On August 21st, KE Holdings Inc. (NYSE: BEKE, SEHK: 02423) released its second-quarter 2026 financial results, reporting revenue of RMB 24.5 billion, a year-over-year decline of 5.7%, alongside net profit of RMB 2.624 billion, an impressive surge of 100.8%. This scenario of declining revenue juxtaposed with soaring profitability is noteworthy.
Examining additional metrics reveals adjusted net profit of RMB 3.185 billion, up 74.9% year-over-year; gross profit of RMB 7 billion with a gross margin of 28.6%, an improvement of 6.7 percentage points; and an adjusted operating margin of 14.6%, marking a three-year high. Apart from the revenue dip, nearly every profitability indicator demonstrated substantial year-over-year gains. This contrast is not coincidental but directly tied to a pivotal shift in the real estate sector.
Navigating a New Era with Limited Options
Data from the Ministry of Housing and Urban-Rural Development indicates that in the first half of 2026, existing home transactions accounted for 50.4% of the total national residential transaction volume. In 18 provinces, the transaction area of second-hand homes surpassed that of new homes. Specifically, in Beijing, the floor area of second-hand home transactions was 2.2 times that of new homes, and in Shanghai, it was 2.3 times. The Ministry has decisively stated that China's real estate market has transitioned from an era of incremental growth to one focused on the existing housing stock.
In the past growth-driven era, key metrics were new construction starts, development investment, and new home sales – scale and speed were paramount. However, in the current stock era, priorities have shifted to the vibrancy of existing home transactions, the scale of the rental market, the penetration of residential services, per-store output, personnel efficiency, and cash flow quality. On March 29th, Stanley Peng, Chairman and CEO of KE Holdings, articulated this challenge in an internal letter, stating that while consumer demand represents the most powerful force of change, the company has no choice but to adapt. He emphasized that clinging to outdated growth-focused strategies would only alienate them from consumers. Peng underscored that while scale and market share remain relevant, his focus is on ensuring more service providers can consistently close deals, improve productivity and income, and maintain healthy store profitability and service quality. This philosophy was echoed in the subsequent earnings call, with the second-quarter results serving as a testament to this strategic direction.
Prioritizing Efficiency Over Scale
The divergence between revenue and profit becomes clear when dissecting the four core business segments. In the existing home segment, the highlight was structural improvement. The GTV reached RMB 629.9 billion, up 8.0% year-over-year, with franchise stores contributing RMB 423.3 billion, a 14.3% increase. The growth driver is particularly telling: while the number of franchise stores and agents remained largely flat, per-store transaction volume for existing homes rose about 26%, and overall franchise transaction volume increased nearly 30%. Directly-operated Lianjia saw an even more impressive ~50% year-over-year increase in average existing home transactions per active agent. Despite a slight reduction in the number of stores and agents, the productivity of each unit has soared. Consequently, the contribution margin for the existing home business expanded from 39.9% to 46.1%.
This efficiency-focused logic is mirrored across other operations. New home GTV was RMB 258.4 billion, a modest 1.2% increase, yet its contribution margin improved from 24.4% to 28.8%, achieved by concentrating resources on premium and initial launch projects rather than expanding the network. Home renovation revenue decreased 30.1% to RMB 3.2 billion, but its contribution margin hit a record high of 39.6%, up from 32.1%, following the strategic exit from low-efficiency cities and low-quality customer acquisition channels. Rental revenue dipped 14.8% to RMB 4.8 billion, with its contribution margin rising from 8.4% to 15.3%, as the "Worry-free Rental" model shifts towards a lighter, lower-risk net method, boosting per-manager property volume by about 40%. Each business unit is pursuing the same objective: moving from scale growth to enhancing unit output and profit conversion.
Furthermore, operating cash flow for the quarter was a net inflow of RMB 6.6 billion, with total cash, equivalents, restricted funds, and short-term investments reaching RMB 56 billion. The receivables turnover period for new homes shortened to approximately 39 days, a 12-day improvement year-over-year, indicating faster collections and reduced risk exposure. The entire resource allocation logic has been re-evaluated, making profit and cash flow the more accurate yardsticks of performance when scale is no longer the sole objective.
Re-engineering On-the-Ground Services
Behind these numbers lies a series of concrete actions initiated after the CEO's letter in late March. KE Holdings is redesigning professional roles, collaboration processes, and service tools to address key consumer questions about needs clarification, options comparison, and price and transaction timing. New mechanisms include community property managers, community open days, a "sincere sale" service, online service assistants, and embracing new media for decision-making content, alongside efforts to leverage experienced service providers' skills and introduce AI assistants for agents. The "Sincere Sale" product, which helps owners find committed buyers quickly, with an average time from offer to deal of just 2 hours, was first launched in Beijing. By August, it covered the entire city, and in its first month, it included over 4,000 listings, with nearly half seeing their sales cycle shortened to 8 days.
Following this, Beijing Lianjia piloted "Community Open Days" in 67 residential complexes, organizing concentrated weekend viewings. This initiative led to an average 2.6-fold increase in daily viewings, and participating customers were twice as likely to sign a contract within 7 days. Shanghai later adopted this model. By April, the transformation extended to the other end of the service chain with Beijing Lianjia selecting "Community Property Managers" – expert agents assigned to key residential complexes to clarify differences between properties and assist clients in their decisions. This involved restructuring operational units based on actual customer viewing patterns rather than outdated geographic boundaries. The pilot at the Star River Bay store yielded immediate results, with monthly viewing volume up 40% and monthly transactions exceeding the entire year of 2025. These are just a few examples, alongside new offerings like online service assistants, owner price adjustment verification, and payment security commitments. All these initiatives share a common goal: returning resource allocation power from headquarters and rigid processes to frontline service providers and consumers. Peng was direct during the earnings call, stating his only requirement for managers is to be genuinely present on the ground. He himself has spent more time visiting stores, inspecting properties and construction sites, and engaging with clients, agents, and store owners on specific issues.
This top-down transformation has converted "presence" into efficiency and tangible results. In the first half of the year, while national existing home transaction area grew 10.2% year-over-year, KE Holdings saw its transaction volume surge 25% – approximately 2.5 times the market rate. By seizing the market window and adjusting resource allocation, transaction conversion, and cost structure, the company is amplifying opportunities and accelerating its competitive advantage.
Service as the Definitive Answer
As China's property market shifts its primary value drivers from development investment to rental, transactions, operations, and refurbishment, KE Holdings' second-quarter profit structure serves as a microcosm of this macroeconomic transition. In an era where "good service" is paramount, success is now measured by transaction efficiency, unit output, cash flow quality, and customer trust. Peng's internal letter encapsulated this vision, stating that while the past 25 years were about changing the industry's connection methods, the future holds the opportunity to participate in a grander evolution by transforming how services are delivered. The net profit of RMB 2.624 billion is a milestone in this transformation – not a windfall from market rallies or the product of scale expansion, but the profit elasticity released by existing operations through enhanced resource efficiency. During the quarter, KE Holdings continued its share repurchase program, including its first buyback on the Hong Kong exchange, bringing total buybacks to approximately USD 2.99 billion since September 2022 – a direct reflection of management's confidence in the company's operational quality and long-term value. Peng concluded, "The second quarter is not the end, but the beginning."
Disclaimer: This report is independent third-party research based on publicly disclosed information from the listed company. It aims for objectivity but does not guarantee accuracy, completeness, or timeliness. The content does not constitute investment advice.