Executive summary
Industry: Despite fluctuations in real estate policies, the overall market size of the three major residential businesses (stock, new housing transactions, and housing leasing) is still steadily growing, and the penetration rate of real estate brokerage services is also continuing to rise
Competition: China's largest online and offline integrated housing transaction and service platform, with significant competitive advantages. In 2021, Beike's transaction volume in the residential field (second-hand + first-hand) reached 3.85 trillion yuan, with a market share of 9.7%, ranking first, exceeding the sum of the second and fifth places combined
Based on overseas experience, Beike has integrated the three elements of housing, customers, and agents in China, with very prominent competitive barriers
Management and company culture: doing "difficult but right things" for a long time, promoting the development of the entire Chinese real estate brokerage market, establishing a real estate dictionary to ensure "genuine housing resources".
Risk Warning: Real estate recovery falls short of expectations, etc
Company overview
Beike is the largest online and offline integrated housing transaction and service platform in China. Main Business is divided into four parts: existing housing business, new housing business, home decoration and furniture business, emerging business and others. The revenue volume in 2022 was 60.70 billion yuan, of which existing housing transactions accounted for 40%, new housing transactions accounted for 47%, housing renovation and decoration accounted for 8%, and other emerging businesses accounted for 5%.
As of Q1 2023, Beike has a total of 41,257 stores and 434,000 brokers. In 2022, the company's new and second-hand business achieved a total GTV of 2.52 trillion yuan, far higher than the second-tier level in the industry. Among them, the new GTV is 940.40 billion yuan, with a market share of about 8.1%, and the second-hand GTV is 1.58 trillion yuan, with a market share of about 33%. In 2022, the market share fell to 24% due to industry decline.
The development process is mainly divided into four parts.
In terms of revenue growth rate, due to the suppression of negative beta in the industry, revenue in 2022 decreased by 25% YoY. Except for the high growth of home decoration businesses (the high-speed growth of home decoration and home furnishing businesses is mainly due to the acquisition of Shengdu Home Decoration), both new and existing housing businesses have declined significantly.
In 22 years, China's stock housing market 7.30 trillion, and new housing sales 11.70 trillion, both of which fell sharply year-on-year. However, other housing-related service markets rose to 14.90 trillion yuan year-on-year. Under the strategy of reducing costs and increasing efficiency, Beike's market share in both stock and new housing transactions has declined slightly.
The revenue creation model of existing housing businesses mainly includes 1) transaction commissions for second-hand housing transactions and rentals under the self-operated Lianjia brand, as well as the share of Lianjia and other brand intermediaries in Beike cooperation and matching transactions; 2) commission fees for transactions on the Beike platform, as well as franchise fees for other franchise brands; 3) other value-added services, such as transfer fees, on-site verification fees, recruitment fees, etc.
In terms of new houses, income includes fees charged to developers. Beike gives commissions to intermediary companies and agents, which are directly reflected in the report as the overall GTV and a commission rate.
Industry scale
The market size of the three major residential businesses (stock, new housing transactions, and housing leasing) is still steadily growing. It rose from 9.90 trillion yuan in 2016 to 16.30 trillion yuan in 2021, with a compound annual growth rate (CAGR) of 10.5%; it is expected to reach 17.30 trillion yuan in 2026, with a CAGR of 1.2%. Despite the pressure on the real estate industry in the short term, the industry is expected to continue to grow slowly in the long term.
The penetration rate of brokerage services in China has increased from 43% in 2016 to 50% in 2021 and is expected to reach 62% in 2026. While the GTV of existing housing transactions through brokerage business in China is greater than that of new housing transactions, the GTV penetration rate of new housing transactions has significantly increased.
In terms of long-term market size, according to the forecast of the Shell Research Institute,
It is expected that the average annual GMV from 2021 to 2035 will be about 24 trillion yuan, and the total GMV will reach 29.20 trillion yuan in 2035, with an average annual growth rate of 1.8% in 2015. Among them, it is expected that there will be an annual demand release of 201-24.70 billion square meters, and an annual average of 1.48 billion square meters in a neutral scenario. It is expected that the total housing demand will drop to 1.33 billion square meters by 2035, with an average annual growth rate of 2.5% in 2015.
In terms of the split between the stock market and the new housing market, the average annual GMV of the new housing market under neutral circumstances is 15.10 trillion yuan. The average annual GMV of the second-hand housing market is 9.10 trillion yuan, and it is expected to approach 14 trillion yuan by 2035, accounting for 47% of the total GMV.
