January 28, 2010 / 6:19 PM / 8 years ago

UPDATE 2-China real estate IPO closes up after issue downsized

* Shares close at $7.30, 4.3 pct above IPO price

* Trading under symbol “CTC” on NYSE

(Adds background, analyst comment, share closing price)

By Clare Baldwin

NEW YORK, Jan 28 (Reuters) - Shares of Chinese real estate company IFM Investments Ltd CTC.N closed higher on Thursday after it cut the value of its initial public offering amid concerns of a Chinese real estate bubble.

China’s real estate market has grown along with the country’s economy and has benefited from improved access to credit, but some analysts warn the boom might not last.

IFM is heavily exposed to the Chinese residential real estate market. It has offices in 34 major cities and has about 4.7 million property listings. It sells mortgage management and franchise services, but in the first three quarters of 2009, IFM’s company-owned brokerage offices accounted for more than 90 percent of its revenue.

The company said in a regulatory filing it plans to use the proceeds of about $83.6 million to open more offices, upgrade its systems and for general corporate purposes.

Fast growth in China’s residential property prices last year sparked fears of an asset bubble. In December, urban property prices rose 7.8 percent from a year earlier, the fastest pace in 2009 [ID:nTOE60D02M].

Now many fear government actions will cause the market to slow.

Premier Wen Jiabao, the cabinet and top officials have voiced concerns about the red-hot property market of the past month and the central bank in January raised reserve requirements for banks for the first time since a December 2008 cut to try to prevent any burst in asset bubbles. [ID:nTOE60C034]

Shares of IFM, which has a franchise agreement to sell real estate under the Century 21 brand in China, closed up 4.3 percent at $7.30 on its New York Stock Exchange debut.

But IFM cut the value of its IPO more than 40 percent on Wednesday, slashing both the number of shares it hoped to sell and the price range. The IPO ultimately sold 12.5 million American Depositary Shares for $7 in the downsized deal.

IFM’s new valuation swung to a discount compared with much-larger, publicly traded Chinese real estate services company E-House China Holdings Ltd EJ.N, said IPOdesktop.com President Francis Gaskins.

IFM had a price-to-book value of 2.02 at the IPO price compared with E-House’s 2.72.

“They’re branded, they have visibility, they’re a player in the market. But people are afraid their income statement will be hurt,” Gaskins said.


Some analysts say property prices are in line with expectations and concern over a real estate bubble is not warranted.

“We do not think there is a real estate bubble in China right now. Home prices have run up by 75 percent over 10 years over there, which is a reasonable amount over a large amount of time. In the U.S., between 2000 and 2006, home prices ran up over 100 percent,” said Wells Fargo Securities economic analyst Yasmine Kamaruddin.

Kamaruddin, who is based in Charlotte, North Carolina, said there may be real estate speculators in certain locations, but a number of factors, including low levels of household leverage, create an environment that’s more stable than people think.

Household leverage in China is 20 percent of GDP compared with 90 to 100 percent in the U.S., Kamaruddin said. Even if house prices decline, massive foreclosures seem unlikely.

IFM, which was co-founded by brothers-in-law Donald Zhang and Harry Lu, reported net revenue of 443.7 million yuan ($65 million) for the nine months ended Sept. 30, up 112.4 percent from a year earlier. Net income was 88.3 million yuan, compared with a loss of 99.3 million a year earlier.

The underwriters for the IPO were led by Goldman Sachs and Morgan Stanley. They have the option to purchase an additional 1.9 million shares.

Reporting by Clare Baldwin in New York; additional reporting by Julie Haviv in New York, Lee Chyen Yee in Hong Kong and Samuel Shen in Shanghai; editing by Andre Grenon, Phil Berlowitz

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