KE Holdings Q2 2026 Earnings Call
[AI Key Takeaways]
Financial Performance
- Q2 GTV increased by 6.3% year-over-year, while revenue declined by 5.7% year-over-year, primarily due to adjustments in the home renovation business and iterations of the rental service product model.
- Net profit rose 74.9% year-over-year to RMB 3.185 billion, with a net profit margin of 13%, an increase of 6 percentage points year-over-year, reaching a three-year high.
- Contribution margins for all major business segments improved both year-over-year and quarter-over-quarter. The Group's gross margin increased by 6.7 percentage points year-over-year to 28.6%.
- GTV for existing homes reached RMB 629.89 billion, up 8.0% year-over-year; GTV for new homes reached RMB 25.839 billion, up 1.2% year-over-year.
Business Progress
- The scale of the existing home business resumed growth. Service revenue from non-Lianjia platforms increased by 27.8% year-over-year, and the transaction volume of second-hand homes at Beilian-affiliated stores rose by approximately 26% year-over-year.
- The new home business remained stable by strengthening cooperation on high-quality projects and improving customer conversion efficiency, evolving from a transaction channel to a consumer-centric, full-lifecycle service provider.
- The home renovation business proactively adjusted inefficient customer acquisition channels and exited certain cities with poor profitability models, driving down material cost ratios through centralized procurement and refined cost management.
- The rental business managed over 790,000 housing units, an increase of approximately 34% year-over-year, with the proportion of net method products exceeding 52%.
Next Quarter Guidance
- We will not base our H2 operations on market bets but will win more customer choices through decision-support services.
- We will maintain strict collection and accounts receivable management to control risk exposure, leaving ample room to respond to market changes.
- Under a neutral market assumption, the lower cost baseline will continue to support profit performance, with a focus on more balanced growth in revenue and profits.
- If the market environment improves, incremental revenue will unlock stronger operating leverage on top of the lower cost baseline.
opportunity
- Market Expansion: Capitalize on structural market opportunities, consolidate service coverage in higher-tier cities, and better capture trading opportunities arising from market recovery.
- Product Innovation: Develop an AI-enhanced human client steward model, enabling professional service providers to individually demonstrate their value, thereby transforming the broker role into a group of specialized roles each with distinct value.
- Operational Efficiency: Improve operational efficiency through AI, reintegrating unstructured information into decision-making to achieve refined management at the level of 'one property, one customer, one agent'.
- Strategic Cooperation: Expand the new home business from a transaction channel to full-lifecycle services, participating in customer segment research, product positioning, value proposition, and more.
Risks
- Market Competition: The home renovation industry is shifting from sharing incremental growth to more intense competition for existing stock, with some companies vying for customers through low prices and higher channel incentives.
- Economic Volatility: The real estate market remains in an adjustment phase, with total volume in the new home market under pressure and customers making more prudent decisions.
- Operational Disruption: Prudently manage collection terms and developer credit risk; we will not assume unreasonable risks to expand GTV or service scope.
[AI Conference Transcript]
Operator
Ladies and gentlemen, good day. Welcome to Beike's Second Quarter 2026 Earnings Conference Call. I am Li Siting, Director of Investor Relations at Beike. Please note that both the management's remarks and the Q&A session during this conference call will be conducted with simultaneous Chinese-English interpretation. During the meeting, you will be in listen-only mode. To access the English audio feed, please switch to the English channel. All participants are currently in muted listen-only mode.
This conference call is being recorded. The Company's financial and operating results were released earlier today via a press release and are available on the Company's investor relations website. Participating in today's call are Mr. Peng Yongdong, Co-founder, Chairman of the Board, and Chief Executive Officer of Beike, and Mr. Xu Tao, Executive Director and Chief Financial Officer. Mr. Xu Tao will share insights on the Company's business and financial performance, followed by Mr. Peng Yongdong, who will provide further details on the progress of the Company's strategic transformation.
Before we begin, we would like to remind you that today's conference call will contain forward-looking statements. Please refer to the safe harbor statement in our earnings press release. Please note that both GAAP and non-GAAP financial measures, which are unaudited, will be used in Beike's earnings press release and during this conference call. For reconciliations between GAAP and non-GAAP measures, please refer to our earnings press release. Unless otherwise stated, all figures mentioned in this conference call are in Renminbi (RMB).
Certain statistical data and other information related to the industry in which the Company operates, as mentioned in this call, are sourced from various public official or unofficial channels. Neither the Company nor any of its representatives have independently verified these data. These data may involve certain assumptions and limitations, and you are hereby reminded that such estimates are for reference only. During today's conference call, management will primarily speak in Chinese, with English translation provided solely to enhance meeting efficiency. In case of any discrepancy between the Chinese and English versions, the original Chinese statements by management shall prevail. We now invite Mr. Xu Tao, Chief Financial Officer, to speak.
Xu Tao
Thank you, Si Ting. Hello everyone, and thank you for joining our Q2 2026 earnings conference call. First, let me summarize the key financial highlights of this quarter: GTV volume has returned to growth, and despite a slight year-over-year decline in revenue, the Company achieved substantial profit growth, with profit performance significantly outperforming both GTV and revenue.
In the second quarter, the Company's GTV increased by 6.3% year-over-year, while revenue decreased by 5.7% year-over-year, mainly due to adjustments in the home renovation business and changes in revenue recognition criteria resulting from iterations in the rental service product model. Net profit surged by 74.9% year-over-year to RMB 3.185 billion, with a net profit margin of 13%, representing a six-percentage-point increase year-over-year and reaching a three-year high.
The improvement in profit was primarily driven by the Company's healthier cost structure, continued strengthening of expense discipline, and higher operational efficiency. In terms of profit formation, contribution margins across all major business segments improved both year-over-year and quarter-over-quarter, driving the Group's gross margin up by 6.7 percentage points year-over-year to 28.6%. Meanwhile, GAAP operating expenses decreased by 14.1% year-over-year. The combination of gross margin expansion and expense reduction jointly drove the improvement in profits.
Next, I will introduce the financial performance of each business segment individually. First is the existing home transaction business. In Q2, the scale of the existing home business returned to growth, with a significant improvement in profitability. GTV for existing homes reached RMB 629.89 billion in Q2, up 8.0% year-over-year and 17.9% quarter-over-quarter. Revenue amounted to RMB 7.02 billion, up 4.5% year-over-year and 14.5% quarter-over-quarter. The GTV growth rate exceeded the revenue growth rate year-over-year, mainly due to an increased proportion of GTV from non-Lianjia businesses, where platform fee income is recognized on a net basis.
Platform service revenue from non-Lianjia sources increased by 27.8% year-over-year and 29.8% quarter-over-quarter this quarter. With a relatively stable network scale, we continued to advance refined operations, boosting average store output and driving better-than-market performance for our Beilian business. Operational efficiency of the platform network further improved. The contribution margin for the existing home business in Q2 was 46.1%, an increase of 6.1 percentage points year-over-year, primarily benefiting from structural effects including lower fixed labor costs and a higher proportion of high-margin platform service revenue. It increased by 4.8 percentage points quarter-over-quarter, mainly due to the release of operating leverage from revenue recovery and further optimization of the business structure.