Revenue driver
Shell platform business revenue can be summarized as follows: transaction volume * single transaction amount * penetration rate * market share * commission rate.
Stock housing business:
Under the policy of "housing is for living, not for speculation", China's housing market has entered the era of living and rigid demand. The dividend of existing houses will be greater than that of new houses. It is expected that the growth of commission income in the later period of Beike will mainly be driven by the business of existing houses.
The penetration rate of existing houses has approached 90%, with limited growth. It is expected that long-term income growth will be driven by market share expansion. According to the shell income formula, its income = (transaction amount of existing houses + rental amount of houses) * penetration rate * market share * commission rate. In the transaction of existing houses, under the background of rigid demand from brokers, it is expected that the penetration rate of brokerage business will reach more than 90% in 2026, and the future income is expected to be considerable.
Beike maintains its leading market share in high-energy cities, while the market share of medium and low-energy cities needs to be strengthened According to Beike's prospectus, Lianjia maintains an absolute advantage in market penetration rate in Beijing and Shanghai. For medium and low-energy cities, local brokerage brands have more operational advantages, such as Hefei Delian Baoye, Wuhan Century Hongtu, Hangzhou Wo Wo Wo Wo Jia, etc. After Beike's national layout is further improved, and Beike's ACN platform strategy and joint offline Deyou cooperation franchise model are rolled out in medium and low-energy cities, we believe that Lianjia's market share has greater growth space and amplitude in medium and low-energy cities.
The contribution rate of non-Lianjia platforms to Beike GTV is gradually increasing and becoming the main force . Lianjia's contribution to Beike GTV decreased from 52.1% in 2020 to 47.5% in 2022, while non-Lianjia's contribution increased to 52.5% during the same period. Based on the superiority of ACN, non-Lianjia brands can join offline through Deyou or online through Beike; under the consensus of expanding customer sources and exposure, we expect more brokerage brand merchants to settle in Beike, both online and offline; Beike will further seize market share and obtain expected commission and non-commission income.
New housing business
There is great room for growth in the penetration rate of new housing business, and future growth mainly depends on the penetration rate. Currently, it is expected that the penetration rate of brokers in China's new housing transactions will be less than 40%, and the penetration rate in 2026 will only reach 45%, which is significantly lower than the expected penetration rate of 90.5% for existing houses, and there is obvious growth space. Based on the deep development of urbanization and the high and scarce land area in the city center, most real estate developers tend to choose locations in the suburbs or new development areas, and the customer visit rate is naturally low. For future customer acquisition needs, the position of brokers in new housing transactions will become increasingly important, and we expect the penetration rate to continue to rise.
The market share of new housing business is expected to grow slowly. Compared with the market share of existing housing, the market share of Beike's new housing GTV is less than 10%. In recent years, due to market factors, the GTV of Beike's new housing business has declined. However, due to the channel advantage of the Beike platform, we expect the market share to slowly increase in the future.
The commission income from new houses has not changed its long-term growth trend. Affected by short-term market fluctuations, the commission income from Beike's new house business in 2022 decreased by 38% year-on-year to 28.70 billion yuan. Considering the later relaxation of policies such as "guaranteeing the delivery of buildings" and the recovery of prosperity, it is expected that the commission income from Beike's new house business will continue to rise in previous years.
Beike has strong bargaining power, and the commission rate for new house business is steadily increasing. In 2020, the commission rate for new houses (Beike's commission income/Beike's new house GTV) was 2.75%, and in 2022, it exceeded 3%, reaching 3.05%, reflecting Beike's bargaining power as a strong intermediary. As the main broker for new house business transactions, Beike has better channel and platform advantages than its competitors, and its bargaining power is higher than the industry average. However, the real estate industry, as the basic guarantee for people's living and working conditions, is greatly affected by the national macro-control. We expect that the commission rate will have little room for future growth, and the focus will be on maintaining the rate advantage.
Home decoration business
The scale of the home decoration industry is large, and Beike is expected to expand accordingly. According to Beike Research Institute, the neutral value of China's home decoration market in 2022 is 3.69 trillion yuan, with an expected annual growth rate of over 7%, and the scale will reach 7.06 trillion yuan in 2030. In the same year, the unit price of housing decoration in China is 1040 yuan/square meter, and it is expected to rise to 1536.55 yuan/square meter in 2030. Combined with the 10-15 year usage cycle of housing decoration, it is expected that the demand for second-hand housing decoration will continue to emerge, and the linkage between second-hand housing, new housing transactions, and the home decoration industry will continue to increase.
