424B4 1 a2219748z424b4.htm FORM 424(B)4

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Filed Pursuant to Rule 424(b)(4)
Registration No. 333-194505

        10,000,000 American Depositary Shares

LOGO

Leju Holdings Limited

Representing 10,000,000 Ordinary Shares



        This is an initial public offering of American depositary shares, or ADSs, of Leju Holdings Limited, or Leju.

        We are offering 10,000,000 ADSs. Each ADS represents one of our ordinary share, par value $0.001 per share.

        Prior to this offering, there has been no public market for the ADSs or our ordinary shares. The initial public offering price per ADS is $10.00. Our ADSs have been approved for listing on The New York Stock Exchange, or the NYSE, under the symbol "LEJU."

        We are an "emerging growth company" under applicable U.S. federal securities laws and are eligible for reduced public company reporting requirements. Following the completion of this offering and taking into account the ordinary shares we will issue and sell to Tencent in the concurrent private placement, we will be a "controlled company" as defined under the Corporate Governance Rules of the NYSE because E-House (China) Holdings Limited, or E-House, will hold 76.3% of our then outstanding ordinary shares, assuming the underwriters do not exercise their over-allotment option, or 75.5% of our then outstanding ordinary shares if the underwriters exercise their over-allotment option in full. See "Principal Shareholders."

        Investing in our ADSs involves risks. See "Risk Factors" beginning on page 14.



        Neither the United States Securities and Exchange Commission, or the SEC, nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.



 
  Per ADS   Total  
Initial public offering price   $ 10.00   $ 100,000,000  
Underwriting discount   $ 0.70   $ 7,000,000  
Proceeds, before expenses, to Leju   $ 9.30   $ 93,000,000  

        The underwriters have an option to purchase up to an additional 1,500,000 ADSs from us at the initial public offering price less the underwriting discount to cover over-allotments.



        The underwriters expect to deliver the ADSs against payment in U.S. dollars in New York, New York on or about April 22, 2014.

Joint Bookrunners
               Credit Suisse   J.P. Morgan                  


China Renaissance

 

Macquarie Capital

 

China Merchants Securities (HK)

Prospectus dated April 16, 2014


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TABLE OF CONTENTS

 
  Page

PROSPECTUS SUMMARY

  1

RISK FACTORS

  14

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

  55

USE OF PROCEEDS

  56

DIVIDEND POLICY

  57

CAPITALIZATION

  58

DILUTION

  59

EXCHANGE RATE INFORMATION

  61

ENFORCEABILITY OF CIVIL LIABILITIES

  62

CORPORATE HISTORY AND STRUCTURE

  64

OUR RELATIONSHIP WITH E-HOUSE

  67

SELECTED CONSOLIDATED FINANCIAL DATA

  71

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  74

INDUSTRY

  100

BUSINESS

  106

REGULATION

  118

MANAGEMENT

  129

PRINCIPAL SHAREHOLDERS

  138

RELATED PARTY TRANSACTIONS

  140

DESCRIPTION OF SHARE CAPITAL

  148

DESCRIPTION OF AMERICAN DEPOSITARY SHARES

  158

SHARES ELIGIBLE FOR FUTURE SALE

  171

TAXATION

  173

UNDERWRITING

  180

EXPENSES RELATED TO THIS OFFERING

  188

LEGAL MATTERS

  189

EXPERTS

  190

WHERE YOU CAN FIND ADDITIONAL INFORMATION

  191

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

  F-1



        No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the ADSs offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

        Neither we nor any of the underwriters has done anything that would permit this offering or possession or distribution of this prospectus or any filed free writing prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus or any filed free writing prospectus must inform themselves about, and observe any restrictions relating to, the offering of the ADSs and the distribution of this prospectus or any filed free writing prospectus outside of the United States.

        Until May 11, 2014 (the 25th day after the date of this prospectus), all dealers that buy, sell or trade ADSs, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

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PROSPECTUS SUMMARY

        The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in our ADSs discussed under "Risk Factors," before deciding whether to buy our ADSs.

Our Business

        We are a leading online-to-offline, or O2O, real estate services provider in China. We offer real estate e-commerce, online advertising and online listing services through our online platform, which comprises local websites covering over 250 cities and various mobile applications. We integrate our online platform with complementary offline services to facilitate residential property transactions. In addition to our own websites, we also operate various real estate and home furnishing websites of SINA Corporation, or SINA, and Baidu Inc., or Baidu.

        E-Commerce.    We offer e-commerce services primarily in connection with new residential property sales. Our O2O services for new residential properties include selling discount coupons and facilitating online property viewing, physical property visits and pre-sale customer support. We earn revenue primarily from the sale of discount coupons used for property purchases.

        Online Advertising.    We sell advertising primarily on the SINA and Baidu new residential properties and home furnishing websites, each of which is operated by us. In addition, we are the exclusive advertising agent for the SINA home page and non-real estate websites with respect to advertising sold to real estate and home furnishing advertisers. We also have the exclusive right to sell Baidu's Brand-Link product for real estate related advertising.

        Listing.    We offer fee-based online property listing services to real estate agents and free services to individual property sellers. We operate the SINA and Baidu real estate websites for listings of existing residential properties for sale or lease.

        We have experienced substantial growth in recent years. Our total revenues have increased from $137.1 million in 2011 to $171.3 million in 2012 and to $335.4 million in 2013. We incurred net losses of $438.3 million in 2011 and $43.8 million in 2012 and generated net income of $42.7 million in 2013. We had adjusted net income of $11.6 million in 2011, adjusted net loss of $9.6 million in 2012 and adjusted net income of $63.4 million in 2013. Substantially all of our operations are in China. For information regarding adjusted net income (loss), see "—Summary Consolidated Financial Data—Non-GAAP Financial Measures."

Our Industry

        Real estate developers in China increasingly rely on online advertising to gain exposure to consumers. According to iResearch Consulting Group, or iResearch, a third-party market research firm, online advertising spending in China related to the real estate industry grew from approximately RMB0.8 billion in 2009 to RMB3.0 billion in 2012, representing a compound annual growth rate, or CAGR, of 53.6%. Historically, there were limited sources of comprehensive information on China's real estate market conveniently accessible by buyers, developers and other principal industry participants. However, technology is changing the way that consumers search for homes and real estate developers market new projects. Real estate information websites attract developers and sellers to list their properties online to gain maximum exposure to buyers, while buyers and agents are attracted to search for properties on these websites due to the vast amounts of information and services available, complemented by the ability to tailor search preferences.

 

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        As internet access and functionality improve, more and more consumers in China are purchasing products and services online. The growing population of paying users and greater spending per paying user in China is expected to drive growth in the e-commerce sector in China from RMB1.9 trillion in 2013 to RMB3.6 trillion in 2016, representing a projected CAGR of 24.8%, according to iResearch. Total online retail gross merchandise value, or GMV, in China as a percentage of total consumer spending in China is estimated to reach 10.8% in 2016 from 7.7% in 2013. In today's market, an effective combination of online information and marketing with strong offline services and transaction support is crucial to a successful e-commerce platform.

        O2O real estate services integrate online information and marketing with offline promotion and transaction support. On the online side, O2O real estate services offer a vast amount of internet user information and marketing tools to real estate industry players, while potential buyers have access to accurate property purchasing information and services, benefits such as discounts, and a reliable transaction platform. On the offline side, O2O real estate services include sales of discount coupons to potential property purchasers, co-ordination of property and showroom visits, property inspections and ratings issued by reliable third parties, as well as on-site transaction support.

Competitive Strengths

        Our key competitive strengths include the following:

    pioneer in China's O2O real estate services industry;

    comprehensive online real estate platform attracting customers from major internet entry points in China;

    scalable business model with high operating efficiency;

    nationwide geographic coverage with strong local presence, coupled with extensive membership base; and

    experienced and motivated management team.

Our Strategies

        We seek to maintain and strengthen our position as a leading O2O real estate services provider in China by pursuing the following strategies:

    continue to innovate through new service offerings;

    expand strategic partnerships with leading internet companies;

    further enhance our mobile applications;

    strategically strengthen our geographic coverage; and

    continue to attract and retain talent.

Our Challenges

        Our ability to execute our strategies is subject to risks and uncertainties, including:

    fluctuations in China's real estate market;

    the highly regulated nature of, and government measures affecting, the real estate and internet industries in China;

    our ability to compete successfully against current and future competitors;

 

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    our ability to continue to develop and expand our content, service offerings and features, and to develop or incorporate the technologies that support them;

    our limited operating history and lack of experience as a stand-alone public company, given our recent carve-out from our parent company E-House and prior reliance on E-House for various corporate services;

    our reliance on SINA, Baidu and others with which we have developed, or may develop in the future, strategic partnerships;

    substantial revenue contribution from a limited number of real estate markets, including Beijing, Shanghai, Guangzhou and Tianjin;

    complexities resulting from our ongoing relationships with E-House, such as potential conflicts of interest, less favorable terms in agreements with related parties and lack of control of the outcomes of shareholder actions, due to E-House's controlling ownership in our company;

    effectiveness of our contractual arrangements in providing operational control over our consolidated VIEs in China; and

    our ability to receive distributions from, and to make loans to, and direct investments in, our operating entities in China.