Second is the new home transaction business. In Q2, the scale of the new home business remained stable year-over-year, while profitability continued to improve. GTV for new homes reached RMB 258.39 billion in Q2, up 1.2% year-over-year and 77.1% quarter-over-quarter. Revenue reached RMB 8.95 billion, up 3.8% year-over-year and 75.9% quarter-over-quarter. Amidst the ongoing adjustment in the new home market, we maintained robust business scale by strengthening cooperation on high-quality projects, improving customer conversion efficiency, and optimizing our cost structure.
In the second quarter, the contribution margin from new home sales was 28.8%, an increase of 4.4 percentage points year-over-year, primarily driven by cost structure optimization resulting from refined operational management. Quarter-over-quarter, it rose by 3.1 percentage points; in addition to the aforementioned factors, this was also benefited by the release of operating leverage driven by revenue growth.
Third is the home renovation and furnishing business. In the second quarter, net revenue from the home renovation and furnishing segment amounted to RMB 3.19 billion, a decrease of 30.1% year-over-year but an increase of 36.4% quarter-over-quarter. The year-over-year decline was mainly due to our proactive adjustment of inefficient customer acquisition channels and exit from certain cities with poor profitability models, while pressure on the new home sector also had some impact on demand for home renovation services. The quarter-over-quarter revenue growth was primarily due to the seasonal recovery of the business. In the second quarter, the contribution margin from the home renovation and furnishing segment was 39.6%, up 7.5 percentage points year-over-year and 3.4 percentage points quarter-over-quarter, mainly benefiting from a decline in material cost ratios driven by centralized procurement and refined cost management.
Fourth is the housing rental services business. In the second quarter, rental revenue was RMB 4.83 billion, down 14.8% year-over-year and 3.6% quarter-over-quarter, primarily because 'Shengxin Zu' (Hassle-Free Rent) continued to iterate towards a lighter, lower-risk net basis product model. This change reduces revenue recognition under accounting standards, but the managed scale continues to grow rapidly. By the end of the second quarter, the number of rental units under management exceeded 790,000, a year-over-year increase of approximately 34%, with the proportion of net basis products exceeding 52%.
In the second quarter, the contribution margin for the housing rental business was 15.3%, an increase of 6.9 percentage points year-over-year. This reflects both the structural impact of the increased proportion of net basis products and operational improvements from optimizing post-rental costs related to manual assembly. Quarter-over-quarter, the contribution margin increased by 0.5 percentage points, mainly benefiting from the further increase in the proportion of net basis products.
Fifth is emerging businesses and others. In the second quarter, revenue from emerging businesses and others was RMB 550 million, a year-over-year increase of 26.4% and a quarter-over-quarter increase of 70%.
Below is an overview of other costs, expenses, and profits. In the second quarter, store-related costs were RMB 560 million, down 25.9% year-over-year and basically flat quarter-over-quarter. The year-over-year decline was mainly due to optimized rent costs for Lianjia stores and adjustments to store structure. Total GAAP operating expenses in the second quarter were RMB 3.99 billion, down 14.1% year-over-year, primarily benefiting from improved organizational efficiency, optimized marketing spending efficiency, and continued strengthening of expense discipline. Quarter-over-quarter, they increased by 21.3%, mainly due to increased selling expenses from the seasonal recovery of the home renovation business scale and provisions for bad debts related to new home sales.
Of this, general and administrative expenses were RMB 2.04 billion, down 2.1% year-over-year and up 18.9% quarter-over-quarter. This was mainly because we made a full provision of approximately RMB 280 million for bad debts based on a prudent assessment of accounts receivable related to Sunac and the realizable value of collateral assets. Selling expenses were RMB 1.4 billion, down 26.1% year-over-year, mainly due to optimization of personnel-related sales expenses and refined control over marketing and promotion costs. Quarter-over-quarter, they increased by 29.6%, mainly because the seasonal recovery of the home renovation business scale led to an increase in related selling expenses.
R&D expenses were RMB 550 million, down 13.4% year-over-year, mainly due to a decrease in labor and technical service fees. Quarter-over-quarter, they increased by 11.4%, mainly because technical service fees increased compared to the previous quarter.
In terms of profit, GAAP operating profit in the second quarter reached RMB 3.026 billion, a year-over-year increase of 185.6%. Non-GAAP operating profit was RMB 3.592 billion, up 123.6% year-over-year. GAAP operating profit increased by 137.8% quarter-over-quarter, with an operating margin of 12.3%, up 8.3 percentage points year-over-year and 5.6 percentage points quarter-over-quarter. On a Non-GAAP basis, operating profit increased by 115.7% quarter-over-quarter, with an operating margin of 14.6%, up 8.5 percentage points year-over-year and 5.8 percentage points quarter-over-quarter. The increases both year-over-year and quarter-over-quarter were mainly due to gross margin improvement and a decline in the operating expense ratio.
In the second quarter, GAAP net profit was RMB 2.624 billion, a year-over-year increase of 100.8% and a quarter-over-quarter increase of 109.1%. Non-GAAP net profit was RMB 3.185 billion, up 74.9% year-over-year and 97.6% quarter-over-quarter.
Finally, let me cover cash flow, the balance sheet, and shareholder returns. In the second quarter, the company's net operating cash inflow reached RMB 6.61 billion. The days sales outstanding (DSO) for new home receivables was approximately 39 days, a year-over-year reduction of about 12 days. This improvement reflects our effective risk management. As of the end of the second quarter, our broad cash balance, excluding customer escrow funds, remained at approximately RMB 67.3 billion. This ample liquidity not only enhances our resilience against risks but also continues to support business development and shareholder returns.
In the second quarter, the company spent approximately USD 250 million on share buybacks, marking our first repurchase of shares in the Hong Kong market. For the first half of the year, cumulative buybacks totaled around USD 450 million, representing a year-over-year increase of approximately 14%. The number of shares repurchased accounts for about 2.4% of the total share capital as of the end of 2025. Since the launch of the buyback program in September 2022, the cumulative repurchase amount reached approximately USD 2.99 billion by the end of the second quarter of 2026, with the number of shares repurchased accounting for about 14.8% of the total share capital prior to the program's initiation.
In summary, the improvement in profitability during the second quarter resulted from cost optimization, operational enhancements, and structural improvements. Looking ahead, we will continue to maintain a robust balance sheet and ample liquidity to provide a solid foundation for seizing long-term growth opportunities. Whether for core businesses, new ventures, or technology investments, we will adhere to clear return-on-investment requirements, using customer value, operational efficiency, and sustainable returns as our primary metrics. On this basis, we will balance business development with shareholder returns to continuously create long-term value for our shareholders. I now invite our Chairman and CEO, Mr. Peng Yongdong, to speak.
