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The real estate market is fluctuating downward, and the agents feel it most directly. In the first half of 2024, Shell's net profit fell by 40%. In order to cross the bottom of the long cycle, how effective is Shell's exploration in the fields of real estate development and home decoration?

Author | Zhan Fangge

Editor | Xing Yun

No one knows the real estate market better than real estate agencies.

Recently, the leading intermediary agency Beike released its operating results for the first half of the year. In the first half of 2024, Beike's total transaction volume decreased by 16.2% compared with the same period in 2023. The company's net profit also experienced a significant decline, with a drop of 42.7%. But at the same time, the number of brokers has stabilized and has increased slightly compared with the same period last year.

This is basically consistent with the market situation in the first half of the year: the intensive release and implementation of favorable real estate policies since May did bring greater transaction volumes to the market in June and July, but still failed to reverse the overall downward trend in the first half of the year.

In order to cope with the bottom of this overly long cycle, Beike proposed the "one body and two wings" strategy in 2021, and upgraded it to "three wings" in 2023, namely home decoration, leasing, and Beihaojia, which entered the real estate development field.

If we disassemble Shell's semi-annual report from each link of the industrial chain, we will find that many problems can also be attributed to the real estate market.Behind these problems, there are also new opportunities.

1. New houses are hard to sell?

According to the financial report of Shell, by mid-2024, Shell achieved a total transaction volume of 1.47 trillion yuan, a decrease of 16.2% from the same period last year. Among them, the largest decline was in new home transactions, which decreased by 32.4% year-on-year.

In fact, since 2021, the proportion of Shell's new home transaction business in total revenue has been declining year by year. Wind data shows that this year, new home transaction services contributed 57.55% of revenue, which dropped to 47.22% in 2022 and further dropped to 32.33% in mid-2024.

On the one hand, this is a continuation of Shell's own strategy: home decoration and inclusive leasing businesses are continuing to develop rapidly. On the other hand, such a business model can also be seen as Shell's feedback on the current state of the real estate market as a listed company.

Data from the National Bureau of Statistics show that in the first half of 2024, the national residential sales area and sales volume both declined year-on-year, with a decrease of 21.9% and 26.9% respectively. As of the end of June, the area of ​​commercial housing for sale increased by 23.5% year-on-year.

In simple terms,Fewer houses are being sold than at the same time last year, and more houses are being unsold.

As a result, destocking has become one of the most important tasks for each city. Many cities have begun to destock by officially purchasing existing commercial housing as affordable housing, including first-tier cities such as Guangzhou and Shenzhen. In Zhuhai and other places, such transactions have already begun. Previously, the listed company Huafa Group issued an announcement stating that it would conduct such transactions with Zhuhai Huafa Group or its subsidiaries, which is controlled by the State-owned Assets Supervision and Administration Commission, with a total transaction amount not exceeding 12 billion yuan.

Challenges also mean opportunities. New homes are difficult to sell, developers' turnover is poor, and land purchases are also reduced, which actually leaves a gap in the market. Another group of developers with spare capacity also began to rise at this time.

First, a group of real estate companies with state-owned backgrounds, led by Jianfa, began to expand the market nationwide. According to data from the China Index Academy, from January to July 2024, Jianfa Real Estate ranked first with a land acquisition amount of 27.9 billion yuan, and among the top 10, only Binjiang Group did not have a state-owned background.

in addition,Shell, which is known for its intermediary services, has also begun to try to extend its business to the upstream industry chain.In 2023, Shell upgraded its previous "one body and two wings" strategy to "one body and three wings", and the extra wing is the land acquisition entity - Beihaojia. Public information shows that Beihaojia's self-positioning is a data-driven residential development service platform, mainly providing comprehensive solutions including product positioning, financial services, marketing services, etc. to owners, developers and other partners.

On July 30 this year, Beihaojia spent 134 million yuan to acquire two commercial and residential plots in Xi'an, and will cooperate with Greentown Management for development. Beihaojia revealed to the outside world that it will be responsible for product positioning, early financial support and marketing, while Greentown will be responsible for construction management, brand output and later operations.

2. Is it worth investing in second-hand houses again?

In the second-hand housing market, Beike's revenue situation is slightly better than that in the new housing market.

In the first half of 2024, the total transaction volume of its existing housing stock was more than 1 trillion yuan, a decrease of 8.7% from the same period in 2023. The net income generated by Shell itself from the transaction of existing housing was 16.3% less than the same period in 2023, reaching 13.1 billion yuan.

The financial report explained that the decrease in net income was mainly due to the fact that its headquarters is located in Beijing, and the Beijing Lianjia stores experienced a commission reduction. In addition, the increase in the contribution of the total transaction volume of existing housing transactions facilitated by "Bei Lian" brokers also had an impact on net income.

"Bei Lian" can be regarded as other real estate agencies that use the Beike system to conduct transactions. They pay to use Beike's transaction system and other services. Many of them are small-scale agencies with deep local roots.

As a leading real estate agency, Beike's revenue does reflect the current situation of the second-hand housing market to some extent.Commission reduction in first-tier cities,stillBeilian, which charges relatively lower agency fees, has increased its contribution to the total transaction volume, but the underlying reason is the weakness of the transaction itself.It was also under this circumstance that the market ushered in waves of relaxation.