        Please see "Risk Factors" and other information included in this prospectus for a discussion of these and other risks and uncertainties that we face.

Corporate History and Structure

        Leju Holdings Limited was incorporated as our holding company in November 2013 by our parent company, E-House, a leading real estate services company in China listed on the NYSE. E-House will remain our parent company and controlling shareholder after this offering. Substantially all of our operations are conducted through the PRC subsidiaries and consolidated VIEs under China Online Housing Technology Corporation, or China Online Housing, Omnigold Holdings Limited, or Omnigold, China E-Real Estate Holdings Limited, or E-Real, and E-House China (Tianjin) Holdings Limited, or E-House Tianjin, each of which became our subsidiary in December 2013 as part of a restructuring by E-House. China Online Housing was incorporated as a joint venture of SINA and E-House in 2008 to operate the SINA real estate and home furnishing websites and related business, including online advertising services. China Online Housing became a consolidated subsidiary of E-House in 2009 and a wholly owned subsidiary of E-House in 2012. Omnigold was incorporated by E-House in October 2010 to operate the home furnishing services business and is currently 84% owned by us. E-Real and E-House Tianjin were incorporated by E-House in June 2011 and March 2012, respectively, and are wholly owned by us. E-Real was incorporated to operate the real estate e-commerce business. E-House Tianjin supports our real estate e-commerce business.

        Due to PRC legal restrictions on foreign ownership and investment in the internet information services and advertising businesses, we conduct such activities through contractual arrangements with our consolidated VIEs in China. Our e-commerce business with respect to new residential properties is operated through our contractual arrangements with Shanghai Yi Xin and its shareholders. Our e-commerce business with respect to home furnishing is operated through our contractual arrangements with Beijing Jiajujiu and its shareholders. Our online advertising business for new residential properties websites and our secondary listings business are operated through our contractual arrangements with Beijing Leju and its shareholders. We have entered into, through our PRC subsidiaries, Shanghai SINA Leju, Shanghai Yi Yue and Beijing Maiteng, a series of contractual arrangements with Beijing Leju, Shanghai Yi Xin, Beijing Jiajujiu and their respective shareholders. These contractual arrangements enable us to (i) direct the activities that most significantly affect the economic performance of Beijing

 

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Leju, Shanghai Yi Xin, Beijing Jiajujiu and their subsidiaries and branches; (ii) receive substantially all of the economic benefits from the three consolidated VIEs and their subsidiaries in consideration for the services provided by our PRC subsidiaries; and (iii) have an exclusive option to purchase all or part of the equity interests in the consolidated VIEs, when and to the extent permitted by PRC law, or request any existing shareholder of the consolidated VIEs to transfer all or part of the equity interest in the consolidated VIEs to another PRC person or entity designated by us at any time in our discretion. These agreements make us their "primary beneficiary" for accounting purposes under accounting principles generally accepted in the Unites States of America, or U.S. GAAP. For descriptions of these contractual arrangements, see "Related Party Transactions—Contractual Arrangements with Beijing Leju, Shanghai Yi Xin and Beijing Jiajujiu (the consolidated VIEs)."

        As a result of these contractual arrangements, Leju Holdings Limited, through PRC subsidiaries, is the primary beneficiary of these PRC entities and accounts for them as VIEs, and consolidates the financial results of these entities into our financial statements in accordance with U.S. GAAP. If our consolidated VIEs and their shareholders fail to perform their obligations under these contractual arrangements, we could be limited in our ability to exercise effective control over our consolidated VIEs. Further, if we are unable to maintain effective control over our consolidated VIEs, we would not be able to continue to consolidate our consolidated VIEs' financial results in our consolidated financial statements. We rely on dividends and service fees paid to us by our PRC subsidiaries and our consolidated VIEs in China. Entities apart from our consolidated VIEs contributed in aggregate 15.1%, 4.7% and 5.7% of our total net revenues in 2011, 2012 and 2013, respectively. Our operations not conducted through contractual arrangements with the consolidated VIEs primarily consist of outsourcing arrangements business, support services for online advertising business and agency services included with our e-commerce business. In 2011, 2012 and 2013, the total amount of service fees that our PRC subsidiaries received from our consolidated VIEs under all the service agreements between our PRC subsidiaries and consolidated VIEs was $16.1 million, $7.6 million and $24.5 million, respectively. As of December 31, 2013, the amount of service fees payable to us by the consolidated VIEs was $48.1 million, of which $22.5 million has been paid to us during the first two months of 2014. We are subject to foreign exchange control restrictions and restrictions on foreign investment into our PRC subsidiaries and consolidated VIEs, and the payment of dividends by our PRC subsidiaries to our Cayman holding company is subject to certain restrictions under the PRC laws and regulations, all of which may restrict our ability to access the revenues and cash of our PRC subsidiaries and consolidated VIEs. For a description of these contractual arrangements and certain related risks, see "Related Party Transactions—Contractual Arrangements with Beijing Leju, Shanghai Yi Xin and Beijing Jiajujiu (the consolidated VIEs)" and "Risk Factors—Risks Related to Our Corporate Structure."

 

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        The following diagram illustrates our corporate structure, including our principal operating subsidiaries and consolidated VIEs as of the date of this prospectus.

GRAPHIC


Notes:

(1)
Beijing Yisheng Leju Information Services Co., Ltd., or Beijing Leju, is a VIE established in China in 2008 and is 80% owned by Mr. Xudong Zhu and 20% owned by Mr. Zuyu Ding, and each of Shanghai Yi Xin E-Commerce Co., Ltd., or Shanghai Yi Xin and Beijing Jiajujiu E-Commerce Co., Ltd., or Beijing Jiajujiu is a VIE established in China in 2011 and is 70% owned by Mr. Zuyu Ding and 30% owned by Mr. Weijie Ma. We effectively control Beijing Leju, Shanghai Yi Xin and Beijing Jiajujiu through contractual arrangements. See "Related Party Transactions—Contractual Arrangements with Beijing Leju, Shanghai Yi Xin and Beijing Jiajujiu (the consolidated VIEs)."

(2)
The registered business scope of each of Shanghai Yi Yue Information Technology Co., Ltd., or Shanghai Yi Yue, Shanghai Xiangle Information Technology Limited, or Shanghai Xiangle, Shanghai SINA Leju Information Technology Co., Ltd., or Shanghai SINA Leju, Shanghai Fangxin Information Technology Co., Ltd., or Shanghai Fangxin, and Beijing Maiteng Fengshun Science and Technology Co., Ltd., or Beijing Maiteng contains the business of development of computer software which falls in the encouraged category for foreign investment in the Foreign Investment Industrial Guidance Catalogue. The registered business scope of each of E-House City Rehouse Real Estate Broker (Shanghai) Co., Ltd., or City Rehouse, and all its subsidiaries contains the business of real estate brokerage service which falls in the restricted category for foreign investment in the Foreign Investment Industrial Guidance Catalogue. Under PRC law, foreign investors are allowed to own 100% of PRC subsidiaries with a registered business scope which includes real estate brokerage services so long as they obtain necessary approval from the relevant government authorities. Currently, City Rehouse and all its subsidiaries provide supporting services to our e-commerce business and no longer provide any secondary real estate brokerage services. The other businesses listed in the registered business scope of each of Shanghai Yi Yue, Shanghai Xiangle, Shanghai SINA Leju, Shanghai Fangxin, Beijing Maiteng, and City Rehouse and all its subsidiaries are not listed in the Foreign Investment Industrial Guidance Catalogue and thus fall in the permitted category for foreign investment under PRC law.

(3)
We are in the process of deregistering Shanghai Xiangle.

 

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Recent Developments

        On March 10, 2014, we entered into a strategic cooperation agreement with Tencent, a provider of comprehensive internet services serving the largest online community in China. Pursuant to the strategic cooperation agreement, we and Tencent have agreed to jointly develop software and tools for use on Tencent's social communication platform, Weixin, to facilitate our opening of Weixin public accounts associated with real estate projects, which we believe will provide real estate information to Weixin users, enable us to better connect with our users through such accounts and expand payment solutions provided to users. We have agreed to adopt Weixin payment solutions as the default payment method for real estate O2O e-commerce transactions conducted by our users on Weixin. We and Tencent have also agreed to explore and pursue additional opportunities for potential cooperation, including but not limited to cooperation involving Tencent's social communications platform, including Weixin, "QQ" and "mobile QQ;" the social media service, "Tencent Weibo;" the social networking service, "Qzone;" and/or certain other Tencent wholly-owned internet properties in China.