Peng Yongdong
Thank you, Brother Tao. Good afternoon, investors and analysts. Last quarter, we discussed why we initiated reforms centered on the consumer. This quarter, I would like to discuss how these changes have been effectively implemented in our operations. In the second quarter, I observed two concurrent developments: first, our operational foundation has become more stable; second, our organization has truly become agile. With this solid base, we are well-positioned to drive long-term transformation.
I would like to share my views on five key questions of interest to everyone. First, what exactly has changed as reforms become part of daily operations? Second, does being consumer-centric mean bypassing agents? Third, as AI becomes increasingly powerful, do we need fewer agents? Fourth, how is AI actually applied in our business, and what tangible results has it delivered? Fifth, on what basis will we judge whether we are on the right track in the next phase?
Let me address the first question: what has changed as reforms integrate into daily operations? This quarter, I spent significant time on the front lines—visiting stores, viewing properties, and inspecting construction sites—and engaged in detailed discussions with customers, agents, and store owners. Based on these observations, the changes can be summarized in three areas. First, operations have become more granular. Previously, whether in the core urban improvement market or suburban areas, we largely applied a uniform strategy. Starting this quarter, certain cities have gradually shifted to a 'one district, one strategy' and 'one project, one strategy' approach. Instead of focusing solely on city-wide metrics, we now examine what is happening at the district and individual project levels to determine the appropriate solutions.
For example, in a high-quality community targeting upgraders, customers often view properties across different regions and developments. Our previous operation model, designed around geographical boundaries, was misaligned with this behavior. The team therefore extracted such projects from the original zoning and reorganized operational units based on customers' actual viewing paths. We assigned professionals with deep knowledge of the specific project to handle technical presentations, while those who best understand customer needs addressed specific family requirements. In this city, approximately 600 projects contribute half of the total transaction volume. By transforming individual expertise into clear division of labor for professional judgment on each project, this method can be replicated for similar developments. More cities have already begun exploring this approach.
Second, our metrics have changed, shifting our focus accordingly. While scale and market share remain important, we now place greater emphasis on how many service providers can consistently close deals, whether personnel efficiency and income are rising, whether stores are achieving healthy profitability, and whether service quality remains stable. The rental business best illustrates this point. In 2025, one city had over 7,000 rental agents at its peak, yet few could generate stable output. Personnel efficiency once dropped to below two deals per month per agent. Instead of adding more headcount, we changed our approach by dividing the city into smaller operational blocks and realigning tenants and buyers with agents based on their familiar areas and capabilities. From April to July, average personnel efficiency rose from around three deals to 5.6 deals, while the proportion of agents failing to close any deals dropped from nearly 40% to less than 10%. What truly matters is not the headcount, but how effectively people are organized.
Third, our people have taken initiative. The starting point for the first two changes is the same: managers must move from conference rooms to the front lines. This quarter, some managers personally sold properties that had been listed by owners for an extended period, others re-engaged individually with dozens of dormant clients, and some regularly visited signing centers to support agents. My only requirement for managers is that you must be genuinely present. You cannot develop a feel for the water if you never get in.
Therefore, transformation has permeated our daily operations. To summarize, there are three key changes: operations have become more granular, metrics have shifted, and personnel have taken the initiative. Underpinning these three changes is a single approach: first, return to the real issues faced by consumers and frontline staff, and then reorganize our people, resources, and platform capabilities. These changes are not yet complete, but they are already becoming evident within individual operational units.
Now, let me return to the second question: does being consumer-centric mean bypassing agents? This question stems from a common assumption. What is this assumption? It is that if the platform moves one step closer to the consumer, it must take something away from the service providers. In the past, there was only one thing to divide between the platform and service providers: the commission on a single transaction. In a zero-sum structure where only money is distributed, if one party takes more, the other necessarily takes less; that was simply how the math worked.
However, breaking out of this calculation model does not mean redistributing that same pot of money, but rather increasing the number of value-creating activities. Currently, the consumer side is undergoing significant change. In the past, 'good' was defined by the attributes of the property itself; a good house was good for everyone. Today, 'good' is defined by matching. The same property may be a perfect fit for one family and a poor fit for another. The variables determining quality have increased from one to three: the property itself, the specific circumstances of the household, and who provides the service. Service providers are no longer just a channel; they have become a variable in themselves.
When decision-making becomes difficult, tasks are inevitably segmented. There are three reasons for this. First, industry progress is heavily indicated by the division of labor. Why does division of labor occur? Three reasons: First, the volume of knowledge exceeds an individual's capacity. Judging whether a property suits a specific family requires simultaneous expertise in real estate, client circumstances, mortgages, and renovation—too much for one person to hold. Second, certain modes of experience accumulation are mutually exclusive. Those who know the listings need to stay focused on specific properties long-term, while those who understand clients need to engage with a large number of families. One cannot do both simultaneously. Thus, two distinct roles inevitably emerge. Third, the most valuable actions have changed.
In my view, as an industry becomes more professional, the goal is no longer to provide customers with endless options, but to have the courage to curate those options. Adding options is easy; subtracting them in a way that convinces customers is difficult. Curating options runs counter to closing deals: if you advise a customer not to buy or sell, you earn less. As long as income is tied solely to transaction completion, this capability will never develop. It is not that no one is willing to do it; rather, such a role is economically non-existent under the current model. Therefore, being needed does not guarantee emergence; professionalism requires an economic model that can sustain it.
Therefore, we are undertaking an initiative to decouple a role's income from the success or failure of any single transaction. This role, which stands entirely on the buyer's or seller's side, is called the 'Customer Steward,' composed of AI and human agents. Previously, when leads were assigned directly to agents, the platform's understanding of the customer was interrupted. The Customer Steward ensures continuity: AI organizes and maintains customer information, while humans assess the customer's stage, identify gaps, clarify needs, and determine when to transfer to an agent. The agent no longer receives just a contact method; whereas previously it was merely a lead, now they receive a customer profile with clear background, needs, and stage information.
What is even more critical is that since this role does not rely on transaction commissions for income, it can truly stand on the customer's side. From May to July, we conducted pilots in several cities. The program cumulatively handled over 50,000 leads, achieving a conversion rate of 7.4%, higher than the market average of 5% during the same period.
Under these circumstances, the platform's task has also changed: from distributing commissions on single transactions to building a structure where each specialized function can be clearly defined, independently verified, and separately compensated. Thus, while the Agent Cooperation Network (ACN) previously organized collaboration flows around a single deal, it will evolve into an ecosystem organized by modules. Customer consultations, viewing coordination, contract signing, report generation, marketing material creation, home renovation services, and rental management—all roles that create incremental value are considered service providers. Therefore, the definition of 'service' has been expanded.
