---
title: "Shell: Looking Ahead to the 2023 Real Estate Market and Company Development Direction"
type: "Topics"
locale: "en"
url: "https://longbridge.com/en/topics/4415017.md"
description: "Shell 4Q22 Conference Call Summary"
datetime: "2023-03-17T03:23:04.000Z"
locales:
  - [en](https://longbridge.com/en/topics/4415017.md)
  - [zh-CN](https://longbridge.com/zh-CN/topics/4415017.md)
  - [zh-HK](https://longbridge.com/zh-HK/topics/4415017.md)
author: "[Dolphin Research](https://longbridge.com/en/news/dolphin.md)"
---

> Supported Languages: [简体中文](https://longbridge.com/zh-CN/topics/4415017.md) | [繁體中文](https://longbridge.com/zh-HK/topics/4415017.md)


# Shell: Looking Ahead to the 2023 Real Estate Market and Company Development Direction

I. Management Overview

In the past two years, the real estate industry has faced unprecedented challenges. Earlier this year, people across the country quickly recovered from the COVID-19 epidemic control, while the real estate market began to recover. By the end of February, our platform's existing home sales had rebounded significantly, reaching almost the same level as the same period in 2021, which was the most active year for existing home transactions. New home sales also grew significantly year-on-year, approaching the level after the epidemic in 2020.

Since mid-2021, the real estate market has been in a downward trend, but we believe that the market will return to normal levels in the long run. Therefore, we quickly adjusted our employee structure to cope with short-term fluctuations and prepare for market recovery.

We have launched a one-body-two-wing strategy, committed to strategic transformation from expanding scale to growing quality, and implemented a series of cost reduction and efficiency enhancement measures.

We have a more stable profit capacity than before, with an annual GTV decrease of 31% year-on-year, while sales of the top 100 real estate companies decreased by 42% year-on-year. However, the annual NonGaap net profit increased against the trend by 24% year-on-year. In 2022, our operating cash flow grew against the trend by 135% in an environment of significant external market fluctuations.

Our home decoration and furniture contract revenue was RMB 6.9 billion, a year-on-year increase of 31%, also growing against the trend. This result is due to our store and broker network infrastructure, our digital transformation capabilities applied in complex decision-making, and our comprehensive integration with Beijing Shengdu.

In 2022, "two-wing" businesses accounted for more than 10% of our revenue (less than 3% in 2021), while our "one-body" business provided more than 90% of our customer sources.

We expect that the productivity of unit stores will improve in the future. The trend of large stores will become more prominent. Therefore, store efficiency has become a key management variable, and high-quality brokers are crucial to our operation. Store managers' abilities in store operation, team measurement, and recruitment and incentive of brokers have become the differentiation factors for successful operation.

We have been and will continue to be committed to helping brokers improve efficiency, gain decent and stable income, achieve long-term employment, and firmly promote our strategy of large stores in 2022, reorganizing our platform's more than 3,000 stores.

Regarding existing home transactions, according to data from the Beike Research Institute, China's annual existing home sales revenue in 2022 was RMB 4.93 trillion, a year-on-year decrease of about 31%, and a Q4 year-on-year decrease of about 3%. The GTV of existing home transactions on the Beike platform in 2022 only decreased by 23% year-on-year and increased by 1.5% quarter-on-quarter.

Regarding new home transactions, according to data from the National Bureau of Statistics, China's new home GTV reached RMB 11.7 trillion in 2022, with year-on-year decreases of 28% for the whole year and 27% for Q4. The GTV of the top 100 real estate companies decreased by 42% and 30% year-on-year, respectively. Compared to our platform, the GTV and new home sales revenue declined by 42% year-over-year and 26% in Q4 2022. Although our annual performance was consistent with the market, our provision for bad debts and default rates reached a historic low, and our profitability reached a record high since our IPO.

At the same time, we actively strengthened risk control, security, and profitability. In Q4, transactions under the prepayment commission model accounted for 44% of our total commission, doubling since the beginning of the year. It ensures the safety of brokers' receivables. In addition, the average number of homes sold in projects under the prepayment model is 35% higher than that of general new home projects, reflecting an increase in sales space for developers. The proportion of existing developers continues to rise, and their projects account for 45% of our new home sales revenue.

In terms of the "two wings" of our business, the total revenue of the leading home decoration and decoration company in 2022 decreased by approximately 9% year-on-year. As of 2022, our home decoration and decoration business generated a contract sales of RMB 6.9 billion, a year-on-year increase of 31%. In our contracts, 33% comes from core business clients.