        On March 21, 2014, we entered into a share purchase and subscription agreement with E-House and Tencent, pursuant to which Tencent has acquired from E-House 19,201,800 of our ordinary shares, or 15% of our total outstanding shares on a fully diluted basis, including all options and restricted shares and any other rights to acquire our shares that are granted and outstanding, for $180 million in cash. Concurrent with the consummation of this offering, Tencent will subscribe for an additional number of our ordinary shares, at a price per ordinary share equal to the initial public offering price per ordinary share, sufficient for Tencent to maintain a 15% equity interest in us on a fully diluted basis as of the consummation of this offering. In connection with the sale of shares to Tencent, we have entered into an investor rights agreement with E-House and Tencent, which grants E-House and Tencent certain registration rights with respect to our ordinary shares owned by them, grants certain board representation rights to Tencent and places certain restrictions on the transfer of our ordinary shares by E-House or Tencent.

        See "Related Party Transactions—Transactions and Agreements with Tencent" for more information.

Our Relationship with E-House

        We are a subsidiary of E-House, which will remain our parent company and controlling shareholder after this offering. E-House first reported its real estate online services business as a separate segment in its annual report on Form 20-F for the year ended December 31, 2009. Prior to this offering, E-House has provided us with accounting, administrative, marketing, internal control, customer service and legal support, and has also provided us with the services of a number of its executives and employees. Upon completion of this offering, E-House will hold 76.3% of our then outstanding ordinary shares, including 2,029,420 ordinary shares we will issue and sell in the private placement to Tencent concurrently with this offering and assuming the underwriters do not exercise their over-allotment option. Upon becoming a stand-alone public company, we will contract with third parties to provide certain services to us associated with our being a public company, the costs of which may be higher than our current cost allocation with E-House for the same services.

        We have entered into agreements with E-House with respect to various ongoing relationships between us. These include a master transaction agreement, an offshore transitional services agreement, an onshore transitional services agreement, a non-competition agreement and an onshore cooperation agreement. See "Our Relationship with E-House" and "Risk Factors—Risks Related to Our Carve-out from E-House and Our Relationships with E-House."

 

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Corporate Information

        Our principal executive offices are located at 15/F, Beijing Shoudong International Plaza, No. 5 Building, Guangqu Home, Dongcheng District, Beijing 100022, People's Republic of China. Our telephone number at this address is +86 10 5895 1000. Our registered office in the Cayman Islands is located at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman KY1-1104, Cayman Islands. In addition, we have 53 branch offices in mainland China and a branch office in Hong Kong.

        Investors should submit any inquiries to the address and telephone number of our principal executive offices. Our main website is leju.com. The information contained on our website is not a part of this prospectus. Our agent for service of process in the United States is Law Debenture Corporate Services Inc., located at 400 Madison Avenue, 4th Floor, New York, New York 10017.

Conventions that Apply to this Prospectus

        Unless otherwise indicated or the context otherwise requires, references in this prospectus to:

    "Leju," "we," "us," "our company" and "our" are to Leju Holdings Limited, its subsidiaries and its consolidated VIEs;

    "ADSs" are to our American depositary shares, each of which represents one ordinary share;

    "Beijing Leju" are to Beijing Yisheng Leju Information Services Co., Ltd.;

    "Beijing Jiajujiu" are to Beijing Jiajujiu E-Commerce Co., Ltd.;

    "Beijing Maiteng" are to Beijing Maiteng Fengshun Science and Technology Co., Ltd.;

    "China" or the "PRC" are to the People's Republic of China, excluding, for the purposes of this prospectus only, Hong Kong, Macau and Taiwan;

    "China Online Housing" are to China Online Housing Technology Corporation;

    "consolidated VIE" are to each of our consolidated variable interest entities, namely each of Beijing Leju, Shanghai Yi Xin and Beijing Jiajujiu;

    "CITIC" are to CITIC Bank Corporation Limited;

    "E-House" are to E-House (China) Holdings Limited, a Cayman Islands exempted company with limited liability, and its predecessor entities;

    "O2O services" are to online to offline services, including in connection with the marketing of new residential properties by developers;

    "ordinary shares" prior to the completion of this offering are to our ordinary shares, par value $0.001 per share;

    "RMB" and "Renminbi" are to the legal currency of China;

    "Shanghai SINA Leju" are to Shanghai SINA Leju Information Technology Co., Ltd.;

    "Shanghai Yi Xin" are to Shanghai Yi Xin E-Commerce Co., Ltd.;

    "Shanghai Yi Yue" are to Shanghai Yi Yue Information Technology Co., Ltd.;

    "Tencent" are to Tencent Holdings Limited or certain of its affiliates which have entered into agreements with us as described under "Related Party Transactions—Transactions and Agreements with Tencent," as applicable; and

    "U.S. dollars," "$," and "dollars" are to the legal currency of the United States.

        Unless the context indicates otherwise, all information in this prospectus assumes no exercise by the underwriters of their over-allotment option.

 

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The Offering

Offering price   $10.00 per ADS.

ADSs offered by us

 

10,000,000 ADSs (or 11,500,000 ADSs if the underwriters exercise their over-allotment option in full).

Concurrent private
placement

 

Concurrently with, and subject to, the completion of this offering, Tencent, our existing shareholder, has agreed to purchase from us such number of ordinary shares, at a price per ordinary share equal to the initial public offering price per ordinary share, sufficient for Tencent to maintain a 15% equity interest in us (on a fully diluted basis, including all options and restricted shares and any other rights to acquire our shares that are granted and outstanding, and assuming the underwriters exercise their over-allotment option to purchase additional ADSs in full) as of the consummation of this offering. As a result, Tencent will purchase 2,029,420 additional ordinary shares from us upon the completion of this offering. Our proposed issuance and sale of ordinary shares to Tencent are being made through a concurrent private placement pursuant to an exemption from registration with the U.S. Securities and Exchange Commission under Regulation S of the Securities Act. Tencent has agreed not to, without a prior written consent, directly or indirectly, sell, transfer or dispose of any ordinary shares acquired in the private placement for six months after the completion of this offering.

ADSs outstanding immediately after this offering

 

10,000,000 ADSs (or 11,500,000 ADSs if the underwriters exercise their over-allotment option in full).

Ordinary shares outstanding immediately after this offering

 

132,029,420 ordinary shares (including 2,029,420 ordinary shares we will issue and sell in the private placement to Tencent concurrently with this offering).

The ADSs

 

Each ADS represents one ordinary share, par value $0.001 per share.

 

 

The depositary will hold ordinary shares underlying your ADSs and the depositary or its nominee will actually be the registered owner of the shares. As an ADS holder, you will not have any shareholder rights and your rights will be limited to those of an ADS holder, according to the deposit agreement.

 

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    We do not expect to pay dividends in the foreseeable future. If, however, we declare dividends on our ordinary shares, the depositary will pay you the cash dividends and other distributions it receives on our ordinary shares after deducting its fees and expenses in proportion to the number of ordinary shares your ADSs represent, unless the depositary determines in its discretion that it is impractical or unlawful to make a distribution available to any ADS holder. If the depositary determines any dividends or distributions to be not practicable to any specific registered ADS holder, the depositary may choose any method of distribution that it deems practicable for such ADS holder, or the depositary may do nothing, in which case such ADS holder will receive nothing.

 

 

As an ADS holder, you will not be able to directly exercise your right to vote with respect to the underlying shares and you must vote by giving the depositary voting instructions. Neither the depositary nor its agents are responsible for any failure to carry out any voting instructions. There is no guarantee that you will receive voting materials in time to instruct the depositary to vote and it is possible that you will not have the opportunity to exercise a right to vote.

 

 

You may turn in your ADSs to the depositary in exchange for ordinary shares. The depositary will charge you fees for any exchange.

 

 

We may amend or terminate the deposit agreement without your consent. If you continue to hold your ADSs after an amendment to the deposit agreement, you agree to be bound by the deposit agreement as amended.

 

 

To better understand the terms of the ADSs, you should carefully read the "Description of American Depositary Shares" section of this prospectus. You should also read the deposit agreement, which is filed as an exhibit to the registration statement that includes this prospectus.

Over-allotment option

 

We have granted to the underwriters an option, exercisable within 30 days from the date of this prospectus, to purchase up to an aggregate of 1,500,000 additional ADSs.

Use of proceeds

 

We expect to receive (i) net proceeds from this offering of approximately $88.0 million, or approximately $101.9 million if the underwriters exercise their over-allotment option in full, after deducting underwriting discounts and the estimated offering expenses payable by us, and (ii) net proceeds of approximately $18.9 million from the concurrent private placement to Tencent, after deducting estimated fees and expenses payable by us in connection with the private placement, based upon the initial public offering price of $10.00 per ADS.

 

 

We plan to use the net proceeds of this offering as follows:

 

approximately $40.0 million to enhance our technology infrastructure and develop new products and services for our online platform;

 

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approximately $30.0 million for geographic expansion, including adding new business lines in existing cities and converting outsourced operations to direct operations in select cities; and

 

the balance for general corporate purposes, including funding potential acquisitions of complementary businesses and strategic investments, although we are not currently negotiating any such transactions.


