two, an increase of the percentage of total operating expenses as of net revenues in 2021, primarily due to the increase of staff-related expenses, provision for credit losses, and impairment of goodwill incurred in 2021 compared to 2020.

Excluding non-GAAP items, our adjusted income from operations was RMB1.4 billion in 2021, compared to RMB5.9 billion in 2020.

Our net loss was RMB525 million in 2021, compared to net income of RMB2,778 million in 2020. Excluding non-GAAP items, our adjusted net income was RMB2,294 million in 2021, compared to RMB5,720 million in 2020.

In mid-December we were attacked and forced to defend ourselves against groundless allegations levied in a published short-seller report toward our company. Upon receipt of the report, the audit committee quickly launched an internal review process, with the assistance of third-party professional advisors including an international law firm and forensic accounting experts from a Big-Four accounting firm that is not the company's auditor.

In late January, before the Chinese New Year, we announced the substantial completion of internal review which were conclusive in its findings that the allegations were not substantiated. It clearly showed evidence of our high standards and effort in data integrity, corporate governance, and internal control. We sincerely appreciate the trust and support we received from our investors during this period and want to take this opportunity to publicly reiterate our commitment to maintaining those high standards, transparency, and timely disclosure in compliance with applicable rules.

To sum up, as Stanley noted, 2021 was undoubtedly a challenging year for us. Yet, despite its formidable challenges we made further solid progress in fulfilling our commitment to support our service providers and bringing admirable services and joyful living to our customers. One body, two wings will guide our strategic expansion into housing related complementary services in 2022 and bring meaningful financial impact in fiscal year of 2022 and beyond.

I will now speak about our near-term focus and plans. Firstly, for our housing transaction services, we will focus on profitability and cash generation capabilities by further honing efficiencies in our management and operating initiatives, along with continuing to invest into the industry's infrastructure and our agent training. The steps we took in Q4 to better optimize our organization have made us more flexible in embarking on our new one body, two wings strategy and will further drive our operating leverage.

We will also continue to focus on prudent cash management and AR risk control considering on-going uncertainties from developers' operations in the first half of this year. Benefited from our effective management of receivables, our DSO for new home transaction services further reduced to 97 days in 2021 from 103 days in 2020. According to our Beike Research Institute, overall market GTV of both existing home and new home transaction is expected to trend down year-over-year in 2022. As a result, we except our GTV of housing transaction services will observe a similar trend.

Secondly, for our two wings home renovation and furnishing services and inclusive housing services. While we are dreaming big, we will move forward with careful steps. In developing both strategic businesses further investment will be required and this will have an impact the overall group's profitability in 2022. We firmly believe these investments will yield long-term economic benefits and position us well to capture burgeoning new demand in complementary sectors.

Turning now guidance for the first quarter of 2022. As stated in our Q3 earnings call, we foresee the market will likely hit bottom in Q1 of 2022 and will gradually, with time, gain traction in its recovery from this point. Considering the housing transaction market is still at the early stage of recovery, and adding the high base effect of the same period in 2021, we expect the overall market GTV of existing home sales to fall about 50% year-over-year in Q1, and the overall market GTV of new home transactions to decrease over 40% year-over-year in Q1, according to Beike Research Institute.

Based on all above considerations, looking forward to the first quarter of 2022, we expect total net revenues to be between RMB11.5 billion and RMB12.5 billion, representing a decrease of approximately 39.6% to 44.4% from the same quarter of 2021. This forecast considers the potential impact of the recent real estate related policies and measures and the company's current and preliminary view on the business situation and market condition, which is subject to change.

All in all, as we move forward through 2022, the toughest winter is gradually fading away, the era for better living is coming into focus, with tremendous opportunities around “living” at all fronts. In the depths of winter, we proved again that within us there's an invincible summer.

As we continue to pursue our mission and capture adjacent opportunities, we will stay resilient, strengthen vertical capabilities, and mostly importantly, keep an open mind. Our decades of experience with housing transaction and services has prepared us well to level up the playfield for the vast and expanding industry of better living. We will continue to help service providers develop and operate with professional ethics and expertise and win respect through their high-quality service.