In April 2022, we launched a new retail, furniture, and furniture strategy. The contribution of new retail home furnishings to the total sales of contractors increased from 12% in Q1 to 26% in Q4. It further retains platform business outside of low-frequency transactions.

Regarding leasing services, our housing leasing service has more than 120,000 housing resources, of which more than 17,000 are centrally managed, and more than 90% are recommended and provided by core business customers.

We use digital technology for transformation and focus on all offline operations. As of December 2022, we have achieved automatic delivery for 80% of orders in key cities. Our renovation delivery cycle has been shortened by 5 days compared to last year, and our A-level service providers retention rate has reached 97%. These capabilities will help us grow with quality.

Q&A

Q1: Regarding the prospects of the real estate industry, what are the latest expectations for the new and second-hand housing markets in 2023, including the sustainability of supply and demand and the current recovery momentum?

A1: In terms of real estate policies, over thousands of stimulus policies were issued nationwide in 2022, while there were about 450 policies in 2021. It can be seen that policy-level support for market recovery is accumulating. We saw more policy support in December last year and January this year, when strong second-tier cities almost completely relaxed purchase and mortgage loan restrictions. In these cities, comprehensive relaxation has been implemented, such as in Dongguan, Foshan, among others.

According to recent real estate market data, consumers' confidence in the real estate market has also significantly improved in terms of demand. In terms of existing home sales, our platform's weekly transactions before the Spring Festival in January were close to the level of July 2021. In February, our platform's monthly GTV was close to the historical high point of March 2021. Among them, the GTV of first-tier cities in February was only 8.6% lower than the peak in March 2021. The stronger second-tier cities and the weaker second-tier cities, as well as third-tier and fourth-tier cities, increased their GTV by 11.3% and 5.5%, respectively, compared to a peak value. Stronger second-tier cities, in particular, showed strong growth. The GTV in Chengdu, Suzhou, Nanjing, Zhengzhou, and Tianjin exceeded the March 2021 high by more than 20%. Part of the reason for this strong growth is the pent-up demand during the epidemic.

There is also a clear trend of recovery in new home sales. Our new home sales volume achieved positive growth in January, with a year-on-year increase of 20%. In February of this year, our new home subscription volume increased by 48% year-on-year compared to the lower base level in June 2021, driving year-on-year growth in new home sales since February.

As far as house prices are concerned, although the growth momentum of transaction volume is very strong, we have not seen significant fluctuations in house prices. In January of this year, the prices of existing and new homes ended the monthly decline across the country. In February of this year, the price of existing homes increased by 1.6% month-on-month, but still fell by 5% year-on-year.

This year, the number of listed existing homes in the country increased by 10% year-on-year. The ample supply of second-hand housing makes the market relatively balanced in terms of supply and demand. We still hold a neutral market view. The rebound in trading volume in the near future indicates that the real estate market has high elasticity and demand-side elasticity. This short-term rebound is driven by several factors, including the accumulated demand during the pandemic, and customers who are paying attention to potential house price increases releasing their future purchase demand earlier.

From the perspective of market consensus, we believe that the market will gradually normalize and enter a more stable growth stage. In terms of market sustainability, we expect that first-tier cities will be relatively stable in the future.

For second-tier cities, the demand for upgrading family housing has been significantly stimulated. The proportion of transactions for houses with an area of over 90m² has increased by 3%, the proportion of customers over 35 years old has increased by 5%, and the proportion of non-local home buyers has increased by 4%. The second-tier city market may experience fluctuations in the short term.

Based on our neutral market view, we cautiously believe that the transaction volume of existing homes in developed areas in the east will increase by about 15% in 2023, while prices will remain relatively stable. For the new home market, we expect that the total GTV will remain at the same level in 2023 as in 2022.

Recently, land auctions in cities such as Hangzhou and Suzhou have been successful, and several private developers have appeared on the list of land auctions. Private developers are regaining their enthusiasm. We firmly believe that in the context of the real estate industry, the second-hand housing market will increasingly occupy the central stage, and new home operations will require more sophisticated methods, and broker services will become the forefront.

Q2: Will the company dynamically adjust its strategy to gain more market share? Where is the target market for this year? Will you expand through chain or non-chain stores? What is the expansion strategy in relatively low markets? How to deal with local competition?

A2: We do not operate with market share as our KPI. However, we must reach a certain threshold of scale in cities to achieve network effects and skill effects for our core business.

This round of large-scale market adjustments has provided us with opportunities. In the deep market adjustments of the past two years, we have better capacity retention rates and higher numbers of active brokers in 25 major cities, with a focus on retaining high-quality brokers, enabling us to benefit more from market rebounds in the recovery cycle.

