SouFun’s New China Homebuyer Incentive Sparks Stock Rout

SouFun Holdings Ltd. is posting the longest streak of losses since 2011 in U.S. trading on concern the new price incentives that the Chinese real estate website is offering homebuyers will erode profits.

The company’s American depositary receipts dropped 4.6 percent to $9.64 in New York yesterday, pushing the decline over eight straight days of losses to 23 percent. SouFun’s smaller peer E-House China Holdings Ltd. fell for a fifth day, closing the session at a two-month low. The Bloomberg China-US Equity Index slipped less than 0.1 percent to 113.93.

SouFun started a promotion last week offering buyers who purchase houses through its website as much as 150,000 yuan ($24,431) in assistance to cover their mortgage interest, renovation and management fees, details posted on the Beijing-based company’s website show. The incentives are part of an effort to lure buyers as home sales in China plunged 10.5 percent in the first seven months of the year. The nation’s broadest measure of new credit dropped 40 percent in August from a year earlier.

“The weakness in the property market forced SouFun to offer this type of promotion to encourage people to buy homes, which will pressure its margins,” Henry Guo, an analyst at JG Capital, said by phone from San Francisco. “This business model won’t work out well.”

The eight-day drop pushed SouFun’s ADRs down to the lowest level since July 9. E-House fell 3.5 percent to $9.80. E-House’s unit Leju Holdings Ltd. slumped 1.9 percent to $13.59.

Profit Outlook

SouFun’s third-quarter profit margin will fall to 41 percent from 56 percent in the same period last year, according to the average estimate of five analysts surveyed by Bloomberg. Second-quarter revenue increased 17 percent, after rising 33 percent in the prior three months.

More than 10,000 home buyers have submitted applications to SouFun for the incentives, according to the information on its website. SouFun plans to offer the program to customers in 84 Chinese cities, China News Service reported Sept. 15.

China’s central bank began to provide the country’s biggest lenders with 500 billion yuan of financing on Sept. 16 to bolster loan growth, according to a government official familiar with the matter, who asked not to be identified because the measure hasn’t been formally announced. The move comes after government data showed factory output in August rose the least since the 2008 global financial crisis, while fixed-asset investment and retail sales missed estimates.

The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., slipped 0.7 percent to $40.34, a six-week low. The Standard & Poor’s 500 Index gained 0.1 percent after the Federal Reserve pledged to keep borrowing costs low for a “considerable time” after its asset-purchase program ends.

The Hang Seng China Enterprises Index rallied 1.6 percent to 10,893.01, halting a five-day decline. The Shanghai Composite Index rose 0.5 percent to 2,307.89, after dropping the most since March in the previous day.

Before it's here, it's on the Bloomberg Terminal.