Thus, the platform's most important task is to ensure that professional service providers can succeed and sustain their careers here. Therefore, being consumer-centric does not mean bypassing agents; rather, it means transforming the singular role of 'agent' into a group of distinct, valuable professional roles.
So far, we have discussed changes in consumers themselves, and AI has accelerated these changes. This brings me to the third question: as AI becomes more powerful, will agents become increasingly unnecessary? The underlying assumption here is that agents sell information—listings, projects, policies—which AI can provide instantly, rendering agents obsolete. This is a common perception, but technological progress never merely eliminates; it simultaneously reshuffles value. Some elements depreciate, while others become even scarcer.
So, what is the real question we should be asking? What is depreciating in value, and what is becoming scarce? Regarding scarcity, how should platforms and service providers evolve? Let’s start with depreciation: In the past, the information circulating in the industry was mostly static. This includes the property databases we have built over the past two decades—details such as the number of rooms, price, and construction year. Such information alone cannot support a truly informed decision. Moreover, this data is becoming increasingly accessible. Those who merely relay static information, who could previously scrape by with mediocre performance, will soon find themselves with no opportunity to even enter the conversation. Customers now have capable AI advisors at their fingertips that can instantly assess whether you offer genuine value.
Now, let’s discuss scarcity: What truly holds value is dynamic, in-depth, and insightful information that cannot be fabricated. This includes understanding why an owner is selling a specific property, which type of family it suits, how to approach renovations and living arrangements, and how to evaluate market trends in a district based on total price and commercial hubs. It also involves analyzing whether previous transactions closed and what lessons were learned from those outcomes. Currently, this knowledge resides largely in people’s minds and on-site experiences. The industry lacks a systematic chain to capture, process, and reuse this intellectual capital.
Furthermore, there is a more fundamental issue: If AI leads to a wrong decision, who bears the responsibility? Currently, no one does. AI does not assume liability for consequences, yet the cost of making mistakes in housing transactions is rising. Therefore, consumers’ demand for reducing uncertainty has not weakened; in fact, it has strengthened.
Consequently, three things will happen simultaneously: First, the industry becomes more valuable because it addresses consumers' most critical need: reducing uncertainty. Second, high value does not mean easy execution. Delivering scarce value requires depth; data, expertise, and service are all hard skills that must be mastered. Third, those who genuinely pivot in this direction will become more valuable. This applies not only to agents but also to platforms and management.
Thus, the trend is not that brokers are becoming less necessary, but rather that those who merely report information are becoming obsolete. There is a growing need for professionals who dare to make judgments and take responsibility for outcomes.
Previously, I discussed how the industry and service providers should change, which is an outward-looking perspective. Now, let’s turn inward. Let’s examine the fourth question: How is AI being utilized within our organization, and what specific effects has it generated?
Business operations, at their core, involve defining a production function—determining what inputs yield what outputs. This function comprises labor, capital, and technology. Therefore, when evaluating AI today, the key judgment is its position within the industry: Is it a new direct variable in this function, or merely a sub-variable dependent on existing ones? If it is just a sub-item, AI is simply an efficiency tool that can be installed. If it is a direct variable, then the entire function must be rewritten.
We judge it to be the latter, implying that at least three changes are required. First, we must shift our mindset. Large organizations naturally develop protective mechanisms. Recently, as we opened up some basic data, concerns arose both internally and externally about whether we were lowering our barriers to entry and risking industry disruption. Such concerns are understandable, but they should not be the starting point. The sole starting point must be: Can AI help consumers make better home-buying decisions? If yes, our stance is set. Viewing AI as an adversary leads only to defensiveness; treating it as a new factor of production opens the door to innovation. The divergence between defense and innovation lies precisely in this conceptual shift. Ultimately, consumers pay for value. Whether their experience improves and their problems are solved is the only true test.
Second, AI will redefine the concept of management. Scientific management over the past two centuries represented a significant advancement, with its core principle being quantification—using data and rationality to set standards and measurements. Both Lianjia and Beike have benefited from this approach. In a fragmented and traditional industry, establishing standards through rationality and data can drive substantial industrial progress.
However, this approach rests on a premise: if it cannot be measured, it cannot be managed. This premise can become pathological in large organizations, leading to an obsession with metrics at the expense of substance. Numbers are easy to compare—three is greater than two, anyone can judge that. Yet, numbers are highly condensed and abstracted information, stripping away specific contexts. A consumer becomes merely a standard unit in our eyes; we lose sight of who they are and what causes their hesitation. Middle management, focused daily on numbers, inadvertently surrenders their ability to make authentic judgments.
Therefore, the most significant change brought by AI is essentially reintroducing unstructured information into decision-making. Language and numbers are two completely different types of signals. In the past, a vast amount of unstructured data—such as what customers said, why they hesitated, or what exactly made a service experience good—could not be incorporated into management systems. Now, this data can be integrated, restoring our judgment capabilities. Consequently, the level of granularity has changed. Previously, we managed properties, clients, and agents in the aggregate, relying on averages. Now, leveraging computing power, knowledge bases, and models, we can manage at the level of individual properties, clients, and agents. The more specific and profound the insight, the easier it becomes to manage effectively.
Thirdly, I would like to discuss how AI is transforming the division of labor. The previous point addressed how consumers have fragmented service tasks; AI is doing something different by fragmenting internal corporate functions. In the industrial era, a long chain of specialization emerged, with finance, HR, product, and technology each becoming distinct domains. Even within technology, there were silos for front-end, back-end, and algorithms, with each segment representing a monopolized profession.
AI has dismantled these barriers, allowing everyone to leverage the same AI capabilities. Tasks that previously required specialized personnel can now be performed by others. Old divisions of labor will disappear, and new ones will emerge. We have recently implemented this practice in Tianjin's new home sales sector. Traditionally, new home sales relied heavily on agents. In Tianjin, we redefined the division of labor between humans and AI. Property data and frontline experience were converted into a continuously updated knowledge base and skill set. AI assists agents in retrieving knowledge and comparing proposals, while sales staff shifted their focus to studying property details and maintaining the knowledge base. This allowed agents to dedicate more time to understanding clients and explaining trade-offs. The outcome was not just completed transactions, but genuine service interactions that simultaneously solved immediate customer issues and accumulated organizational capabilities accessible to others. What we aim to replicate is not a specific skill, but the mechanism itself—a best practice emerging from the frontline and validated through actual business operations.
As the division of labor breaks down, it will inevitably impact the organization itself, starting with costs. In the industrial era, businesses were heavily asset-intensive, such as factories and machinery. Once these fixed assets were invested in, the cost structure and business model were essentially locked in. In the AI era, fixed costs are low, while variable costs constitute the majority. High variability enables rapid iteration, meaning that those who evolve quickly in this dimension create greater value.
However, regarding trial and error, launching new initiatives in the past required navigating a lengthy chain of processes. This is especially true for platform enterprises like ours, where requests must travel from the frontline to group headquarters, undergoing requirement translation, evaluation, project approval, development, testing, and market launch before viability is determined. The larger the organization, the longer the chain, and the asymmetry in the cost of innovation becomes apparent. If resources are consumed without success, individuals bear the burden, resulting in many employees being hesitant to innovate despite their willingness.