For different cities, in top-tier cities, we will continue to explore opportunities for specific segmented markets, such as mid-to-high-end markets and suburban markets.

In competitive cities, we have expanded relatively quickly since the second half of last year. We have greater opportunities in these cities because our scale still has significant room for improvement, and the market is relatively decentralized. For example, our market penetration in Shanghai is still significantly lower than in Beijing.

Regarding new home transactions, this year, we will always emphasize risk aversion as the top priority. We will not actively relax risk control or compromise business security, especially the safety of fee rates that brokers can receive. But we will make dynamic adjustments according to market and developer recovery conditions. With improved cash flow, our accounts receivable and payable will also improve, allowing us to expand potential markets for cooperation and new home transaction services.

Q3: Can you talk about this year's stores and brokers? Last year, you already increased their productivity. How can you further increase productivity without losing very strong cultural and performance factors?

A3: We do not plan to close stores and brokers on a large scale. As we mentioned last quarter, our focus is on improving the efficiency and income of each store and broker, rather than pursuing expansion in scale. Only when the income of stores and brokers steadily increases can the industry retain high-quality talent.

In addition, given the trend of current market supply-demand balance, we expect that the supply of the intermediary industry will not increase significantly after this market recovery.

We plan to focus on large and high-quality stores this year and promote stores of Fangjianghu as a platform for entering Beike. We plan to recruit brokers in the spring recruitment season and then maintain a stable number of brokers. This includes increasing the proportion of medium brokers and the number of brokers in a few cities that require skill functions.

In the long run, there is huge room for improvement in the total productivity of brokers. Based on Beijing, the productivity of brokers in Beijing is 3-4 times higher than the industry average. For Lianjia, excluding Beijing and Shanghai, the productivity of brokers in Lianjia is 1.3 times that of the industry average, and our goal this year is to further increase this ratio to 1.4 times by connecting Deloitte and Beike stores. Although we will not set a specific target for broker productivity this year, we will improve a series of operational indicators to improve broker productivity. These metrics include the cross-brand collaboration ratio, the housing tools attached to the listing agent, the management of price differences between listing and transaction prices, and the ACN role space ratio.

**Q4: Regarding cost optimization, is there further room for improvement in cost optimization? What level of profitability can be achieved?**

A4: In terms of cost control, our fixed costs for the agency business decreased by 36% in the fourth quarter. The proportion of its variable costs to revenue decreased by 5.6 percentage points year-on-year.

If we exclude the impact of Shengdu, cost reductions will be more significant. In the fourth quarter, prepaid commissions accounted for 44% of the total commission for new homes, higher than the 20% in the first quarter. This ensured the safety of accounts receivable for new homes.

We **will implement incentive measures to develop and retain our employees**, and hope to offset the costs of these measures through **continuously controlling non-personnel expenses**.

Overall, **our financial strategy will continue to focus on efficiency, optimizing costs and expense levels to neutral levels. At the same time, we will continue to strictly control risks, strike a balance between efficiency, accounts receivable collection speed, and skill capabilities, and ensure the safety of accounts receivable.**

We will strengthen cooperation with upstream and downstream partners and develop home decoration and decoration businesses. In addition to ensuring that its total loss rate does not further expand, we will also seize opportunities to strengthen our core capabilities, including product, supply chain, and service delivery capabilities, and invest in high-quality service providers.

Overall, **we will reflect on some redundant investments we made in the previous round of market growth, and strictly control costs and expenses while continuing to promote business growth, balancing goals and profitability.**

**Q5: What are the plans for expanding scale and improving tool efficiency? Please share your key focuses and goals for 2023 in terms of expansion strategy and investment scale.**

A5: 2022 is the year when we develop and root our one-body, two-wing strategy. We are developing in home decoration, furniture business, and leasing business. In terms of home decoration, our GTV increased by more than 30% year-on-year. The total income in Beijing and Hangzhou both reached 6 billion US dollars.

We reached the first milestone of leasing more than one billion leasing contracts per year, and entered 30 cities in 2022, managing a total of 120,000 leasing units.

**Our goal for 2023 is to go deep into a few key cities, use them as a benchmark, and start replicating and promoting this benchmark standard in more cities from 2024.**

**Risk Disclosure and Statement of this article:** \[**Dolphin Research Disclaimer and General Disclosure**\](https: //support.longbridge.global/topics/misc/dolphin-disclaimer)

### Related Stocks

- [KE Holdings Inc. (BEKE.US)](https://longbridge.com/en/quote/BEKE.US.md)
- [BEKE-W (02423.HK)](https://longbridge.com/en/quote/02423.HK.md)