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How to Invest in Chinese Real Estate

China’s home prices edged up for a sixth straight month in November, a private survey showed, reinforcing signs of a gentle recovery in the property market as the government seeks to bolster economic growth.  The average home price in China’s 100 biggest cities rose 0.3 percent in November from October to 8,791 yuan ($1,400) per square metre, accelerating from October’s 0.2 increase, the China Real Estate Index System (CREIS).

The China market has rallied since summer as the iShares FTSE China 25 Index fund (FXI) is up 20% over the past 6 months.  A more direct play on Chinese real estate is in shares of SouFun Holdings Limited (NASDAQ: SFUN) which is the leading real estate and home furnishing Internet portal in China.  Soufun is up around 90% in the past 5 months as the Chinese real estate market has improved.

SouFun has built a large and active community of users who are attracted by the comprehensive real estate and home furnishing and improvement content available on its portal that forms the foundation of its service offerings. SouFun currently maintains 106 offices to focus on local market needs and its website and database contains real estate-related content coverage of 314 cities in China.

SouFun Holdings had Q3 EPS of $49.2 million, or $0.61 per diluted share, compared to consensus estimate of $0.55 per share earnings.  Revenues were $127.2 million, which is also above the $122.34 million analysts’ estimate.  In the same period last year, net income attributable to SouFun Holdings Limited was $42.9 million, or $0.52 per diluted share, on revenues of $108.6 million.

The company has also raised its revenue guidance for fiscal year of 2012 from between $390 million and $410 million to between $400 million and $420 million, representing a year-on-year increase of 16.6% to 22.2%.

SouFun has an annual dividend rate of 8.67%.  Soufun has paid dividends on an annual basis but there is a chance of the increase in frequency of distributions as the real estate market continues to recover.

SouFun Holdings has am equity summary score of 7.5 out of 10 for a Bullish Outlook.  First Call analysts have a BUY recommendation with 2.0 rating.  Based on 2013 EPS of $2.21, the 12-month price target is $29.

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