 

 

See "Use of Proceeds" for more information.

Lock-up

 

We, our directors, executive officers and our existing shareholders have agreed with the underwriters not to sell, transfer or dispose of any ADSs, ordinary shares or similar securities for a period of 180 days after the date of this prospectus. See "Shares Eligible for Future Sale" and "Underwriting."

 

 

The share purchase and subscription agreement entered into between us, E-House and Tencent on March 21, 2014, provides for certain restrictions on the transfer of the ordinary shares purchased pursuant to the share purchase and subscription agreement. For an 18-month lock-up period that commenced on the purchase date, Tencent may not directly or indirectly transfer or pledge any of the ordinary shares purchased from E-House without our prior written consent. For a six-month lock-up period that will commence upon the purchase of the ordinary shares for which Tencent will subscribe concurrently with the consummation of this offering, Tencent may not directly or indirectly transfer or pledge any of such ordinary shares without our prior written consent. See "Related Party Transactions—Transactions and Agreements with Tencent."

Reserved ADSs

 

At our request, the underwriters have reserved for sale, at the initial public offering price, up to an aggregate of 800,000 ADSs offered in this offering to some of our directors, officers, employees, business associates and related persons through a directed share program.

Listing

 

Our ADSs have been approved for listing on the NYSE under the symbol "LEJU." Our ADSs and shares will not be listed on any other stock exchange or traded on any automated quotation system.

Payment and settlement

 

The underwriters expect to deliver the ADSs against payment therefor through the facilities of the Depository Trust Company, or DTC, on April 22, 2014.

Depositary

 

JPMorgan Chase Bank, N.A.

 

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Summary Consolidated Financial Data

        The following summary consolidated statements of operations data and summary consolidated statement of cash flow data for the years ended December 31, 2011, 2012 and 2013 and summary consolidated balance sheet data as of December 31, 2012 and 2013 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results are not necessarily indicative of results expected for future periods. Our summary consolidated financial data also includes certain non-GAAP measures, which are not required by, or presented in accordance with, U.S. GAAP, but are included because we believe they are indicative of our operating performance and are used by investors and analysts to evaluate companies in our industry. You should read this Summary Consolidated Financial Data section together with our consolidated financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.

 
  Year Ended December 31,  
 
  2011   2012   2013  
 
  (in thousands of $,
except share and per share data)

 

Summary Consolidated Statement of Operations Data

                   

Revenues

                   

E-commerce

        26,996     170,205  

Online advertising

    132,076     138,767     145,445  

Listing

    5,015     5,533     19,772  
               

Total revenues

    137,091     171,296     335,422  

Cost of revenues

    (37,583 )   (54,118 )   (63,991 )

Selling, general and administrative expenses

    (121,610 )   (163,535 )   (226,143 )

Goodwill impairment charge

    (417,822 )        

Other operating income

    14     153     600  
               

Income (loss) from operations

    (439,911 )   (46,203 )   45,888  

Income (loss) before taxes and equity in affiliates

    (440,261 )   (47,926 )   45,785  

Net income (loss)

    (438,252 )   (43,849 )   42,650  

Net income (loss) attributable to Leju shareholders

    (438,831 )   (44,759 )   42,525  

Earnings (loss) per share:

                   

Basic

    (3.66 )   (0.37 )   0.35  

Diluted

    (3.66 )   (0.37 )   0.35  

Weighted average numbers of shares used in computation:

                   

Basic

    120,000,000     120,000,000     120,000,000  

Diluted

    120,000,000     120,000,000     120,000,000  

 

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  As of December 31,  
 
  2012   2013  
 
  (in thousands of $)
 

Summary Consolidated Balance Sheet Data

             

Cash and cash equivalents

    71,090     98,730  

Accounts receivable

    86,652     87,316  

Total current assets

    178,968     222,788  

Intangible assets, net

   
163,204
   
128,530
 

Total assets

    393,867     402,938  

Amounts due to related parties

   
83,143
   
4,501
 

Total current liabilities

    159,661     123,584  

Total liabilities

   
200,588
   
151,148
 

Total Leju equity

    190,173     248,706  

 

 
  Year Ended December 31,  
 
  2011   2012   2013  
 
  (in thousands of $)
 

Summary Consolidated Statement of Cash Flows Data

                   

Net cash provided by operating activities

    11,175     3,325     83,423  

Net cash used in investing activities

    (26,618 )   (18,159 )   (16,657 )

Net cash provided by (used in) financing activities

    26,809     21,504     (41,360 )

Net increase in cash and cash equivalents

    12,709     6,836     27,639  

Cash and cash equivalents at the beginning of the year

    51,545     64,254     71,090  

Cash and cash equivalents at the end of the year

    64,254     71,090     98,730  

Non-GAAP Financial Measures

        The following table sets forth, for the periods specified, our adjusted income (loss) from operations, our adjusted net income (loss), and our adjusted net income (loss) attributable to Leju shareholders. We present these non-GAAP financial measures because they are used by our management to evaluate our operating performance, formulate business plans, and make strategic decisions on capital allocation. These non-GAAP financial measures enable our management to assess our operating results without considering the impact of non-cash charges, including share-based compensation expense, amortization of intangible assets resulting from business combinations and goodwill impairment charge. We also believe they are indicative of our operating performance and are used by investors and analysts to evaluate companies in our industry. These non-GAAP measures of our performance are not required by, or presented in accordance with, U.S. GAAP. Such measures are not a measurement of financial performance or liquidity under U.S. GAAP and should not be considered as an alternative to income from operations, net income or any other performance measures derived in accordance with U.S. GAAP or an alternative to cash flows from operating activities as a measure of liquidity. Our presentation of such measures may not be comparable to similarly titled measures presented by other companies. You should not compare such measures as presented by us with the presentation of such measures by other companies because not all companies use the same definition.

        We define adjusted income (loss) from operations as income (loss) from operations before share-based compensation expense, amortization of intangible assets resulting from business combinations and goodwill impairment charge.

 

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        We define adjusted net income (loss) as net income (loss) before share-based compensation expense (net of tax), amortization of intangible assets resulting from business combinations (net of tax) and goodwill impairment charge (net of tax).

        We define adjusted net income (loss) attributable to Leju shareholders as net income (loss) before share-based compensation expense (net of tax and non-controlling interests), amortization of intangible assets resulting from business combinations (net of tax and non-controlling interests) and goodwill impairment charge (net of tax and non-controlling interests).

        The use of the above non-GAAP financial measures has material limitations as an analytical tool, as they do not include all items that impact our income (loss) from operations, net income (loss), and net income (loss) attributable to Leju shareholders for the period. We compensate for these limitations by providing the relevant disclosure of our share-based compensation expense, amortization of intangible assets results from business acquisitions, and goodwill impairment charge both in our reconciliations to the financial measures under U.S. GAAP, and in our consolidated financial statements, all of which should be considered when evaluating our performance.

        The following table reconciles our adjusted income (loss) from operations, adjusted net income (loss) and adjusted net income (loss) attributable to Leju shareholders in the periods presented to the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP:

 
  Year Ended December 31,  
 
  2011   2012   2013  
 
  (in thousands of $)
 

Income (loss) from operations

    (439,911 )   (46,203 )   45,888  

Share-based compensation expense(1)

    13,542     15,134     6,311  

Amortization of intangible assets resulting from business acquisitions

    21,321     22,079     22,017  

Goodwill impairment charge

    417,822          
               

Adjusted income (loss) from operations

    12,774     (8,990 )   74,216  
               
               

Net income (loss)

    (438,252 )   (43,849 )   42,650  

Share-based compensation expense (net of tax)(1)

    13,542     15,134     6,311  

Amortization of intangible assets resulting from business acquisitions (net of tax)

    18,535     19,082     14,482  

Goodwill impairment charge (net of tax)

    417,822          
               

Adjusted net income (loss)

    11,647     (9,633 )   63,443  
               
               

Net income (loss) attributable to Leju shareholders

    (438,831 )   (44,759 )   42,525  

Share-based compensation expense (net of tax and non-controlling interests)(1)

    13,542     15,134     6,311  

Amortization of intangible assets resulting from business acquisitions (net of tax and non-controlling interests)

    18,342     18,719     14,197  

Goodwill impairment charge (net of tax and non-controlling interests)

    417,822          
               

Adjusted net income (loss) attributable to Leju shareholders

    10,875     (10,906 )   63,033  
               
               

(1)
Share-based compensation expense includes share-based compensation expenses recorded by us as well as share-based compensation expenses allocated from E-House to us.

 

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RISK FACTORS

        An investment in our ADSs involves significant risks. You should carefully consider all of the information in this prospectus, including the risks and uncertainties described below, before making an investment in our ADSs. Any of the following risks could have a material adverse effect on our business, financial condition and results of operations. In any such case, the market price of our ADSs could decline, and you may lose all or part of your investment.

