“If 60 to 70% of the people agree that you should do something, then you absolutely must not do it. If 50% agree that it is worth doing, you can try but I don’t encourage you to. If only 30% of the people think it’s worth going ahead, then you must quickly go ahead and not even wait until everyone understands what you are trying to do,” are words of advice from Mo Tianquan.
Mo knows a thing or two about succeeding against the odds. Backed by venture capital fund IDG, he started SouFun in 1999, which quickly became China’s largest internet property portal. Less than a decade later, SouFun went public on the New York Stock Exchange, making Mo a billionaire (he is worth $1.9 billion, according to Forbes China).
SouFun’s biggest rival E-House is hoping that it will also defy the odds when it launches an initial public offering for its Leju division. That’s because Leju, previously a joint venture between E-House and Sina called CRIC, was publicly listed on Nasdaq back in 2009 but was taken private again three years later because its shares never did very well (Sina remains E-House’s largest shareholder). Leju, like SouFun, offers advertising and listing services for homesellers.
The reason that E-House has decided to try another spin-off is investor interest in Chinese tech stocks. SouFun, for instance, saw its share price almost triple over the past year. “Across all business segments, the growth rate of e-commerce is the fastest in the internet industry. Moreover, e-commerce firms also fetch higher valuations compared with property stocks. So E-House, in spinning off Leju, has certainly considered that angle,” an industry analyst told Beijing Daily.
So far Leju has revealed little about the size of the offering, although Securities Daily reckons that it plans to raise no more than $200 million in New York, with E-House remaining as majority shareholder after the offering.
After Leju’s announcement it became clear that Tencent, China’s largest internet firm by market value, will spend $180 million on 15% of Leju before the IPO (it says it will purchase shares in the listing to maintain its 15% stake). The partnership will enable access to Leju’s property database via Tencent’s hugely popular mobile messaging application WeChat to further develop its e-commerce platform.
Leju’s sales have been growing rapidly. The company lures buyers with discounts when they purchase property from its advertisers. It also takes a small commission by linking up online users with offline property agents. In 2013, it made $170.2 million in revenues from e-commerce services, five times the amount it made the year prior.
SouFun has also been expanding its e-commerce platform. In addition to offering listings for furniture and appliance vendors, it has also set up a channel called New House Express, which allows property developers to operate a virtual store front on its site. Beijing-based developer Huayuan, which is controlled by the outspoken Ren Zhiqiang (see WiC162), is one of the first “tenants” on the portal, which serves as an online mall for property agents.
“Even though the business model still has some flaws, if you completely reject the internet that’s definitely not going to work,” Ren acknowledged, after a question about why he’s experimenting with the sale of new apartments online.
SouFun is also building ties with banks to offer financing to homebuyers. Since last November, new financial products offer members up to Rmb500,000 ($80,522) of unsecured loans at benchmark interest rates. Securities Times reckons that could be another reason why tech giant Tencent has invested in Leju. Tencent has now pushed into banking, so it may be paving the way to offering mortgages to homebuyers.
But the timing for Leju’s IPO doesn’t appear quite so auspicious. This week E-House’s own survey showed that prices of new homes in 288 major cities rose 8.1% in March from a year earlier, easing from February’s annual rise of 9.1%. That was the slowest gain in 11 months and the fifth consecutive month annual gains eased. “Most home buyers have kept a wait-and-see approach to the property market as they are not sure about the outlook for the sector,” says CREIS, a consultancy linked to SouFun.
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