After a series of commercial loan interest rate cuts and the relaxation of down payment ratios, transaction volume has indeed seen a certain degree of increase. According to information from the Zhuge Data Research Center, in June 2024, the transaction volume of second-hand houses in 14 key cities increased by 27.89% year-on-year, which was the first rebound in transaction volume after four consecutive months of decline.

Second-hand housing continues to trade price for volume.Investors who have been silent for a long time are gradually waking up.

According to China Business News, the transaction volume of "old, dilapidated and small" houses in core cities such as Shanghai, Hangzhou and Guangzhou has continued to rise this year. The logic of investors is also very simple: more price cuts, low total price, and whether the rent can cover the interest on the home loan. According to information from the Zhuge Data Research Center, in the first half of 2024, the rental return rate in 50 key cities has risen to 2.03%, while the 5-year deposit rate of most banks has dropped to below 2%.

Against the backdrop of asset shortage, properties with a good rental-to-sale ratio have become good investment targets.

3. Is the leasing business a line of defense that cannot be breached?

Compared with the speculation in the rising cycle of real estate, investors at this time are also experiencing a change in mentality. In the past, people invested in real estate for the rapid appreciation of the property in the short term, but now they are weighing the rental-to-sale ratio supported by rent, and the logic of long-term holding.

In August, the central bank stated in its monetary policy implementation report that rent has become the core variable affecting housing value. This is also one of the characteristics of the process of real estate transformation from incremental market to stock market.

At present, although the buying and selling market has experienced obvious ups and downs, the rental market remains relatively stable, especially in first-tier cities. According to data from China Index Academy, in the first half of 2024, the cumulative decline in rents in 18 cities including Beijing and Guangzhou was less than 1%, while the cumulative decline in the average residential rent in first-tier cities was 0.44%, which remained stable overall.

Beike is also continuing to expand its survival path in such a market. As one of the "three wings" in the "one body", its net income from house rental services increased from 2.1 billion yuan in the same period last year to 5.8 billion yuan this year, an increase of 176.7%.

The company said the main reason for the growth wasThe scale of managed properties under the worry-free rental model has increased.It is reported that this model is similar to traditional property management, but compared with the "second landlord" model that earns a high premium, the profit is thinner and the model is more stable.

However, the ultimate secret of real estate investment based on the rental-to-sale ratio is actually to believe that the rental market will continue to be stable. But under the current circumstances, whether the rental market has returned to healthy development or has not yet been broken as the last link in the real estate chain, perhaps no one dares to make a conclusion.

4. Is the decoration business really popular?

As a real estate agency, the decrease in Shell's revenue is a predictable result under the market environment. But in addition to the decrease in revenue, Shell's profit margin is also decreasing.

Financial report data shows that in 2024, its gross profit decreased by 9% compared with the same period last year, and the gross profit margin dropped from 29.4% in the same period last year to 26.8% this year.

The company said that the decline in gross profit margin was mainly due to the decrease in the contribution of the second-hand housing transaction business with higher gross profit to revenue and the decline in the profit margin contributed by the new housing business. Fortunately, Shell's fastest-growing sector in recent years -The profit margin of home furnishings and decoration has also continued to increase, and has now reached 31.0%.

More importantly, the proportion of this business in total revenue continues to rise. As of mid-2024, the total transaction volume of home furnishings is RMB 7.6 billion, an increase of 24.0% over the same period in 2023, and revenue increased by 59.9% year-on-year, accounting for 16.23% of total revenue.

Beike said that in 2024, it will comprehensively promote the construction of digital system capabilities and continue to optimize delivery capabilities, shortening the construction period by improving order dispatch efficiency and improving construction processes.

However, the market share of Shell's home improvement business is not as high as that of intermediary services, so the development of the company's business cannot represent the overall situation of the decoration market. Although the increase in second-hand housing transactions from June to July is bound to increase the number of orders in the decoration market, on the one hand, the transaction volume has not achieved continuous and stable growth, and has shown signs of weakness since August. On the other hand, for the decoration market, budget and order volume are equally important.

Someone working in the decoration industry in Beijing told Leopard Change that the decoration market has not been optimistic since the beginning of this year. The most intuitive feeling is that "everyone has no money." The reduction in the owner's budget is reflected in almost all aspects. In the past, changes in the layout of old houses were almost indispensable, but now constrained by the budget, many people choose to accept the existing layout.

"I want to use multi-layer solid wood for the floor, but I don't even have the budget for good laminated wood," said the above person. The price difference between the two types of flooring is about 100 yuan per square meter. Under pessimistic expectations, people's extreme pursuit of saving money is also reflected in home decoration consumption.

The 2024 China Home Furnishing Consumer Research Report released by the new residential industry research service organization "Sloth Life Fine" also mentioned that since this year,The decision-making cycle has been significantly lengthened, and strict budget control has become the norm.The business operations of enterprises will be more difficult than in 2023.

The real estate industry chain is so long, from buying and selling, leasing to home decoration, all prosper and all suffer. Every link in the industry chain will be directly and continuously affected. But every cycle can actually be called a reshuffle. Whether it is entering the field of real estate development at this time, or continuing to develop the home decoration business, it can actually be seen as Shell's attempt to take advantage of the cycle and fight against the cycle.

Everyone knows that the waves are fierce, and there are always surfers waiting for waves at the beach.