Risks Related to Our Business

Our business is susceptible to fluctuations in China's real estate industry, which may materially and adversely affect our results of operations.

        We conduct our real estate services business primarily in China. Our business depends substantially on conditions in China's real estate industry and more particularly on the volume of new property transactions in China. Demand for private residential real estate in China has grown rapidly in recent years but such growth is often coupled with volatility and fluctuations in real estate transaction volume and prices. Fluctuations of supply and demand in China's real estate industry are caused by economic, social, political and other factors. For example, the announcement and implementation of restrictive measures in early 2011, combined with further credit tightening, resulted in a severe downturn in the real estate industry with a fall in overall transaction volume in many major cities in 2011 and 2012. In its continuing efforts to control real estate prices, the PRC government released further restrictive policies in 2012 and early 2013. These measures have affected and continue to affect the growth of China's real estate market. See "—Our business may be materially and adversely affected by government measures aimed at China's real estate industry." Furthermore, there may be situations in which China's real estate industry is so active that real estate developers see a reduced need for marketing initiatives and reduce their spending on such initiatives, which could potentially adversely affect our result of operations. To the extent fluctuations in China's real estate industry adversely affect spending on real estate marketing, our financial condition and results of operations may be materially and adversely affected.

Our business may be materially and adversely affected by government measures aimed at China's real estate industry.

        The real estate industry in China is subject to government regulations, including measures that are intended to control real estate prices.

        Since January 2011, PRC government agencies have issued a number of rules to cool down the real estate market, which include:

    minimum down payments for the first self-use housing unit purchased by a family with a gross construction area of more than 90 square meters must be no less than 30% of the purchase price;

    minimum down payments for the second housing unit purchased by a family was increased from 40% to 50%, and then further increased to 60%, and the loan interest rate must be no less than 110% of benchmark lending interest rate;

    all municipalities directly under the central government, all provincial capitals and other cities where the local housing prices are deemed to be too high or to have risen too fast, are required to temporarily suspend the sale of housing units to families with registered local permanent residences that already own two or more housing units, families without registered local permanent residences that already own one or more housing units, and families without registered local permanent residences that cannot provide evidence of their local payment of taxes or social insurance premiums for a required period;

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    business tax is imposed and calculated on the full sales revenues for the sale of all housing units held for less than five years, and on the difference between the sales revenues and the amount paid for the housing unit for the sale of non-ordinary housing units which were purchased five or more years ago;

    real estate property tax pilot projects were launched in Shanghai and Chongqing. Local regulations require a real property tax to be imposed on certain local housing units purchased on or after January 28, 2011, at a current tax rate of 0.6% in Shanghai and at a tax rate ranging from 0.5% to 1.2% in Chongqing; and

    governments of most major cities are required to set up and make public their target for controlling the price of local, newly built, residential housing units for the current year within the first season. Accordingly, many cities, including Shanghai, Beijing, Chongqing and Shenzhen, have started such exercise to announce their respective price control targets for each year since 2011.

        In late February and March 2013, the PRC government issued the "New Five Policies" for administration of the housing market and detailed implementation rules, which revealed the PRC government's strong determination to curb the increase of housing prices by requiring more stringent implementation of housing price control measures. For example, in cities where housing unit sales have already been subject to restrictions, if the local housing supply is not sufficient so that the housing prices are rising too fast, local governments are required to take more stringent measures to restrict housing units from being sold to those families who own one or more housing units. In cities where the housing prices are rising too fast, the minimum down payment for the second housing unit purchased by a family may be further increased from 60% and the loan interest rate may be raised to be more than 110% of benchmark lending interest rate, as the local housing price control measures require. Following the request of the central government, Beijing, Shanghai and other major cities in China have announced detailed regulations for the New Five Policies in late March 2013, to further cool down local real estate markets. Such measures and policies by the government have caused a reduction in transactions in the real estate market. While these measures and policies remain in effect, they may continue to depress the real estate market, dissuade would-be purchasers from making purchases, reduce transaction volume, cause a decline in average selling prices, and prevent developers from raising the capital they need and increase developers' costs to start new projects.

        In addition, we cannot assure you that the PRC government will not adopt new measures in the future that may result in lower growth rates in the real estate industry. Frequent changes in government policies may also create uncertainty that could discourage investment in real estate. Our business may be materially and adversely affected as a result of decreased transaction volumes or real estate prices that may result from government policies.

We may fail to compete effectively, which could significantly reduce our market share and materially and adversely affect our business, financial condition and results of operations.

        We face competition in each of our primary business activities. Our primary competitor at the national level is soufun.com. Other competitors at the national level include Sohu.com Inc.'s subsidiary, focus.cn. In addition, we have faced and may continue to face competition from regionally focused websites providing regional real estate listings together with localized services. We have various regional competitors, such as house365.com in the Nanjing market, and we compete with various providers in the market for paid online property listings, including anjuke.com. Our competitors may have more established brand names, larger visitor numbers and more extensive distribution channels than we do, either overall, or in specific regions in which we operate.

        The business of providing online real estate services in China is becoming increasingly competitive. The barriers to entry for establishing internet-based businesses are low, thereby allowing new entrants

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to emerge rapidly. As the online real estate services industry in China is relatively new and constantly evolving, our current or future competitors may be able to better position themselves to compete as the industry matures.

        We also face competition from companies in other media that offer e-commerce, advertising, listing and similar services. Any of these competitors may offer products and services that provide significant advantages over those offered by us in terms of performance, price, scope, creativity or other advantages. These products and services may achieve greater market acceptance than our service offerings, and thus weaken our brand. Increased competition in the online real estate services industry in China could make it difficult for us to retain existing customers and attract new customers, and could lead to a reduction in our revenues.

        Any of our current or future competitors may also receive investments from or enter into other commercial or strategic relationships with larger, well-established and well-financed companies and obtain significantly greater financial, marketing and content licensing and development resources than us. Furthermore, some of our competitors receive support from local governments, which may place us at a disadvantage when competing with them in their local markets. We cannot assure you that we will be able to compete successfully against our current or future competitors. Any failure to compete effectively in the real estate internet services market in China would have a material adverse effect on our business, financial condition and results of operations.

Failure to continue to develop and expand our content, service offerings and features, and to develop or incorporate the technologies that support them, could jeopardize our competitive position.

        As a company providing online services, we participate in an industry characterized by rapidly changing technology and new products and services. We rely in part on attracting customers to our platform by providing attractive and helpful content and tools on our websites to assist customers seeking to purchase residential properties and home furnishings. In addition, our ability to continue to generate and maintain online advertising service revenues depends on our ability to innovate. To remain competitive, we must continue to develop and expand our content and service offerings. We must also continue to enhance and improve the user interface, functionality and features of our websites. These efforts may require us to develop internally, or to license, increasingly complex technologies. In addition, many of our competitors are continually introducing new internet-related products, services and technologies, which will require us to update or modify our own technology to keep pace. New internet-related products, services and technologies developed by competitors could render our products and services obsolete if we are unable to update or modify our own technology. Developing and integrating new products, services and technologies into our existing businesses could be expensive and time-consuming. Furthermore, such new features, functions and services may not achieve market acceptance or serve to enhance our brand loyalty. We may not succeed in incorporating new internet technologies, or, in order to do so, we may incur substantial expenses. If we fail to develop and introduce or acquire new features, functions, services or technologies effectively and on a timely basis, we may not continue to attract new users and may be unable to retain our existing users. If we are not successful in incorporating new internet technologies, our business, results of operations and growth prospects could be materially and adversely affected.

Failure to attract and retain qualified personnel at a reasonable cost could jeopardize our competitive position.

        As our industry is characterized by high demand and intense competition for talent, we may need to offer higher compensation and other benefits in order to attract and retain quality sales, technical and other operational personnel in the future. We compete with other companies engaged in online real estate services and internet-related businesses and with print media for qualified personnel. We have, from time to time in the past, experienced, and we expect in the future to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. There may be

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a limited supply of qualified individuals in some of the cities in China where we have operations and other cities into which we intend to expand. We must hire and train qualified managerial and other employees on a timely basis to keep pace with our rapid growth while maintaining consistent quality of services across our operations in various geographic locations. We must also provide continued training to our managerial and other employees so that they are equipped with up-to-date knowledge of various aspects of our operations and can meet our demand for high-quality services. If we fail to do so, the quality of our services may decline in one or more of the markets where we operate, which in turn, may cause a negative perception of our brand and adversely affect our business. We cannot assure you we will be able to attract or retain the quality personnel that we need to achieve our business objectives.

        In addition, we place substantial reliance on the real estate industry experience and knowledge of our senior management team as well as their relationships with other industry participants. For example, Mr. Xin Zhou, our chairman, and Mr. Yinyu He, our chief executive officer, are both particularly important to our future success. We do not carry key person insurance on any member of our senior management team. The loss of one or more members of our senior management team could hinder our ability to effectively manage our business and implement our growth strategies. Finding suitable replacements for our current senior management could be difficult as competition for such talent is intense.