AI transforms trial and error from a heavy investment requiring repeated deliberation into a high-frequency, low-cost probabilistic exercise. Therefore, models capable of rapidly running multiple samples are more likely to succeed. Furthermore, the relationship between the frontline and the middle office needs redefinition. The frontline best understands where the problems lie. By equipping them with AI tools, an individual can complete in hours what previously required coordination across product, development, and testing departments. Solutions can be validated directly on the frontline before the middle office scales them up.
Finally, consider managers. In large organizations, management often devolves into a hierarchy of people managing people, with layers of reporting. As scale increases, marginal benefits decrease, potentially leading to diseconomies of scale. Managers become increasingly detached from core business operations, gradually turning into mere conduits for information. In discussions with several managers, I found that under such circumstances, they often struggle to find a sense of personal value.
AI accelerates information flow, prompting genuine changes within organizations. Once AI handles upward and downward communication, the role of managers must shift. This does not diminish human value; rather, it restores a sense of purpose. Instead of merely reporting figures, managers can focus on creating tangible business value. In our current transformation, many managers are moving to the frontline, allowing them to feel truly engaged in scenarios of genuine value creation.
Lastly, bottlenecks will shift to human involvement. Beike operates in a capital-intensive industry with long business chains and numerous stages. Looking forward, AI can handle most technical and procedural steps effectively. However, the bottleneck will then lie in stages requiring human participation. This does not mean organizations no longer need people; rather, it highlights that AI cannot replicate human interaction, emotion, and trust.
Therefore, an organization's true core competitiveness in the future will depend on its ability to unite people and rapidly train them to work alongside AI. This involves two key elements: culture and evolution. If these are mastered, boundaries within and outside the organization will dissolve. This transformation extends beyond how a single company changes, opening up numerous possibilities for the entire industrial ecosystem.
So, returning to the initial question: Is AI a subordinate variable or a direct variable? If it merely changes tools, it is a subordinate variable. However, it has altered four key aspects: who we serve, the basis for our judgments, how processes are divided, and the organizational structure. Since all these have changed, AI is a direct variable. This implies that our task is not simply to equip existing companies with AI, but to enable these companies to fundamentally reinvent themselves.
We have discussed many changes. Now, the fifth question is for ourselves: How do we determine if we are on the right track in the next phase? First, let us distinguish between two categories: areas where we are making significant bets, and areas where we are still seeking answers. Our significant bets focus on three pillars: deep service, deep data, and platform ecosystem. These represent the respective outcomes of the previous questions. As information becomes more democratized and deep data becomes more comprehensive, decision-making becomes more difficult, thereby increasing the value of deep service. As professional specialization deepens, there is a greater need for a platform capable of organizing these specialized roles.
Regarding areas where we are still seeking answers—specifically, the eventual form AI will take and the timing of its emergence—we have experimented with it and conducted various practices, such as training and processing property listing information. However, as we delve deeper, multiple possibilities emerge. It is certain that the consumer's role is becoming more complex, but how we organize capabilities and resources to address these customer needs is still evolving. It is also certain that both management and professionalism hold value, but whether top-down communication remains the optimal form of management, and how professionalism will unfold in the future, remain uncertain.
Therefore, the entire set of organizational changes discussed earlier falls into the category where the form is not yet defined. Why distinguish between the certain and the uncertain? Because the management approaches are diametrically opposite. For matters with a clear direction, we must advance steadfastly without wavering. For matters concerning form, the approach is to invest small amounts to test multiple options, accelerating the feedback loop. If we make a mistake, we must recognize it early and avoid delay, preventing it from turning into a sunk cost.
Looking back at the past two quarters, the changes mentioned actually demonstrate that continuing to invest in areas with already low marginal returns is meaningless; the model driven solely by scale has reached its limit. This is a streamlining effort, not an expansion. However, stopping activities that should not be done is more important than adding new tasks.
Looking ahead, we need to validate four points: First, when facing AI, are professionals willing to directly or indirectly help consumers create value? Do they have their own definition and conviction regarding what constitutes the new professionalism? Second, can managers themselves treat management as a profession by going down to the frontline, producing high-quality content and judgments, and thereby rediscovering professional value and self-affirmation? Third, can deeper content and services in processes and judgments truly win consumer recognition? This may manifest as immediate transactions or long-term reputation. Fourth, regarding organizational capability: a single successful transaction is a result; the true capability lies in enabling the next person to replicate that success.
Currently, amidst this discontinuous transformation—which I believe many industries and sectors are facing in the AI era—human belief is a leading indicator, while metrics are lagging indicators. If professionals do not believe that AI amplifies their capabilities, they will withhold their experience rather than sharing it. If managers do not believe that management is a profession, they will not engage with the frontline and will continue to act merely as messengers. If these two premises do not hold, subsequent process reengineering, service improvements, and organizational capability building will not occur.
There is only one fundamental reason to remain bullish on an organization in the long term: its ability to continuously generate strong capabilities, which means being consumer-centric and enabling professional service providers to succeed. This cannot remain mere rhetoric; it must be embedded into processes, daily behaviors, and culture. How do we specifically verify this? We use the same four criteria: consumer, service provider, operations, and replicability. All four must align simultaneously to count.
Looking back at these five questions, they are essentially five aspects of the same issue. We have refined our strategies and benchmarks. The increasing difficulty of consumer decisions drives deeper specialization and independent pricing. While AI depreciates the value of information, it elevates the status of professionalism. Simultaneously, it enters companies to reorder workflows and tasks. The direction we are certain of includes deep data, deep service, and platform ecosystem. Therefore, Q2 is not the conclusion, but the beginning of the entire transformation. Thank you all. We can now proceed to the Q&A session.
Operator
Thank you. Please note that during the Q&A session, we will only accept questions from the Chinese language line. If you wish to ask a question, please press the '*' key followed by '1'. To withdraw a question, please press the '#' key. To accommodate today's conference call, each participant is limited to one question. If you have additional questions, you may choose to rejoin the queue. Now, the first question comes from Timothy Zhao at Goldman Sachs.
Timothy Zhao
Thank you, management, for taking my question, and congratulations on the very strong results in the second quarter. My question concerns the overall real estate market. We observed a divergence between transaction volume and prices in the housing market during Q2, and entering Q3, we have seen some fluctuations in market momentum. Given the broader market uncertainty ahead, what factors can we actively manage in Q3 and for the full year to improve our performance? Thank you.
Xu Tao
Thank you, Brother Tian. In the first half of the year, the secondary housing market exhibited structural recovery in transaction volumes while prices continued to bottom out. Entering Q2, the improvement in transactions became more pronounced, though the pace of recovery varied across different cities and price segments. From a city-tier perspective, transaction volumes in first-tier cities recovered faster, and their prices showed greater resilience on a quarter-over-quarter basis. In Q2, the year-over-year growth in signed contracts for secondary home transactions in first-tier cities led other city tiers.