We firmly believe our continued effort to bring our customers the service and experience, and our proven track record of overcoming difficulties will eventually lead us to a better tomorrow.

That concludes our prepared remarks. We would like now to open the call to your questions. Operator, please go ahead.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Piyush Mubayi from Goldman Sachs. Please go ahead.

Piyush Mubayi

Hi, Stanley, Xu Tao. Thank you for taking my question. And congratulations on the unveiling of the one body two wing strategy. My first question is about the following the decline that we've seen in GTV in fourth quarter and the guidance you've given for the first quarter. Could you take us through how the market conditions have been since?

And if I can flip in a second question with the recent policy loosening, how should we set or reset expectations for housing recovery trends in 2022? And if you could take us through that, through that period quarter by quarter, both in terms of price and volume. That would be great. Thank you again.

Tao Xu

Thank you, Piyush. This is Xu Tao. Regarding first question, how is the market condition since 4Q last year. I would like to say since the first quarter, the Chinese government has signaling stabilization both macro market and the housing policies aiming to rectify the previous or tighten the policy on the theme of housing for living not for speculation.

The improving credit environment also have a lot of pent up demand. But the policy implementation level responsible partly made to the central government .policies For administrative measures over certain cities introduces the party policies, focusing on the less restriction on the mortgage, home buying and sells as well as developers' pre-sale proceeds.

For credit an environment, that is a key factor for the housing market and has been improving recently with a significant battement the mortgage rates and the approval process. As of January 2022, the first home and the second home interest rate fell by 0.16% and 0.18%, versus the peak season of last September respectively. The mortgage orientation cycle shortened to 50 days in 103 days in January 2022, this is also normalize level similar to March 2021. And the 23 days less than the peak season in last-October.

The improving credit environment at the consumer side directly contributes market recovery or impacts for the both agent and the home owners' expectation and the sentiment bottomed out since November last year. For existing home sells, the improving credit environment interacts with liquidity to facilitate recovery. According to Beike Research Institute, the China existing home market in Q4 last year shrank around 43% year-over-year and 21% quarter-over-quarter, and the Beike's existing home transaction GTV dropped by 39% year-over-year among wage the existing home sells GTV dropped by 41% year-over-year and 4% quarter-over-quarter.

Marketing wise driven by the improving product environment, the existing home transaction that are interdependent were fulfilled and the performance in certain upper tier cities bottomed out. Monthly transaction volume in 20 out of 32 cities in [Indiscernible] for Beike saw sequential drops for three consecutive months. So quarter-over-quarter decrease in Q4 versus Q3 was mainly due to the high base in last in August.

Existing home transaction on Beike platform also bottomed out in last Q4, witnessed by the month-over-month GTV growth of 11%, 7% and the 19% respectively. For October November and December. The for new home sells, China new home sales market GTV dropped 20% year-over-year, but the post-9% growth quarter-over-quarter. So new home sells GTV on Beike dropped 24% year-over-year and 13% quarter-over-quarter. The broader new home sales market that despite a slight rebound in Q4, the 9% quarter-over-quarter growth much slower versus average 18% growth in the fourth quarter in past five years.

Lower tier cities performance weaker and appear towards the policy easing it will still take time for the home buyers to restore their confidence with respect to shorten downside pressure to continue in new home market with divergent performance across different cities. And for Beike, new home sells in Q4 and we continue to prioritize the stability and opt for prudent strategy for new home sales with a focus on the strengthening risk management mechanism, reducing the receivable collection risk and seeking incremental opportunities.

We proactively suspends cooperation with high risk projects, adopt for consulting run-rate recognition [ph] policy at the timely prudently with provision for potential accounts receivable risks.

Regarding your second question for the specification of housing recovery trends this year by quarter and also the volume and the price with the recent policy loosening. Looking ahead to 2022, there are three things we are very sure. The first is the rectification of overtightened the policy. The second one is a strong consumer demand and the right demand for the job or living. The third thing, while the market transactions - while return to the steady volume.

Based on these views, overall market degree of home transaction is likely to decrease around 6% to 14% year-over-year, of which existing home down by low-teens year-over-year and the new homes down by 5% to 10% year over year. That side, we expect the decline in transaction volume to narrow down from 2Q onwards as the market should see a positive year-over-year growth in the second half.