        If we fail to successfully attract new personnel, retain and motivate our current personnel, or retain our senior management, we may lose competitiveness and our business and results of operations could be materially and adversely affected.

Our business faces risks associated with the application of the e-commerce business model to the real estate industry and our new products and services may not perform as expected.

        Our e-commerce business was established in 2011 and became an integral part of our online real estate service operations following its rapid growth in 2012 and 2013. The business of providing these e-commerce services is still relatively new and evolving, and its growth depends on our ability to manage it effectively. Although we generally have been able to maintain contractual arrangements with third-party property developers who allow us to sell discount coupons to prospective real estate purchasers on acceptable terms, there can be no assurance that we will continue to be able to do so in the future. Customer complaints or negative publicity about our services could diminish consumer confidence in and use of our services.

        We may also explore new real estate e-commerce products and these new products may involve various risks. For example, in November 2013, CITIC introduced Leju Loan through our online platform, which is an innovative financial product that aims to provide added liquidity and improve the overall purchasing power of home purchasers. This product may subject us to risks associated with China's financial services sector, in addition to typical risks related to new product launches. Pursuant to the Notice on Issues concerning the Improvement of Differential Housing Credit Policies jointly promulgated by the People's Bank of China and China Banking Regulatory Commission in September 2010, all commercial banks in China have compliance obligations under the regulation to strengthen the management of consumption loans, and prohibit such loans from being used for purchasing houses. Although the Leju Loan product was introduced through our online platform to facilitate the loan application process, since the loans for this product are funded and provided by CITIC, CITIC has the obligation to comply with the relevant regulations of China's financial services sector relating to such loans. We believe we are not subject to such regulations in connection with our role for the Leju Loan product. However, if the relevant PRC regulatory authorities find that CITIC's provision of loans for the Leju Loan product does not comply with the relevant regulations, they may require CITIC to discontinue or restrict the loans provided by it, which may materially and adversely impact our ability to offer the Leju Loan product. Furthermore, there can be no assurance that our Leju Loan product

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will perform as expected or be well received by customers, or that we will be able to maintain our strategic venture with CITIC. We may face similar challenges for any other new initiatives we pursue in the future. Any of the foregoing could materially and adversely affect our business, results of operations and revenue growth prospects.

We derive a significant amount of revenue from our operation of SINA websites and there can be no assurance that our relationship with SINA will continue on satisfactory terms.

        Through an agreement in 2009 entered into between SINA and E-House, our parent company, we own SINA's real estate operations. SINA is a substantial shareholder in E-House, our parent company. To a large extent, the operations and revenues of our business rely on SINA's cooperation with us. The domain names of some major websites of our business are owned by SINA and licensed to us through agreements which we initially entered into with SINA in 2009 with terms through 2019 and which we recently amended and restated to extend through 2024. A significant number of users of these websites are linked through other SINA websites. Pursuant to an advertising inventory agency agreement with SINA, we are the exclusive agent of SINA for selling advertising to the real estate advertisers through 2024. To a certain extent, we rely on SINA's continued cooperation on an ongoing basis to enjoy our rights pursuant to our agreements with SINA. SINA could at any time reduce its support for our business. In addition, SINA's dual role as our substantial indirect shareholder and contractual counterparty could result in conflicts of interest. If for any reason SINA does not fulfill its obligations in accordance with the advertising inventory agency agreement or any of the other agreements or otherwise reduces its support for our online real estate operations, our business may be materially and adversely affected.

If we fail to maintain our relationship with Baidu, our business and results of operations could be materially and adversely affected.

        We are the exclusive real property advertising partner of Baidu, China's leading search engine platform. In August 2010, we launched Baidu's real estate website, house.baidu.com, and home furnishing website, jiaju.baidu.com, to offer search-based advertising for China's real estate industry. Pursuant to our strategic cooperation agreement with Baidu, we have the exclusive right, through March 2015, to build and operate all of Baidu's websites related to real estate and home furnishing, and to retain all revenues generated from these websites in exchange for a fixed fee that we pay to Baidu. In August 2011, we expanded our strategic partnership with Baidu, pursuant to which we are now Baidu's premier strategic online real estate partner and we obtained the exclusive right, through March 2015, to sell Baidu's real estate Brand-Link product, a form of keyword advertising. In addition, we and Baidu have also continued our cooperation in several other Baidu products to further expand the online search-based advertising market for China's real estate industry. If we are unable to renew our agreements with Baidu when they expire on favorable terms, or at all, or if Baidu reduces or terminates its support for, or cooperation with respect to, our real estate online operations, our business may be materially and adversely affected.

We derive a substantial portion of our revenues from several major urban centers in China, and we face market risk due to our concentration in these major urban areas.

        We derive a substantial portion of our revenues from several major urban centers in China, including Beijing, Shanghai, Guangzhou and Tianjin. In each of the years ended December 31, 2011, 2012 and 2013, a majority of our revenues was derived from Beijing, Shanghai, Guangzhou and Tianjin, and more than one third of our total revenues were derived from Beijing. We expect these four urban centers to continue to be important sources of revenues. If any of these major urban centers experiences an event that negatively impacts the local real estate industry or online advertising, such as a serious economic downturn or contraction, a natural disaster, or slower growth due to adverse

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governmental policies or otherwise, demand for our services could decline significantly and our business and growth prospects could be materially and adversely impacted.

A severe or prolonged downturn in the global or PRC economy could materially and adversely affect our business and our financial condition.

        The global financial markets experienced significant disruptions in 2008 and the United States, Europe and other economies went into recession. The recovery from the lows of 2008 and 2009 was uneven and continues to face challenges, including the escalation of the European sovereign debt crisis since 2011 and the slowdown of China's economy in 2012 and 2013. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies that have been adopted by the central banks and financial authorities of some of the world's leading economies. There are also ongoing concerns over unrest in the Middle East and Africa, which could negatively impact China's economy in numerous ways. Any severe or prolonged slowdown in China's economy may materially and adversely affect our business, results of operations and financial condition. In addition, continued turbulence in the international markets may adversely affect our ability to access capital markets to meet liquidity needs.

Failure to maintain or enhance our brands or image or failure of SINA or Baidu to maintain their respective brands or images could have a material and adverse effect on our business and results of operations.

        We believe the "Leju" brand is associated with a leading real estate online platform in China and they are important for the continued success of our business. The success of the websites we operate on the platforms of SINA and Baidu is also dependent on the respective brands and images of SINA and Baidu. These brands are integral to our sales and marketing efforts. Our continued success in maintaining and enhancing our brands and image depends to a large extent on our ability to satisfy customer needs by further developing and maintaining quality of services across our operations, as well as our ability to respond to competitive pressures.

We may not be able to successfully execute our strategy of strengthening our geographic coverage.

        We plan to further enhance our presence in cities covered by our direct operations, especially provincial capitals and other strategically important urban areas, to capture real estate service demand in such markets. In addition, we intend to expand our business by operating directly in select cities where we currently outsource operations to local outsourcing partners. There have been instances in the past when, upon our decision to directly operate a website that we had previously outsourced to a third party, the third party failed to pay all or a portion of the fixed fees owed to us under the outsourcing arrangement. There can be no assurance that the costs of implementing our strategy, whether due to uncollected fees or otherwise, will not be substantial. Furthermore, when we attempt to enhance our presence in markets or enter new markets, we may face intense competition from companies with greater experience or a more established presence in the targeted geographical areas or from other companies with similar expansion targets. In addition, our business model and services may not be successful in untested markets and markets with a different legal and business environment. If we are unable to execute our strategy of strengthening our geographic coverage, our growth prospects could be materially and adversely affected.

If we cannot manage our growth effectively and efficiently, our results of operations or profitability could be adversely affected.

        We have experienced substantial growth in recent periods. Our revenues increased 95.8% to $335.4 million in 2013 from $171.3 million in 2012. We intend to continue to expand our operations. This expansion has placed, and will continue to place, substantial demands on our managerial, operational, technological and other resources. Our planned expansion will also place significant

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demands on us to maintain the quality of our services. In order to manage and support our growth, we must continue to improve our existing operational, administrative and technological systems and our financial and management controls, and recruit, train and retain additional qualified real estate service professionals as well as other administrative and sales and marketing personnel, particularly as we expand into new markets. We may not be able to effectively and efficiently manage the growth of our operations, recruit and retain qualified personnel and integrate new expansion into our operations. As a result, our quality of service may deteriorate and our results of operations or profitability could be adversely affected.

Our results of operations may fluctuate or otherwise be materially and adversely affected due to seasonal variations.