Regarding prices, according to statistics from Beike Research Institute, prices in first-tier cities cumulatively rose by 3.6% in the first half of the year, which is a very encouraging development. Nationally, prices remained largely flat. On a year-over-year basis, prices across all city tiers remain in an adjustment phase. In terms of price segments, transaction volume growth for lower-priced properties outpaced that of mid-to-high-priced segments. However, the share of transactions by property size remained generally stable. This indicates that housing demand has not universally downgraded or shifted toward smaller units; rather, the increase in lower-priced transactions mainly reflects a downward shift in transaction prices due to market adjustments. Meanwhile, high-end properties experienced relatively smaller year-over-year price declines, with core upgrade-oriented and high-quality residential properties demonstrating greater price resilience.
Turning to new homes, the total market volume remained under pressure in Q2, although projects with stronger product competitiveness in core cities showed relatively better support. From a transaction structure perspective, the trading area of secondary homes accounted for over 50% of the national total in the first half of the year, establishing them as the main body of market transactions. This is a significant milestone, reflecting further progress in meeting housing needs.
Overall, we are seeing a structural recovery in transactions while prices continue to bottom out. Core cities and quality supply show relative resilience, but the market remains differentiated. At the same time, in an environment with a richer selection of listings, customers have become more prudent in their decision-making, placing greater emphasis on professional judgment and transaction certainty. They no longer require simple matchmaking services but rather more professional decision support. This highlights the value of the platform’s long-accumulated professional service capabilities.
Based on this assessment, for Q3 and the full year, we will focus on three key areas: First, we will better capitalize on structural market opportunities to enhance revenue resilience. We will allocate resources according to market performance across different cities, customer segments, and property types, continuing to strengthen our service coverage in higher-tier cities to better capture transaction opportunities arising from market recovery. Meanwhile, we will help our customers make better housing decisions through content engagement, demand identification, precise matching, and professional fulfillment, thereby increasing transaction certainty and driving the conversion of genuine demand into completed transactions.
Second, Beike will continue to strengthen financial discipline and maintain flexibility in resource allocation. Our current leaner cost structure enhances our ability to cope with market volatility. If external market conditions remain under pressure, we will dynamically allocate resources based on the performance of different cities and business lines, prioritizing the stability of our core service provider network that possesses sustained output and professional capabilities. We will not sacrifice customer experience or long-term capabilities for short-term profits. Even if the market improves, we will not revert to extensive expansion, which is crucial. New investments will undergo phased validation of return on investment and service capability; only after visibility of effectiveness and returns is established will we gradually scale up, ensuring that incremental transactions are more effectively converted into profit and cash flow.
Third, we will prioritize maintaining strong cash flow and a robust balance sheet. We will continue to enforce strict collection and accounts receivable management, control risk exposure, and reduce non-essential expenditures, leaving ample room for the company to respond to market changes. Therefore, we will not base our H2 operations on betting on market movements. On the revenue side, we will win more customer choices through superior decision-support services. On the financial side, a healthier cost structure will enhance the company’s operational resilience across different market environments, protecting our cash flow and core capabilities during weaker periods, and better leveraging our operating leverage when the market improves. Thank you.
Operator
Thank you, Brother Tao. The next question comes from John Lang at UBS.
John Lang
Thank you. I have a question regarding the fact that Q2 earnings significantly outpaced revenue growth. Could management break down the drivers behind this, specifically regarding business performance, operational efficiency, the expense baseline, and the impact of any one-off factors? Furthermore, how sustainable are these improvements for the second half of this year and over the longer term? Thank you.
Xu Tao
Thank you, John. The improvement in Q2 profits was driven by both higher contribution margins across our core businesses and a decline in operating expenses. As mentioned in the earnings presentation, the contribution margins of our major core businesses improved both year-over-year and quarter-over-quarter, lifting the Group’s gross margin by 6.7 percentage points year-over-year to 28.6%. Meanwhile, as noted, GAAP operating expenses decreased by 14.1% year-over-year.
Specifically, there were three main drivers. First, the cost and expense baseline declined. Over the past year, we have continuously optimized the personnel structure at Lianjia, expanded management spans, integrated resources, and reduced low-yield investments, thereby lowering fixed labor costs and the break-even point. Currently, the primary structural adjustments are largely complete. This is not merely a temporary compression of expenses for a single quarter; therefore, the lower cost and expense baseline is sustainable.
Second, operational efficiency in our property transaction business has improved. In the new home segment, we enhanced service coverage for high-quality projects and improved customer conversion efficiency, strengthening the resilience of transaction volume. Meanwhile, our stable monetization rate and improved channel efficiency jointly drove growth in contribution margins and contribution profit. For existing home sales, we continued to focus on listing quality and empower stores with refined operations, which significantly boosted Beilian’s revenue scale and further translated into profit contribution.
Third, regarding our emerging businesses, their unit economics and business structures continue to improve. In the home renovation business, we reduced the material cost ratio through centralized procurement and refined cost management. The contribution margin in the rental business is also improving, driven both by structural shifts from a higher proportion of net-method products and by operational improvements from standardized assembly and post-lease cost optimization.
Looking ahead to the next two quarters, under neutral market assumptions, the established lower cost baseline will continue to support profit performance. However, due to factors such as revenue scale, business mix, and seasonality, our marketing spend, channel incentives, and certain front-line sales personnel costs may fluctuate quarter-to-quarter. Therefore, we will not simply extrapolate single-quarter profit performance but will instead focus more on whether we can achieve more balanced growth in both revenue and profits.
If the market environment improves, incremental revenue will unleash stronger operating leverage on top of the lower cost baseline, resulting in greater profit elasticity. If the market remains under pressure, our currently healthier cost structure will reduce the sensitivity of profits to market volatility. This aligns with what we at Beike often emphasize: maintaining a neutral market outlook regardless of market conditions. In other words, our current cost structure enhances upside profit elasticity while also strengthening downside defensiveness.
From a long-term perspective, cost and efficiency optimizations have helped us build a healthier operational foundation. This represents the first step in our strategic transformation: adjusting and optimizing resource allocation to better adapt to the current uncertain market environment. The second step is not simply to cut spending, but to allocate our limited resources to people and initiatives that create greater customer value. Over the longer term, we aim to institutionalize our efficient resource allocation capabilities into our daily organizational capabilities through roles, processes, performance assessments, incentives, and platform tools, thereby supporting our long-term sustainable development. Thank you.
Operator
Thank you, Brother Tao. The next question comes from Xiao Dan at CICC. Please go ahead.