Currently, the CR5 of the home decoration industry is less than 5%. For platforms like Beike, which have significant integrated advantages in real estate brokerage transactions, there is a great opportunity.
Competition moat
The core competitiveness of Beike lies in the infrastructure based on Agent Cooperate Network (ACN) and the "real estate dictionary" that records real estate listings. Before Beike launched ACN and "real estate dictionary", there were many pain points in the domestic residential industry, such as information islands, group competition, and malicious price gouging. Brokers could not survive independently in the chaos. Beike creatively launched ACN and "real estate dictionary" to standardize information sharing and real estate listings.
ACN has a significant effect on the listing and transaction conversion of existing houses. According to the prospectus and financial report of Beike, more than 75% of the existing house transactions completed through Beike and its platforms in 2021 and 2022 have been incubated by ACN, and more than 86% of its listing information has been released through ACN's cross-brand release. The "real estate dictionary" helps Beike's real estate proportion exceed the industry average. As of 2022, Beike's platform's "real estate dictionary" has included 2.67 trillion sets of real housing, with a real housing proportion of 95%, far exceeding the industry average. At the same time, the "real estate dictionary" has covered more than 300 cities across the country, 500,000 communities, including 4.36 million building information and 9.33 million unit information, and more than 200 cooperative brokerage brands.
Domestic
The real estate brokerage industry is scattered, showing a trend of one superpower and multiple strengths, with Beike leading the market share. In 2021, the top five companies in China's residential industry accounted for a total market share of 14.6%. According to the prospectus, Beike is the largest real estate trading platform, with leading GTV and revenue. Calculated by transaction scale, in 2021, Beike's transaction volume in the residential field (second-hand + first-hand) reached 3.85 trillion yuan, with a market share of 9.7%, ranking first. Zhongyuan Group, Hefu Brilliant, Wo Ai Wo Jia, and E-Ju Group have market shares of 1.4%, 1.3%, 1.1%, and 1.1% respectively.
In addition, within the residential industry, Beike's GTV and brokerage active level have formed barriers, far exceeding competitors in terms of revenue, number of stores, and number of brokers. In 2021, Beike's GTV in the residential field exceeded 3.80 trillion yuan, and the number of active brokerage stores and active brokers were greater than 45,000 and 406,000 people respectively, far exceeding competitors.
Beike has significant advantages in both transaction commissions and information integration, covering the entire field of online and offline, new and second-hand housing
Overseas leader review
The following section mainly analyzes the real estate brokerage market in the US
The real estate brokerage market in the US is different from that in China. Its characteristics are as follows: 1) The US mainly sells existing houses, with second-hand existing houses accounting for about 90%, while China accounts for about 33%; 2) House sales are mainly single-family houses, accounting for about 82%; 3) The MLS system (full name Multiple Listing Service System or Housing Information Sharing System) is adopted. MLS is a place where agents with their membership status publish real housing listings. According to NAR statistics, 90% of home sellers have uploaded their listings to MLS.
The US real estate brokerage market is relatively scattered. According to REALTRENDS Statistical Data, the market share of the US TOP1-10 in 2019 was 25.9%. The typical business models of the industry are offline brokers and internet real estate information platforms, represented by Realogy and Zillow.
Zillow US is the highest-traffic real estate vertical information website. In 2022, there were 220 million unique users, an increase of 1% year-on-year, with 140 million sets of US housing information. Zillow addresses the pain points of MLS being only open to member brokers and difficult pricing of houses. On the one hand, it accumulates housing resources through manual entry by sellers and brokers, as well as import of MLS housing resources, creating an Internet real estate information platform for buyers, and then providing services such as buying, selling, leasing, and loans. On the other hand, in 2006, it launched the automatic housing valuation model Zestimate, which attracts buyers through free valuation and creates a database centered on housing valuation. In 2022, the median error rate of Zestimate's for-sale housing valuation was 2.7%, and the median error rate of non-for-sale housing stock prices was 7.6% (source financial report disclosure, the same below).