        Our operating income and earnings have historically been substantially lower during the first quarter than other quarters. The first quarter of each year generally contributes the smallest portion of our annual revenues due to reduced real estate transactions, advertising and marketing activities of our customers in the PRC real estate industry during and around the Chinese Lunar New Year holiday, which generally occurs in January or February of each year and due to the cold winter weather in northern China. In contrast, the third and fourth quarters of each year generally contribute a larger portion of our annual revenues due to increased real estate transactions, advertising and marketing activities during the months of September and October. For this reason, our results of operations may not be comparable from quarter to quarter.

Unexpected network interruptions or security breaches, including "hacking" or computer virus attacks, may cause delays or interruptions of service, resulting in reduced use and performance of our websites and damage our reputation and brands.

        Our business depends heavily on the performance and reliability of China's internet infrastructure, the continued accessibility of bandwidth and servers on our service providers' networks and the continuing performance, reliability and availability of our technology platform. Any failure to maintain the satisfactory performance, reliability, security and availability of our computer and hardware systems may cause significant harm to our reputation and our ability to attract and maintain customers and visitor traffic. Major risks related to our network infrastructure include:

    any breakdown or system failure resulting in a sustained shutdown of our servers, including failures which may be attributable to sustained power shutdowns, or efforts to gain unauthorized access to our systems causing loss or corruption of data or malfunctions of software or hardware;

    any disruption or failure in the national backbone network, which would prevent our customers and users from accessing our websites;

    any damage from fire, flood, earthquake and other natural disasters; and

    computer viruses, hackings and similar events.

        Computer viruses and hackings may cause delays or other service interruptions and could result in significant damage to our hardware, software systems and databases, disruptions to our business activities, such as to our e-mail and other communication systems, breaches of security and inadvertent disclosure of confidential or sensitive information, inadvertent transmissions of computer viruses and interruptions of access to our websites through the use of denial-of-service or similar attacks. In addition, the inadvertent transmission of computer viruses could expose us to a material risk of loss or litigation and possible liability. We maintain most of our servers and backup servers in Beijing, Shanghai, Guangzhou and Tianjin, and all information on our websites is backed up weekly. Any hacking, security breach or other system disruption or failure that occurs in between our weekly backup procedures could disrupt our business or cause us to lose, and be unable to recover, data such as real estate listings, contact information and other important customer information.

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        Ensuring secured transmission of confidential information through public networks is essential to maintaining the confidence of our customers and users. Our existing security measures may not be adequate to protect such confidential information. In addition, computer and network systems are susceptible to breaches by computer hackers. Security breaches could expose us to litigation and potential liability for failing to secure confidential customer information, and could harm our reputation and reduce our ability to attract customers and users. Future security breaches, if any, may result in a material adverse effect on our business, financial condition and results of operations.

        We also do not maintain insurance policies covering losses relating to our systems and do not have business interruption insurance. Moreover, the low coverage limits of our property insurance policies may not be adequate to compensate us for all losses, particularly with respect to any loss of business and reputation that may occur. To improve our performance and to prevent disruption of our services, we may have to make substantial investments to deploy additional servers or create one or more copies of our websites to mirror our online resources, either of which could increase our expenses and reduce our net income.

Any failure to protect our trademarks, copyrights and other intellectual property rights could have a negative impact on our business.

        We believe our trademarks, copyrights and other intellectual property rights are critical to our success. Any unauthorized use of our trademarks and other intellectual property rights could harm our business. Historically, China's track record for protection of intellectual property rights has been poor, and infringement of intellectual property rights continues to pose a serious risk of doing business in China. Monitoring and preventing unauthorized use is difficult and the measures we take to protect our intellectual property rights may not be adequate. For example, we currently have registered the software copyrights of all our mobile applications except "Fang Niu Jia," of which we expect to register the software copyright during 2014. While we do not envision any difficulty in registering the software copyright of "Fang Niu Jia," and software copyrights are still enforceable absent registration in China, registration by itself may not be adequate protection from potential misuse, infringement or other challenges from third parties claiming rights on our intellectual property.

        Furthermore, the application of laws governing intellectual property rights in China and abroad is uncertain and evolving, and could expose us to risks. If we are unable to adequately protect our brand, trademarks and other intellectual property rights, we may lose these rights and our business may suffer materially. We typically impose contractual obligations on employees and consultants and have taken other precautionary measures to maintain the confidentiality of our proprietary information and restricted the use of the proprietary information other than for our company's benefit. However, if our employees and consultants do not honor their contractual obligations or misappropriate our database and other proprietary information, our business would suffer as a result.

        As internet domain name rights are not rigorously regulated or enforced in China, other companies have incorporated in their domain names elements similar in writing or pronunciation to the "Leju" trademark or its Chinese equivalent. This may result in confusion between those companies and our company and may lead to the dilution of our brand value, which could adversely affect our business.

We may be subject to intellectual property infringement or misappropriation claims by third parties, which may force us to incur substantial legal expenses and, if determined adversely against us, could materially disrupt our business.

        Some of our competitors may own copyrights, trademarks, trade secrets and internet content, which they may use to assert claims against us. We provide training to our staff with respect to procedures designed to reduce the likelihood that we may use, develop or make available any content or applications without the proper licenses or necessary third party consents. However, these

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procedures may not be effective in completely preventing the unauthorized posting or use of copyrighted material or the infringement of other rights of third parties.

        The validity, enforceability and scope of protection of intellectual property rights in internet-related industries, particularly in China, is uncertain and still evolving. For example, as we face increasing competition and as litigation becomes a more common way to resolve disputes in China, we face a higher risk of being the subject of intellectual property infringement claims. Pursuant to relevant laws and regulations, internet service providers may be held liable for damages if such providers have reason to know that the works uploaded or linked infringe the copyrights of others. In cases involving the unauthorized posting of copyrighted content by users on websites in China, there have been court proceedings but no settled court practice as to when and how hosting providers and administrators of a website can be held liable for the unauthorized posting by third parties of copyrighted material. Any such proceeding could result in significant costs to us and divert our management's time and attention from the operation of our business, as well as potentially adversely impact our reputation, even if we are ultimately absolved of all liability.

        In addition, we cannot assure you that we will not become subject to intellectual property laws in other jurisdictions, such as the United States, by virtue of our ADSs being listed on the NYSE, the ability of users to access, download and use our products and services in the United States and other jurisdictions, the ownership of our ADSs by investors in the United States and other jurisdictions, or the extraterritorial application of foreign law by foreign courts or otherwise, among other reasons. If a claim of infringement brought against us in the United States or other jurisdictions is successful, we may be required to pay substantial penalties or other damages and fines, remove relevant content or enter into license agreements which may not be available on commercially reasonable terms or at all. Even though the allegations or claims could be baseless, defense against any of these allegations or claims would be both costly and time-consuming and could significantly divert the efforts and resources of our management and other personnel.

Regulation of the internet industry in China, including censorship of information distributed over the internet, may materially and adversely affect our business.

        China has enacted laws, rules and regulations governing internet access and the distribution of news, information or other content, as well as products and services, through the internet. In the past, the PRC government has prohibited the distribution of information through the internet that it deems to be in violation of applicable PRC laws, rules and regulations. In particular, under regulations promulgated by the State Council, the Ministry of Industry and Information Technology (formerly the Ministry of Information Industry), or MIIT, the General Administration of Press, Publication, Radio, Film and Television (established in March 2013 as a result of institutional reform integrating the former State Administration of Radio, Film and Television, and the former General Administration of Press and Publication), or GAPPRFT, and the Ministry of Culture, internet content providers and internet publishers are prohibited from posting or displaying content over the internet that, among other things: (i) opposes the fundamental principles of the PRC constitution; (ii) compromises state security, divulges state secrets, subverts state power or damages national unity; (iii) disseminates rumors, disturbs social order or disrupts social stability; (iv) propagates obscenity, pornography, gambling, violence, murder or fear or incites the commission of crimes; or (v) insults or slanders a third party or infringes upon the lawful right of a third party.

        If any internet content we offer or will offer through our consolidated VIEs were deemed by the PRC government to violate any of such content restrictions, we would not be able to continue such offerings and could be subject to penalties, including confiscation of illegal revenues, fines, suspension of business and revocation of required licenses, which could have a material adverse effect on our business, financial condition and results of operations. We may also be subject to potential liability for any unlawful actions of our customers or affiliates or for content we distribute that is deemed

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inappropriate. It may be difficult to determine the type of content that may result in liability to us, and if we are found to be liable, we may be forced to cease operation of our websites in China.

If we fail to obtain or keep licenses, permits or approvals applicable to the various online real estate services provided by us, we may incur significant financial penalties and other government sanctions.

        The internet and online advertising industries in China are highly regulated by the PRC government. Various regulatory authorities of the PRC government, such as the State Council, MIIT, the State Administration of Industry and Commerce, or SAIC, the General Administration of Press, Publication, Radio, Film and Television, and the Ministry of Public Security, are empowered to issue and implement regulations governing various aspects of the internet and advertising industries. Moreover, new laws, rules and regulations may be adopted, or new interpretations of existing laws, rules and regulations may be released, to address issues that arise from time to time. As a result, substantial uncertainties exist regarding the interpretation and implementation of any current and future PRC laws, rules and regulations applicable to the internet and online advertising industries.