Xiao Dan
Good evening, Brother Tao and Si Ting. Thank you for taking my question, and congratulations to the company on delivering another impressive set of results. My question concerns the existing home business. We observed that the GTV of existing homes grew by 8% year-over-year in Q2, while the contribution margin improved by 6.1 percentage points year-over-year. I would like to ask management: among these improvements, how much is attributable to market recovery versus the company's own operational efforts? Specifically, in which metrics and actions can the company's operational alpha be seen? Thank you.
Xu Tao
Thank you, Xiao Dan. It’s great to hear your voice again. To start with the conclusion: the market recovery in Q2 provided a foundation for transaction volume. However, the operational alpha in the existing home business did not come from expanding our store and agent networks, nor from price increases. It primarily stemmed from higher per-unit productivity within a stable network and better conversion of platform service value into revenue. The simultaneous improvement in the contribution margin of the existing home business indicates that we did not sacrifice profitability to achieve transaction growth.
Specifically, in Q2, the transaction volume of second-hand homes in cities where the company has a key presence saw a moderate recovery. Prices stabilized quarter-over-quarter but continued to decline year-over-year, providing some external support for the increase in platform transaction volumes. However, the average transaction price per unit remained in an adjustment range year-over-year, offering no price dividend. Against this backdrop, the GTV of our existing home business grew by 8% year-over-year in Q2, and the volume of second-hand transactions increased by nearly 25% year-over-year, significantly outperforming the market.
A more direct source of alpha came from the improved per-unit productivity of Beilian. In Q2, Beilian's second-hand home transaction volume grew by nearly 30% year-over-year. During the same period, Beilian's network scale did not expand further; the number of active stores and agents remained largely flat year-over-year. However, the number of second-hand transactions per Beilian store increased by nearly 26% year-over-year. What does this indicate? It shows that Beilian is shifting further from network expansion to improving operational quality. As previously connected stores mature, store structures optimize naturally, and platform collaboration deepens, network value is increasingly reflected in higher per-store output and improved operational efficiency.
The second source of alpha is the improved conversion of platform service value into revenue. In Q2, non-Lianjia platform service revenue grew by 27.8% year-over-year, outpacing the growth rate of non-Lianjia GTV. In a buyer's market, services such as professional marketing, property presentation, and transaction facilitation have created clearer value for our homeowners, leading to greater preference from them.
Meanwhile, the contribution margin of the existing home business improved by 6.1 percentage points year-over-year, reaching 46.1%, demonstrating that this growth was not achieved at the expense of profitability. Overall, the alpha in the existing home business in Q2 mainly came from higher per-unit productivity within a stable network and better conversion of platform service value into revenue. Going forward, we will closely monitor whether per-store output at Beilian stores and the conversion of platform service revenue remain stable across different market environments to verify the sustainability of this alpha. Thank you.
Operator
Thank you, Brother Tao. The next question comes from Alvin Huang at CLSA.
Alvin Huang
Thank you to management for the opportunity to ask this question. The company's new home business has also been quite impressive. I would like to ask: given that the company's new home business performance in Q2 significantly outperformed the market, what were the main drivers and sources of this outperformance? Furthermore, as the company upgrades from traditional channel cooperation to providing full-scale marketing and project operation services for developers, what core capabilities does the company believe can sustainably create value for both customers and developers? Additionally, how will the company balance growth, fee rates, contribution margins, collection cycles, and developer credit risk during this process? Thank you for addressing these questions.
Xu Tao
OK, hello Alvin. In the first half of this year, the total volume of the new home market remained under pressure. However, with marginal recovery in Q2, the year-on-year decline in sales for the top 100 real estate enterprises narrowed to 9.3%. Demand has further concentrated in core cities, high-quality projects, and upgrade-oriented products. Meanwhile, new supply has also tilted more towards core cities.
Against this backdrop, the company's GTV (Gross Transaction Value) for new homes in Q2 grew by 1.2% year-on-year. This growth was primarily driven by the combined effect of expanded coverage of high-quality projects and improved conversion efficiency. On one hand, we strengthened our identification of and cooperation with high-quality projects and initial launch projects, entering the core sales cycle earlier. This led to improved coverage and transaction performance in key market projects. On the other hand, through more refined identification of customer needs, project screening, and matching, we allocated resources more effectively to projects with higher transaction potential, thereby driving an increase in conversion rates.
Looking ahead to the second half of the year, we are preparing for a scenario where the new home market continues to adjust and customer decision-making becomes more cautious. Our focus will be on optimizing project structure and customer conversion to enhance controllable operational efficiency. From a longer-term perspective, we believe the starting point for the new home business is no longer simply extending the service chain, but rather better addressing consumers' housing decisions.
In a buyer's market, consumers face more choices and their decision-making process has become more complex. They need more than just channels to access projects; they need to understand which projects suit their families, where the product value lies, how it differs from surrounding new and secondary homes, and whether factors such as price, layout, amenities, and future living experience truly match their needs. If we merely provide channel coverage and traffic distribution, we cannot meet these customer needs, nor can we fundamentally improve the match between products and customer demand.
Therefore, we aim to evolve from a transaction channel into a consumer-centric, full-cycle service provider. We intend to feed our understanding of consumers back into the new home industry chain earlier, participating in customer segment research, product positioning, value proposition, customer decision support, and project marketing management. Consumer value is the starting point for business upgrading, while value for developers stems from our ability to better understand and serve our consumers.
In line with this direction, we are building capabilities in three areas. First, we are enhancing upfront customer insights and customer-project matching. Leveraging data from our secondary home transactions, customer searches, property viewing trails, and actual transactions, we can gain a more concrete understanding of demand. We apply these insights to identify target customer segments, positioning, and marketing strategies for projects. This helps consumers find better-matched products and assists developers in reducing the deviation between product positioning/marketing investments and actual customer needs.
Second, we are translating product value into decision-making information that consumers can easily understand and compare. We are converting aspects that are difficult for consumers to intuitively grasp—such as location, layout, lighting, amenities, and community planning—into content that reflects real living scenarios. This content spans online browsing, virtual explanations, and on-site reception, helping our customers make more informed judgments. For example, at the Ban Shan project in Xinhe Wan, Guangzhou, we reconstructed content related to location amenities, 3D community models, and floor plans. This helped consumers understand the product more intuitively and improved project reception and conversion efficiency.
Thirdly, we have built comprehensive project operational capabilities centered on customer feedback. We have integrated customer segmentation analysis, content dissemination, on-site engagement, and channel sales, dynamically adjusting strategies and resource allocation based on customer feedback. For example, when a developer in Shanghai entered the local market for the first time and sought to better understand local customers and the competitive landscape, we assisted them by re-analyzing the target customer base and market feedback. This helped adjust their sales strategy and align channel-based customer acquisition, thereby improving the overall sales efficiency of the project through enhanced conversion rates.
Of course, these capabilities are still in an early stage of validation. Addressing the specific challenges of different projects, we deploy corresponding capabilities and simultaneously validate consumer value, project operational outcomes, and business economics within individual projects. We conduct a comprehensive assessment of customer feedback, conversion rates, sales performance, net income, contribution profit, and cash collection. Only after achieving sustained validation and positive results will we proceed with gradual replication.