At a macro level, Chinese government has reiterated its emphasis on the stabilized growth for the macro economy in 2022. The Chinese government is calling for proactively introducing a policy pass through to the economy stability and cautiously income pertaining to policy with the tighten side effects.

Such a goal of stabilize growth that necessitate the role of the housing as a pillar industry Beike Research Institute we recently foresee a neutral to accommodative monetary policy stance to continue with one RR cuts and two rate cuts this year. And in 2022, estimates the housing related investment to remain flat versus 2021 and pending opinions of stable performance across housing sells and the entire industry value chains throughout the year.

We also estimated that this year, we will see a steady recovery of the housing market driven by credit environment and administrative tailwinds.

On the pricing, side, an estimate by the Beike Research Institute further mortgage interest rate cards and credit supply well paced market demand, that will lead to a higher gross mortgage supply versus the year of 2021, which will provide to unlock the [indiscernible] and upgrade demand as a catalyst for the housing consumptions.

On the administrative measures, we are expecting the more local government to relax the demand side measures into the new two, such as easier criteria for the first home recognition for your home purchase and sales restrictions. Demand for the housing remains massive and it will requires time to manage it.

Based on our estimation on accommodative policy environment and a secular, stable demand growth trajectory weighted by the backloaded process of gradual market recovery in 2022. In general 2022 new homes or Smart GTV is estimated to around RMB15 trillion, down around 5% to 10% year-over-year factoring around 10% year-over-year decline in the gross floor area according to Beike Research Institute.

Existing sales market GTV is estimated to around RMB6 trillion to RMB7 trillion, down by low-teens year-over-year, factoring into low-teens year-over-year declines gross floor area. On combined basis of existing or new home market, the total market GTV is estimated at RMB20 trillion to RMB22 trillion, down around 6% to 14% year-over-year.

Regarding the quarter. Q1 should see a sequential decline bolstering existing and new home sells market GTV versus 4Q 2021 due to the seasonality like the Chinese New Year and the impact of the COVID-19. And reach the top in this cycle as we speak during the Q2 earnings calls. We recently foresee, a year over year decline of the 50% for the existing home sales market GTV and the more than 40% decline for the new home market, particularly in Q1, way despite that existing home transaction to stabilize post Chinese New Year, leading to a gradual recovery, bolstering the existing home sells and new home sales in Q2 with a significant and narrow year-over-year decline versus Q1.

Starting from Q3, according to Beike Research Institute, we expect the year-over-year GTV growth for both existing and new home sales to turn positive. And in the second half of 2020 we expect existing and new home sales market GTV to achieve overall 25% and 15% year-over-year rebound respectively. Thank you.

Operator

Thank you for the questions. Next questions from the line of Ashley Xu of Credit Suisse. Please go ahead.

Ashley Xu

Thank you, management for taking my question. Since you have just discussed the market outlook. You also go through Baker's business outlook for year '22. And also would you give us some color on the company's strategy and investment this year in both core business and the two wings? Thank you.

Tao Xu

Thank you, Ashley. And I answer Beike's business outlook in 2022 and I will invite our chairman Stanley to answer the follow up question of our new strategy one body two wings.

Based on our outlook I just answered to Piyush, we will deploy our effort on as a one body two wing strategy on GTV and agents store sides. We recently foresees Beike existing home transaction GTV will be able to outperform the broader market in your recovery cycle.

For new homes segments, we will closely monitor developer rates in the first half of 2020, focused on the transaction safety and major accounts receivable ratings. Our new home sales performance is expected to be in-line with market. On agents' store size we foresee a troughing or bottom out in Q1 2022 for platform stores, as well as agent count. Compared to Q1 2022 we expect number of active store and agent on our platform to grow by the low-single digit when approaching year of 2022.

For monetization and profitability, we will lay more emphasis on our operational efficiency on our platform. And the connected store revived by stable monetization rates and the platform take rates for our core business, including existing and new home transaction services. We will continue our strict cost control starting from 4Q, 2021. With this measures to contribution margin is also expected to increase both for existing and the new home sells.