In February 2015, Zillow Group acquired another leading internet real estate information company, Trulia (which attracts buyers' attention by collecting and displaying crime rates around properties), further enhancing its leading position in the industry. According to Statista, Zillow and Trulia are the two most popular real estate websites in the US, with monthly visits far exceeding other internet platforms.
In 2018, Zillow expanded its housing resale business and achieved its first profit in Quarter 1 of 2020. In 2021, Zillow announced that it would directly buy houses in full cash according to the valuation results of Zestimate, and rapidly expanded its business under the background of quantitative easing by the Federal Reserve that year. It paid a cost of $2 billion in six months, but due to inventory backlog, insufficient operational capacity, and poor reliability of Zestimate valuation, it caused difficulties in the capital chain, and finally had to shut down the business.
In 2022, Zilliow's operating revenue was $1.96 billion, of which Premier Agent (referring to the business where real estate agents from all over the country can display their company or personal information on Zillow for a long time by paying monthly or annual fees) contributed $1.29 billion, accounting for 70%, a year-on-year decrease of 8%. The financial report explained that the macro interest rate and house price increase, rental revenue was $2.7, a year-on-year increase of 4%, and other business revenue (construction market revenue, providing marketing and technical solutions for real estate developers) was $270 million. In 2022, Zillow's gross profit margin was 81%, a decrease of 4 percentage points compared to 2021. At the same time, sales expenses are also decreasing, while R & D expenses are increasing, indicating that Zillow is withdrawing from the resale housing business and focusing on real estate brokerage and advertising businesses.
Realogy Holdings Group is the world's largest real estate concession organization with numerous well-known commercial brands. As of the end of 2022, the company has 195,000 independent sales agents in the US and 142,400 independent sales agents in 118 other countries and regions worldwide. Realogy ranks first in the industry in the US, with a market share of 15.3% in the stock housing market in 2019. In terms of commission income, the total transaction commission in the US in 2019 was $1.20 billion, accounting for about 17%.
The characteristics of the US real estate property sharing market make it difficult for real estate brokers to have three-factor verification of properties, customers, and brokers at the same time. Zillow's breakthrough from customer sources challenges Realogy's position as a leader by accumulating a large number of broker resources through franchising. Zillow explores a new business growth direction for home resale, which has certain reference significance for the business expansion of domestic brokerage institutions such as Beike. However, it has high requirements for company business operations and higher binding with the real estate industry, and is more affected by its fluctuations.
The shell has accumulated the above Three-factor Verification, and the domestic competition landscape is still scattered, there is still a large space.
Key Issues - Real Estate Policy and Cycle Discussion
At present, policies will not allow large fluctuations in real estate prices. One of the major sources of funding for the Chinese government is land transfer, which prevents policies from allowing real estate prices to collapse. In addition, the debt risk of real estate is strongly related to systemic bank risk. The collapse of real estate prices will trigger debt risk and systemic bank risk, which China cannot afford. On the other hand, if real estate prices rise again on a large scale, it will further increase the risk of asset bubbles. Therefore, it is expected that the purpose of future real estate policies will be to stabilize real estate prices.
According to the recently introduced series of policies, the real estate industry will be fully supported by aspects such as income tax, house exchange, and purchase interest rates. It should be noted that this series of policies is particularly beneficial to residents who have a demand for "house exchange", which will be particularly beneficial to Beike House.
According to Harrison's "18-year cycle theory of real estate", the 18-year cycle will be divided into: the first 7 years of demand-driven market growth; the second 7 years, starting with a short-term decline adjustment, driven by speculation, first rising for 5 years, and finally accelerating the rise for 2 years, causing the market to bubble; the third stage lasts for 4 years, with prices falling sharply, and the cycle repeats itself. The real estate situation in China since 2008 fully conforms to its cycle theory. If this theory holds true, then starting from 2026, the big Kondratiev cycle superimposed on the two upward cycles of the real estate cycle may be a strong recovery.
Valuation
Risk Warning
Real estate recovery falls short of expectations, growth falls short of expectations.
*Do note that all of this is for information only and should not be taken as investment advice. If you should choose to invest in any of the stocks, you do so at your own risk.
如果你想了解有哪些前沿科技的投资机会，想学习真投资大佬们的投资秘籍，想投资自己的人生，那就快来购买《大赢家》漫画吧！漫画中采访了许多职业投资人和上市企业，通过有趣的故事传达投资理念，我们相信在阅读的过程，你一定会有所收获。网页链接
