Goldman Sachs Upgrades KE Holdings to Buy, Bullish on Secondary Market Recovery and Efficiency Gains

Overview

This report is Goldman Sachs' preview of KE Holdings' 1Q26 performance and rating adjustment. The core conclusion is that, benefiting from strong recovery in China's secondary property transactions, significant narrowing of declines in new home sales, and continuous improvement in operational efficiency, KE Holdings' earnings visibility has greatly improved. Goldman Sachs believes the current stock price offers an attractive entry point, hence upgrading the rating from Neutral to Buy and raising the target price. The report provides detailed analysis of recent high-frequency data, cost control measures, and long-term strategic transformation directions.

Core views

The secondary property market shows stronger-than-expected recovery. Data shows secondary property transaction volume in 39 key cities (excluding Beijing and Shanghai) tracked by KE Holdings grew 35% YoY in April, while Beijing and Shanghai grew ~24% YoY, both accelerating from March. Meanwhile, ASP declines narrowed, with three out of four months YTD showing sequential growth. Goldman Sachs expects secondary property GTV to achieve positive YoY growth from 2Q26 (estimated +5%), directly driving margin expansion (estimated 45.5% in 2Q26). New home sales declines have significantly narrowed, with potential inflection points in tier-1 cities being key factors to watch. According to CRIC data, April sales of top 100 developers fell only 9% YoY, much better than 4Q25 and 1Q26; new home sales in 50 cities fell only 2% YoY, with tier-1 cities up 1% YoY. Goldman Sachs' property team predicts Shanghai and Shenzhen home prices may bottom by end-2026 and rise 15% cumulatively by 2028. Consequently, KE Holdings' new home GTV is expected to resume positive YoY growth from 3Q26. Operational efficiency improvements are another major driver of profitability. In 2025, KE Holdings closed ~700 Lianjia stores, reducing agent count by 22% (~23,000) from peak, shifting focus to agent quality over quantity. This optimization is expected to reduce secondary property fixed costs by ~RMB900 million in 2026, lowering the ratio to secondary property revenue from 24% in 2025 to 20%. Additionally, non-agent headcount is decreasing, with 2026 non-GAAP OPEX expected to be ~RMB1 billion lower than 2025. In terms of per-agent productivity, transactions per agent rose from 8.4 in 2019 to 10.9 in 2025, with potential for 20-30% further improvement. Strategically, KE Holdings is transitioning from a transaction-centric platform to a consumer-centric value model. The Chairman's late March letter emphasized using AI for standardized tasks, evolving agents into trust-based service providers; expanding the ACN ecosystem to home renovation, rentals, and financial services; and repositioning offline stores as community service hubs.

Analysis framework

Goldman Sachs' analysis follows the path of 'macro industry tracking -> micro high-frequency data validation -> company financial model adjustments -> valuation reassessment.' First, tracking transaction volume and ASP changes in key cities confirms marginal improvements in industry fundamentals. Second, combining CRIC's new home sales data with internal property team forecasts for tier-1 city home prices identifies inflection points for new home business. Third, dissecting the company's cost structure quantifies savings from personnel and store optimizations. Finally, based on more optimistic revenue expectations and lower cost bases, earnings forecasts are raised, and target P/E multiples are increased (from 18.5x to 20x) to reflect improved market sentiment and valuation re-rating.

Methodology notes

• Industry Analysis FrameworkVolume-Price Breakdown

  Volume-Price Analysis

  The report breaks down GTV into volume and ASP for independent analysis. This helps identify whether growth is driven by market activity or price fluctuations, enabling more precise judgments on business quality and margin trends.

• Company Fundamentals & Financial FrameworkOperating/Financial Leverage Analysis

  Operating Leverage Effect

  The report focuses on how fixed cost reductions (e.g., store closures, headcount reductions) translate into margin improvements. When revenue recovers while fixed costs remain low or decline, operating leverage significantly amplifies net profit growth, a key method for assessing profitability resilience in platform companies.

• Valuation methodsPE/PEG valuation

  Forward P/E Valuation

  The report uses 2027 EPS estimates multiplied by target P/E multiples to calculate target prices. Comparing current valuation multiples with historical averages and standard deviations determines whether the stock is undervalued or overvalued, informing target multiple adjustments.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• KE Holdings (BEKE.US / 2423.HK)

  Direct beneficiary, as China's largest online-to-offline property transaction and services platform, directly benefiting from secondary market recovery and operational efficiency improvements.

  Strengths

  Extensive offline store and agent network, high ACN ecosystem barriers, strong resistance to AI disruption, far surpassing competitors in market share.

  Weaknesses

  New home business still faces developer inventory pressure; new businesses (home renovation, rentals) require investment and carry loss risks.

  Comparison

  Compared to other Chinese internet vertical platforms, KE Holdings faces less AI impact and lighter competition (second-largest player less than 1/10 its size).

  Risks

  Industry cyclicality, slower-than-expected agent penetration, intensified competition, fee pressure, new business failures, talent attrition.

Key data

• April Secondary Property Transaction Growth (39 Cities)+35% YoYExcluding Beijing and Shanghai; growth accelerated from March
• April Secondary Property Transaction Growth (Beijing & Shanghai)~24% YoYCombined growth rate for Beijing and Shanghai
• April Top 100 Developer Sales Growth-9% YoYSignificantly narrower than 4Q25's -35% and 1Q26's -24%
• 2026E Secondary Property Fixed Cost Savings~RMB900 millionFrom Lianjia store and agent optimizations
• 2026E Non-GAAP OPEX Savings~RMB1 billionLower than 2025
• New Target Price (US/HK)US$21 / HK$55Raised from previous target of US$19/HK$50

Impact & implications

For KE Holdings, secondary market recovery directly improves core revenue and margin prospects, while new home business stabilization removes major downside risks. Operational efficiency improvements mean more free cash flow and net profit at similar revenue levels, enhancing risk resilience and shareholder return potential. For the market, KE Holdings' recovery as a real estate services leader may signal the most resilient segment of China's property industry chain emerging from the trough first, helping restore investor confidence in the sector. Goldman Sachs believes consensus EPS upward revisions and improved valuation multiples will jointly drive stock price appreciation.

Risks

• Industry cyclicality and slow growth in China's housing market agent penetration
• Intensified competition (from other online platforms, national transaction firms, new home sales channels, traditional agents, and social media KOLs)
• Downward pressure on secondary and new home take rates exceeding expectations
• New initiatives (e.g., home renovation, rentals) incurring significant losses due to inefficient scale expansion or heavy marketing investments
• Talent retention challenges, with top agents potentially drawn to social media KOLs

What to watch

• Continued recovery trends in secondary property transaction volume and ASP
• Inflection points in tier-1 city (especially Shanghai, Shenzhen) new home prices and sales
• Execution of operational efficiency improvements, particularly further per-agent productivity gains
• Progress in new business (home renovation, rentals) revenue contribution and profitability