And this year marks the new chapter for our new business development, our home renovation and furnishing, Beike will draw upon this customer acquisition advantage, and the leverage construction delivery and execution capability of Beiwoo, Shangdu to expand especially in 90 cities. Shangdu is by to be consulted in our financial statement and generated if current revenue contribution upon the completion in the second half of this year.

Our inclusive housing service business is in a roadmap phase. So in a longer horizon, the two wings business will effectively mitigate and offset the in house market downturns in our core business and the core - and capture additional revenues from stable environments.

And I would like to invite our Chairman Stanley to give some color on our strategy one body two wings.

Stanley Peng

Yeah. This is Stanley. Let me quickly address your question in terms of the one body two wing strategy. I think in terms of one body and two wings strategy, they're actually related to a couple of questions. First question is why we actually has been announced and launching the one body and two wings strategy at the current stage.

I think the fundamental reason behind that is we actually monitor the two of the fundamental changes from the market as well as the society. Firstly, is in terms of the consumers attitude is and their value actually has been significant change from buying the house to living better, right. So that's actually bring up very good opportunities to bring the changes.

And the second change is coming from the unit valuation, as well as the proposition for all the enterprise. I think now more and more of the enterprise actually has been value, both of the commercial value as well as social value at the same stage. So we do believe followed by those two of the changes is the right time to launch of our new strategies.

And the second question relates to one body and two wings, is how we can execute that right? I think there are a couple of strengths I want to address there. The firstly is our mission of the company, which is admirable services, and service provider with the dignities. Then bring the joyful leavings.

So within our industry, we do rather than the agents, we do notice for other service providers, such as foremen, workers, as well as the other the housing services related or the home services related, there are all the different types of service providers, which is eager to improve their professionalism, as well as bring the better services to the customers.

And secondly, is we actually have the capability to do that. In the past two decades, we actually has been accumulated a lot of different capabilities in terms of standardization in terms of the online and offline execution as well as other part. So that actually gave us more confidence to do those parts of business.

And the third thing is we have the willingness to do those kinds of business. So that's the first two questions I want to address related to one body and two wings strategy.

In terms of one body and two wings strategy, there are a couple of the most important factors, which is we have been mentioned many times before, including the scalability, quality as well as the efficiency. But when we develop a business, no doubt, we cannot promote all the three parts simultaneously. So at every stage, we have a focus.

In terms of one body business, which will be at current stage, which should continually improve by improve the service quality to further improve the efficiency. We will continue to find out more the different, the excellent of the service providers in the one body business. For example, like the good brands, who stock good developers, as well as the other parts.

And meanwhile, we also will make a balance between the investment as well as efficiency, like our [Indiscernible] as we mentioned before. So we will further improve our cash use efficiency in order to bring the further change into our one body business.

On the other hand, in terms of the tooling business, we do believe the current focus will be using the further service quality improvement to bring the better scalability. So, for example, in terms of our home decoration and furnishing business, I think for that part of industry, there still has a question is whether one company can bring over RMB10 billion revenue per year. So far, we didn't see that. But hopefully, after we cover it with Shangdu together. And we can bring more breakthrough in terms of the business model into the home decoration renovation furnishing business.

And I think this year will continue to promote what we call the 5-1 [ph] strategy, which means what organization what standard one process and once each and most important thing is one goal, right. So in order to further bring the better scalability business for the home decoration of furnishing.

And the meanwhile, on the other beings, which is called the inclusive housing services, we do believe we should continue to united the different types of the supply in the society, including the life model as well as others, the supplies in the society, more tailor made to the young generation or even to the blue collar of the workers or et cetera. So by consolidating all those kind of the high quality of the supplier of the industry, we do believe we can using our capability to further empower them in the different parts such as talent, infrastructure, in order to bring a better balance between a company's commercial value as well as a social value.

Thank you. So that's my answer to your question. Back to you, operator.

Operator

Thank you. Next question comes from Thomas Chong of Jefferies. Please go ahead.

Thomas Chong

Thanks management about taking my questions. My question is about the decline in terms of this store numbers. Can management comments about the reason behind?

And my second question is about the AR, accounts receivable in Q1. Can management comments about the bad debt situation? Thank you.

