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SouFun Gets Boost From China's Strong Housing Market

Posted
8/5/2013 4:44:00 PM
By: Investor's Business Daily
Referenced Stocks:SFUN

China's economy may have cooled from the double-digit growth of the past decade, but its housing market has stayed hot.

Homeownership has turned into one of the most popular vehicles for investment in China amid increasing demand from the country's rapidly growing middle class, says Virendra Singh, director of economic research at Moody's Analytics. The rapid urbanization in China and increased population of city dwellers, he adds, have also created the increased need for housing.

Singh says the housing market has been hot for more than three years and continues to gain momentum. Total property investment in China, which is mainly by private developers, in residential and commercial real estate rose 20% vs. a year earlier to $600 billion in the 2013 first half, says Singh, citing data from the National Bureau of Statistics of China. Residential and commercial property sales in the year's first half shot up 43.2% from the prior year to roughly $585 billion, he says.

The rapid growth in China's housing market has been good news for Beijing-basedSouFun Holdings ( SFUN ). It's China's largest real estate Internet portal in terms of the number of page views and visitors to its websites in 2012. SouFun provides marketing, listing, e-commerce and other value-added services and products for China's real estate sector.

Sales Growth

SouFun has been seeing impressive growth since going public in September 2010. It's posted double-digit sales growth for 11 straight quarters, and double- and triple-digit profit growth in all but one quarter over the same time frame. First-quarter profits soared 135% to 40 cents a share. Revenue rose 56% to $91 million.

Analysts polled by Thomson Reuters expect SouFun to keep up its double-digit profit growth when it reports second-quarter results on Thursday. They forecast SouFun's earnings will rise 17% to 54 cents a share.

That would be a slower pace than it saw the prior three quarters. Analysts see sales rising 21% to $117.4 million.

T.H. Capital analyst Tian Hou sees the second quarter turning out better than the Street expected.

The reason? "When they gave guidance for the quarter and full year, they were cautious," she said. "However, the housing market moved up more aggressively than their cautiousness."

Tax Policies

The reason for the company's caution was related to the implementation of value-added sales tax policies in March. The housing market's transaction volume dropped significantly in April as the policies began to take effect, Hou wrote in a report, following the company's first-quarter earnings report on May 8, when it gave guidance.

But in May and June the market's transaction volume improved, Hou says.

SouFun benefited from growth in its listing services and its e-commerce business in the first quarter. Revenue from listing services soared 145.4% to $26.8 million primarily due to increased property listings from agency subscribers. The increase in listings was partially driven by the announcement of the housing-related government policies, which resulted in a significant increase in secondary home market transaction volume, the company says.

Membership Card

E-commerce sales surged 118.9% to $26.4 million due to the increase in property purchases through its SouFun membership service.

SouFun offers a membership card that offers its members free and paid services. The paid membership service allows members to buy residential property at a discount from partner developers. The amount of the discount and the cost to get it vary by city.

"There is strong demand in housing, and the discount is not small," said Hou. "If you are sure you're going to buy an apartment, why not pay to get the discount?" SouFun began offering the paid SouFun card membership services to property buyers to facilitate their transactions with property developers in the second quarter of 2011, the company said.

"This innovative service has been tested very effective in primary property transactions," SouFun said in a statement.

Hou says there are more than 100 developers participating in the discount program.

Analysts expect SouFun to keep up its momentum. They see full-year profit rising 24% to $2.53 a share. They forecast an 18% increase in 2014.

"In general, China has a high housing demand," said Hou. "People don't like to rent. They like to own."

Housing, she adds, has become a "savings" vehicle for a lot of Chinese residents.

"It's a major way for ordinary people to invest," she said.