KE Holdings (BEKE) Q3 2025: Home Rental Units Up 75%, AI Drives Margin Upside
KE Holdings’ third quarter showcased a pivotal shift from scale to efficiency, as the company’s AI-powered operational overhaul delivered record profitability in home rental and renovation segments despite persistent margin compression in core housing transactions. Management’s intensified share repurchases and city-level profitability milestones highlight a commitment to capital discipline and operational resilience, positioning BEKE for sustained value creation as China’s housing market enters a new phase of high-quality growth.
Summary
- AI Operationalization Accelerates: Automation and agent specialization are transforming rental and renovation economics.
- Home Rental Surges: Managed units rose 75%, driving record revenue and margin expansion in the rental segment.
- Efficiency Over Scale: Management signals a permanent pivot toward operating leverage and disciplined growth.
Performance Analysis
KE Holdings delivered modest revenue growth with total revenue up 2.1% year-over-year, despite a flat gross transaction value (GTV) and ongoing pressure in core housing transaction services. Gross margin compressed by 1.3 percentage points to 21.4%, reflecting mix shifts and declining contribution margins in higher-margin legacy segments. Notably, net income and non-GAAP net income both fell sharply, underscoring the challenge of maintaining profitability as the business model pivots.
Segment performance was highly differentiated. Existing home transaction revenue declined 3.6% year-over-year, while the new home segment saw revenue drop 14.1% as market dynamics favored existing home purchases over new builds. In stark contrast, the home rental business was a standout: revenue jumped 45.3% and contribution margin expanded 4.3 percentage points to 8.7%, powered by a 75% increase in managed rental units. Home renovation and furniture revenue held steady, but margin gains were achieved through supply chain and procurement efficiencies. Operating expenses were tightly managed, with sales and marketing down double digits, but R&D investment in AI continued to ramp.
- Rental Business Operating Leverage: Contribution profit from home rental services nearly tripled, reflecting scale and AI-driven process improvements.
- Core Transaction Margin Pressures: Existing and new home segments saw declining margins, as fixed costs outpaced revenue contraction.
- Share Repurchase Intensity: Buybacks reached $281 million in Q3, the highest in two years, signaling strong capital return discipline.
While legacy segments struggled against headwinds, newer business lines provided margin ballast and operational proof points for BEKE’s evolving platform model.
Executive Commentary
"We are strategically shifting our growth engine from scale to efficiency... The Home Seller Buyer Side Agent Specialization in Shanghai is an important initiative designed to meet the changing needs of our customers and marks a milestone in our shift from scale to efficiency."
Stanley Peng, Co-founder, Chairman & Chief Executive Officer
"Their [home renovation and rental] combined contribution profit to company's total gross profit reached record high. The cost and expenses of our core business segment were further optimized. We also significantly enhanced execution of shareholder returns with the single-quarter share repurchase spending reaching its highest level in past two years."
Tao Xu, Executive Director & Chief Financial Officer
Strategic Positioning
1. AI-Native Operations Drive Rental Breakthrough
AI integration is now core to BEKE’s rental business model, from property lead identification to dynamic pricing and risk management. The company’s “carefree rent” decentralized platform leverages AI for grid management, personnel deployment, and inventory optimization, resulting in a 10% workforce reduction and 10% unit growth in pilot cities. AI-driven productivity gains have enabled rental segment profitability at the city level, a first for the company and a rare achievement in the industry.
2. Agent Specialization and Incentive Realignment
In Shanghai, BEKE piloted a buyer-seller agent specialization model to address evolving customer needs and improve listing quality. Incentive structures were overhauled, raising the seller agent’s commission share and introducing new performance metrics. AI-powered listing scoring now guides agent focus, with high-scoring listings driving over 75% of transactions and supporting higher conversion rates.