Tao Xu

Okay, thank you, Thomas. This is Xu Tao. First question regarding the decline for the stores in the first quarter. The number of broker store on Beike platform reduce proximately 2,900 sequentially in Q4, down around 5.4% quarter-over-quarter. Around 400 connected stores disconnected from the platform in Q4, and increase so for 400 versus Q3, while approximately 1,200 connected store newly joined the platform in Q4 and 2,300 less than Q3. Therefore, the decreasing the total number of stores on the platform is mainly driven by the slowdown of the newly connected stores in Q4.

At market caused the platform to slow down the pace of connecting new store to focus on improving the operational efficiency. At the same time, the number of stores meeting our selection criteria, but not yet connected has been declined during the market downturn as well.

For disconnected stores, the quarterly numbers increase by 400 quarter-over-quarter of which 310 stores disconnected due to the store merger and to enhancing competitiveness during a market downturn. In addition, the disconnection due to the violation as of the total disconnected store was only 7%, - versus 7% lower than that in Q1, 2021, show increase our effective governance of the platform ecosystem surrounds the year.

In Q1 as a marking form often during the Chinese New Year, the common practice such as merging and the shutting down store are likely to occur. And some store may also choose not to renew their leases when expiring around the year-end or before Chinese New Year, resulting a further declines in the number of store our platform. However, the number of stores on the platform in expected to increase gradually after market stabilized in Q2.

Regarding the second question for the bad debt and whether we have any risk for the collection. I would like to say the first, number talks. Sorry, no materials for Beike's new home business. If you look at our just earnings release of DSO reduced from 103 days in 2020 to 97 days in 2021. And also in 2021, the total commission revenue from new home sales was RMB46.5 billion, while our collection was RMB51.7 billion in this year.

Our company has approximately RMB11.5 billion of accounts receivable for Q4, including approximately $11 billion for the new home construction services. Whereas the cash collection for the new home construction services was approximately RMB12.6 billion in Q4. The better provision for accounts receivable and other receivable in Q4 totaled RMB620 million, representing quarter-over-quarter increase of RMB250 million.

Beike's strategically increase the better provision in Q4 due to several reasons. First, on one hand, due to the continuous downturn of the new home market, developers and liquidity rates increases significantly. Therefore, the increase in the scope and the percentage of better provision reflect Baker's Principle in adopting of most prudent and strict accounting treatment, I mean exacerbating market risks.

The second is the classification of more [Indiscernible], higher rates, and the increase of better provision will encourage our frontline teams to explore more business opportunities from the low risk projects and reduce the proportion of the high risk project in the future. Although there are still some developers under the liquidity pressures still repeat that.

We have recently see a series of policy easing for developers, such as acquisition loans no longer accounting towards the [Indiscernible], relaxation of the control over pre-sales proceeds. That has believed that this measures marginally is the developer liquidity risk, but it will take time for the policy to be fully effective. The rebound of sales and subsequent recycling of cash will ultimately solve the challenges developer face at this moment, while improving the sells through exactly where Beike stress last.

For our internal risk control, continuing initiative we have been taking over the past to improve our dynamic risk control module for monitoring the real estate developers and their new home projects. Through advances assessment based on our risk rating mechanism, we will a wide cooperation on the high risk projects, and seeds of cooperation after risks I suppose and the focus on the repayments.

All in all, I would like to say the Beike's better provision for the new home transaction services was proactive class made by verse based on our prudent accounting policy. We do not believe Beike's new homes business will face mature risk because of Beike enjoy the high degree of independence in its new home business.

Since our business are now too reliant on relationship, but on our extensive network of sales and channels, high quality of service recognition by our customers and our reputation, we closely monitor risk and implement countermeasures, as soon as we pursue them. We believe the industry will be in a better shape in the future, despite the short term pain. Thank you.

Operator

Thank you for all the questions. We're now approaching the end of the conference call. I'll now turn the call over to your speaker host today, Mr. Matthew Zhao for closing remarks.

Matthew Zhao

Thank you, operator. Thank you once again for all of you joining us today. If you have any further questions, please feel free to contact Beike'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. Take care. Thank you and goodbye.