Meanwhile, as our service scope expands and our involvement in projects deepens, we will manage payment collection terms and developers' credit risks more prudently. We will not assume unreasonable risks merely to expand our Gross Transaction Value (GTV) or service scope; this is our bottom line. In the long term, we aim to build our new home business on a deeper understanding of consumers, more accurate product-customer matching, and sustained recognition of value by both developers and consumers. This will ultimately translate into higher-quality revenue growth, healthier profitability, and improved cash collection. Thank you.
Operator
Thank you, Mr. Tao. The final question comes from Gracin Chan at Citi. Gracin, please go ahead.
Gracin Chan
Thank you. This is Gracin Chen Junwei from Citi. My questions concern the home renovation business and the 'Worry-Free Rental' service. In Q2, revenue from the home renovation business declined at an accelerated year-over-year rate, while the contribution margin improved significantly year-over-year. What were the primary drivers behind the revenue decline? Has the earlier business adjustment been largely completed? When do we expect revenue to return to growth? Furthermore, how does Beike plan to balance scale recovery, contribution margins, and delivery quality in the future? Regarding 'Worry-Free Rental,' profits improved markedly in Q2; what were the main driving factors? And how do we intend to maintain the sustainability of these profits? Thank you.
Xu Tao
Thank you. The home renovation industry is currently undergoing a profound restructuring of supply and demand. As adjustments in the real estate market further transmit to the home renovation sector, the volume of new home deliveries has declined significantly. Home renovation firms that previously focused primarily on the new home market have increasingly entered the secondary housing market. Consequently, the industry has shifted from sharing incremental growth to engaging in more intense competition for existing stock. In this era of change, scale no longer automatically equates to corporate value; a company's ability to navigate the cycle depends on operational quality, product competitiveness, and delivery standards.
The revenue decline this quarter was primarily driven by two factors. First, in response to these industry changes, we proactively exited certain inefficient cities over the past year and closed some underperforming stores and low-quality customer acquisition channels. Second, overall industry demand has been under pressure. Since a portion of home renovation contracts stems from new home decoration needs, the reduction in new home deliveries has directly impacted related businesses. Additionally, industry competition has intensified, with some companies vying for secondary housing renovation customers through lower prices and higher channel incentives.
Currently, Beike's proactive adjustment phase has been largely completed, and we do not plan further large-scale contractions this year. Although revenue remains under pressure, the contribution margin for home renovations has improved significantly. Through centralized procurement and supply chain optimization, material costs have decreased notably. Meanwhile, in Q2, the productivity per service provider, such as designers, improved year-over-year, and organizational and store costs were also optimized. These changes indicate that the retained capacity and structural costs are now healthier.
Regarding revenue recovery, contract value serves as a leading indicator, while recognized revenue tends to lag due to construction and delivery cycles. Based on current progress, with the restoration of internal synergy, increased staffing of account managers, and the implementation of related incentives, front-end indicators such as customer pipeline showed month-over-month improvement in July. However, we are still in a relatively early stage, and it will take time for these improvements to translate into revenue.
Looking ahead, we will not revert to the path of sacrificing margins for scale. Long-term growth stems primarily from delivery quality. We will optimize construction workflows through frequent inspections to continuously improve customer satisfaction. Secondly, Beike will continue to enhance the product competitiveness of our home renovation services by offering more diverse packages that better match customer needs, thereby boosting order conversion rates. Thirdly, we are building home renovation showrooms integrated with property transaction centers to further capture renovation demand from property buyers. We aim for healthy dual growth in revenue and profit, underpinned by quality, driven by products, and constrained by profitable operations.
Regarding the 'Worry-Free Rent' business, the number of managed rental units steadily increased in Q2, reaching 790,000, a 34% year-over-year increase. Revenue reached RMB 4.83 billion, with a profit contribution margin of 15.3%, an increase of 6.9 percentage points. The year-over-year decline in revenue was mainly due to the impact of iterating towards a lighter, lower-risk net method product model for 'Worry-Free Rent.' The improvement in profitability reflects both the structural impact of a higher proportion of net method products and genuine operational efficiency gains from optimized labor assembly and post-lease costs.
On this basis, the key to achieving sustainable profitability for 'Worry-Free Rent' lies not just in continuing to acquire properties, but in managing the expanding pool of listings into a stock asset base characterized by low churn, low re-leasing frequency, and high renewal rates. This allows revenue to grow with scale without a proportional increase in channel costs, labor, and management complexity.
In the next phase, we will focus on three areas: First, maintaining stability in the size of the managed existing property pool to reduce channel costs and resource consumption caused by re-leasing. As the managed scale of 'Worry-Free Rent' expands, an increasing number of existing properties are entering the renewal and re-leasing stages. We will improve retention among landlords and tenants through more proactive renewal and lease term management, as well as better-suited products and higher-quality services. In Q2, the landlord renewal rate upon lease expiration reached 74%, up four percentage points year-over-year. The tenant renewal rate upon lease expiration was approximately 56%, up one percentage point year-over-year.
Second, we aim to improve operational efficiency and reduce labor costs per unit. In Q2, the average number of units managed per asset manager per month increased by 40% to approximately 170 units, with growth in operational staff lagging behind the growth in managed scale. Going forward, we will pilot a more rational division of labor between transactional tasks (such as property acquisition and release) and long-term management tasks (such as landlord maintenance and tenant services) to prevent task overlap, thereby further enhancing specialization and personnel efficiency. Additionally, the application of AI will help address the rising operational complexity associated with scale expansion. By comprehensively considering property status, geographic distribution, travel distance, and staff workload and capabilities, AI will assist in grid division, person-property matching, and task scheduling, enabling more refined resource allocation and improved operational efficiency.
Third, we will improve the quality of new scale expansion. On one hand, we will continue to increase the proportion of net method products to make our profitability model more resilient to rent fluctuations. On the other hand, we will provide differentiated product solutions based on property supply and customer demand in different cities, ensuring healthier unit economics for each product while expanding product coverage.
More importantly, service quality is the prerequisite for sustaining these improvements, directly determining whether landlords and tenants renew their leases, and impacting reputation, repurchase rates, and long-term costs. Only when service experience, renewal rates, and operational efficiency form a positive cycle can profitability be truly sustainable. Therefore, we believe that the improvement in 'Worry-Free Rent' profitability indicates that our operational foundation is being solidified. In the next phase, we will continue to enhance operational efficiency, optimize product structure and service quality, and strengthen the stability of unit profitability, thereby better converting scale growth into profit growth. Thank you.
Operator
Thank you, Mr. Tao. This concludes the Q&A session. Thank you all for participating today. If you have further questions, please feel free to contact our Investor Relations team via the contact information on the Beike website. This concludes today's conference call. We look forward to speaking with you again next quarter. Thank you everyone, goodbye.
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