3. Home Renovation: Selective Expansion and AI-Driven Lead Conversion
Home renovation and furniture services achieved city-level profitability through centralized procurement and productized showroom models. Expansion beyond core cities remains conservative, with AI deployed to identify high-potential leads and optimize agent engagement. Conversion rates in Beijing and Shanghai far outpace those in lower-tier cities, but the company is methodically building operational maturity before scaling aggressively.
4. Cost Structure Optimization and Capital Allocation
Cost discipline was evident across segments: labor costs fell over 20% in existing home transactions, and procurement costs dropped 20% in key categories. Store rationalization and rent negotiations further trimmed fixed expenses. Share repurchases accelerated, with over 11.5% of total shares retired since 2022, reflecting a shareholder-friendly capital allocation stance amid a volatile market backdrop.
5. New Home Segment: Market Maturity and Revenue Mix Shift
New home transaction growth slowed as price attractiveness shifted to existing homes and prior policy-driven sales created a high base effect. Brokerage penetration in new homes now exceeds 50%, with further growth targeted through lighter operational models (B-plus products) and expanded project collaboration. Management sees ample room for expansion in lower-tier cities and high-end upgrade projects, but acknowledges a more mature competitive landscape.
Key Considerations
BEKE’s Q3 marks a decisive move from growth-at-all-costs to operational discipline and targeted innovation. The company’s commitment to AI-native business processes, coupled with a willingness to rationalize costs and focus on profitable segments, is reshaping its competitive profile.
Key Considerations:
- AI as a Competitive Moat: Proprietary AI tools are delivering measurable efficiency gains in both rental and transaction businesses.
- Rental Segment Now a Margin Engine: Scale, process automation, and net revenue recognition are unlocking operating leverage in rentals.
- Legacy Segments Under Margin Pressure: Existing and new home transactions face structural headwinds from fixed costs and market maturity.
- Capital Allocation Discipline: Aggressive share repurchases signal management’s confidence and capital return focus.
- Measured Geographic and Product Expansion: Renovation and new home growth is paced by operational readiness, not market share grabs.
Risks
Margin compression in core transaction services, uneven geographic performance, and a cautious approach to expansion in lower-tier cities all pose strategic risks. Market volatility, regulatory uncertainties, and the sustainability of rapid AI-driven efficiency gains remain key watchpoints, especially as BEKE’s business mix evolves toward less proven segments.
Forward Outlook
For Q4 2025, BEKE guided to:
- Continued focus on AI integration and operational efficiency.
- Further margin gains expected in home rental and renovation services.
For full-year 2025, management maintained its strategic direction:
- Disciplined expansion of home renovation and rental footprint, with city-level profitability as a gating factor.
Management highlighted several factors that will shape results:
- Ongoing investment in AI R&D, now exceeding 600 dedicated personnel.
- Shareholder returns prioritized via continued share repurchases.
Takeaways
BEKE’s Q3 demonstrates the power of operational reinvention in a maturing real estate market.
- AI-Driven Efficiency: Rental segment transformation and agent specialization are yielding tangible margin and productivity gains.
- Disciplined Growth: Expansion in renovation and new home services is methodical, with profitability and operational maturity as preconditions.
- Investor Focus: Watch for further margin stabilization in legacy segments and the sustainability of AI-enabled operating leverage as BEKE scales its platform model.
Conclusion
KE Holdings’ third quarter underscores a strategic shift from scale to efficiency, with AI and operational discipline at the core of its evolving business model. While legacy transaction segments face headwinds, the rental and renovation businesses provide new growth and margin engines, supporting a more balanced and resilient platform for long-term value creation.
Industry Read-Through
BEKE’s pivot to AI-driven operations and margin-focused growth signals a new playbook for real estate platform businesses in China. As brokerage penetration plateaus and transaction volume growth slows, sector leaders will be judged on their ability to extract operating leverage from technology and process innovation. The success of BEKE’s rental and renovation segments highlights the potential for margin expansion in adjacent services, but also the need for rigorous cost management and disciplined capital allocation. Other industry participants should note the rising bar for technology adoption, focus on shareholder returns, and the importance of measured, profitability-driven expansion.