        Each of our consolidated VIEs, including Beijing Leju, Shanghai Yi Xin and Beijing Jiajujiu, as well as their respective subsidiaries, is required to obtain and maintain a value-added telecommunications service operating License, or ICP License, from MIIT or its local counterpart in order to provide internet information services and a business license from SAIC or its local branches which specifically includes operating advertising business in order to engage in advertising activities in China, to the extent applicable to their respective business. Each of our consolidated VIEs is up to date on all of the requirements of these licenses applicable to their respective current business. Beijing Leju, Shanghai Yi Xin and Beijing Yisheng Leju Internet Technology Co., Ltd., a subsidiary of our consolidated VIE Beijing Jiajujiu, each holds a valid ICP license issued by the local provincial branch of MIIT, and the business scope of the business licenses of Beijing Leju and its subsidiaries which engage in the advertising business includes operating advertising business. These licenses are essential to the operation of our online real estate business. The ICP licenses are subject to annual review by the relevant government authorities. The annual review of ICP licenses and business licenses is for the government authorities to conduct an annual inspection of the status of compliance of the license-holding entity. At the time of and for the purpose of the annual review of these licenses, the relevant government authorities did not ask for disclosure of our full corporate structure and thus we did not provide such information. They have not so far expressed any opinion with respect to our corporate structure in connection with these annual reviews. Moreover, the regulations relating to ICP licenses also provide that an ICP license holder must first obtain approvals from, or make filings with, competent counterparts of MIIT in connection with subsequent updates to its shareholding structure or certain other matters relating to such ICP license holder. We cannot assure you that we will be able to successfully pass the annual review of our ICP licenses, or complete the updating and renewal of the filing records of our ICP licenses with local MIIT counterparts on a timely basis.

        In addition, Beijing Leju, Shanghai Yi Xin and/or Beijing Jiajujiu and their respective subsidiaries may be required to obtain additional licenses. For example, the release, broadcasting and transmission of graphics, video and audio programs or weblinks to such programs, other websites or data on the websites may be deemed as providing internet publication services as well as transmission of video and audio programs on the internet, which could require internet publication licenses and licenses for online transmission of audio-visual programs. During operation of our e-commerce business, we post information, including graphics, weblinks to videos, other websites or data on websites operated by us. Our consolidated VIEs and their subsidiaries do not have internet publication licenses and licenses for online transmission of audio-visual programs, and are not applying for, nor intend to apply for these licenses. For those video/audio programs and certain other forms of content that we believe are subject to the requirements of these licenses, such programs and content are hosted by SINA and Baidu, who possess all these licenses and permits, through our contractual arrangement with them. However, we cannot assure you that government would not require us to obtain these licenses separately for

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operation of our own websites and those websites licensed to us even if the underlying hosting of the relevant content may be provided by a qualified third party like SINA and Baidu. If we are required to apply for such licenses, we can provide no assurance that we will procure and maintain such additional licenses.

        Under applicable PRC laws, rules and regulations, the failure to obtain and/or maintain the licenses and permits required to conduct our business may subject our affected consolidated VIEs to various penalties, including confiscation of revenues, imposition of fines and/or restrictions on their business operations, or the discontinuation of their operations. Any such disruption in the business operations of our consolidated VIEs could materially and adversely affect our business, financial condition and results of operations.

We are exposed to potential liability for information on our websites and for products and services sold over the internet and we may incur significant costs and damage to our reputation as a result of defending against such potential liability and could be subject to penalties or other severe consequences from PRC regulatory authorities as a result of such information.

        We provide third-party content on our websites such as real estate listings, links to third-party websites, advertisements and content provided by customers and users of our community-oriented services. In addition, our website, jiaju.com, is a platform for third party home furnishing distributors to offer their products and services to consumers. We could be exposed to liability with respect to such third-party information or the goods and services sold through our website. Among other things, we may face assertions that, by directly or indirectly providing such third-party content or links to other websites, we should be liable for defamation, negligence, copyright or trademark infringement, or other actions by parties providing such content or operating those websites. We may also face assertions that content on our websites, including statistics or other data we compile internally, or information contained in websites linked to our websites contains false information, errors or omissions, and users and our customers could seek damages for losses incurred as a result of their reliance upon or otherwise relating to incorrect information. We may also be subject to fines and other sanctions by the government for such incorrect information. Moreover, our relevant consolidated VIEs, as internet advertising service providers, are obligated under PRC laws and regulations to monitor the advertising content shown on our websites for compliance with applicable law. Violation of applicable law may result in penalties, including fines, confiscation of advertising fees, orders to cease dissemination of the offending advertisements and orders to publish advertisements correcting the misleading information. In case of serious violations, the PRC authorities may revoke the offending entities' advertising licenses and/or business licenses. In addition, our websites could be used as a platform for fraudulent transactions. The measures we take to guard against liability for third-party content or information may not be adequate to exonerate us from relevant civil and other liabilities. Any such claims, with or without merit, could be time-consuming to defend and result in litigation and significant diversion of management's attention and resources. Even if these claims do not result in liability to us, we could incur significant costs in investigating and defending against these claims and suffer damage to our reputation. Our general liability insurance may not cover all potential claims to which we are exposed to and may not be adequate to indemnify us for all liability that may be imposed.

Increases in labor costs in the PRC may adversely affect our business and our profitability.

        China's economy has experienced increases in labor costs in recent years. China's overall economy and the average wage in China are expected to continue to grow. The average wage level for our employees has also increased in recent years. We expect that our labor costs, including wages and employee benefits, will continue to increase. Unless we are able to pass on these increased labor costs to our customers by increasing prices for our products or services, our profitability and results of operations may be materially and adversely affected.

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        In addition, we have been subject to stricter regulatory requirements in terms of entering into labor contracts with our employees and paying various statutory employee benefits, including pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance and childbearing insurance to designated government agencies for the benefit of our employees. Pursuant to the PRC Labor Contract Law, or the Labor Contract Law, that became effective in January 2008 and its implementing rules that became effective in September 2008 and its amendments that became effective in July 2013, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying remuneration, determining the term of employees' probation and unilaterally terminating labor contracts. In the event that we decide to terminate some of our employees or otherwise change our employment or labor practices, the Labor Contract Law and its implementation rules may limit our ability to effect those changes in a desirable or cost-effective manner, which could adversely affect our business and results of operations. Besides, pursuant to the Labor Contract Law and its amendments, dispatched employees are intended to be a supplementary form of employment and the fundamental form should be direct employment by enterprises and organizations that require employees. Further, it is expressly stated in the Interim Provisions on Labor Dispatch that became effective on March 1, 2014 that the number of seconded employees an employer uses may not exceed 10% of its total labor force and the employer has a two-year transition period to comply with such requirement. Some of our PRC subsidiaries, consolidated VIEs and their subsidiaries use seconded employees for their principal business activities. If the relevant PRC companies are deemed to have violated the limitation on the use of seconded employees under the relevant labor laws and regulations, we may be subject to fines and incur other costs to make required changes to our current employment practices.

        As the interpretation and implementation of labor-related laws and regulations are still evolving, we cannot assure you that our employment practice does not and will not violate labor-related laws and regulations in China, which may subject us to labor disputes or government investigations. If we are deemed to have violated relevant labor laws and regulations, we could be required to provide additional compensation to our employees and our business, financial condition and results of operations could be materially and adversely affected.

The successful operation of our business depends upon the performance and reliability of the internet infrastructure and telecommunications networks in China.

        Our business depends on the performance and reliability of the internet infrastructure in China. Substantially all access to the internet is maintained through state-controlled telecommunication operators under the administrative control and regulatory supervision of MIIT. In addition, the national networks in China are connected to the internet through international gateways controlled by the PRC government. These international gateways are generally the only websites through which a domestic user can connect to the internet. We cannot assure you that a more sophisticated internet infrastructure will be developed in China. We may not have access to alternative networks in the event of disruptions, failures or other problems with China's internet infrastructure. In addition, the internet infrastructure in China may not support the demands associated with continued growth in internet usage.

        We also rely on China Unicom and China Telecom to provide us with data communications capacity primarily through local telecommunications lines and internet data centers to host our servers. We do not have access to alternative services in the event of disruptions, failures or other problems with the fixed telecommunications networks of China Unicom or China Telecom, or if China Unicom or China Telecom otherwise fails to provide such services. Any unscheduled service interruption could disrupt our operations, damage our reputation and result in a decrease in our revenues. Furthermore, we have no control over the costs of the services provided by China Unicom and China Telecom. If the prices that we pay for telecommunications and internet services rise significantly, our gross margins could be significantly reduced. In addition, if internet access fees or other charges to internet users increase, our user traffic may decrease, which in turn may cause our revenues to decline.

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Any natural or other disasters, including outbreaks of health epidemics, and other extraordinary events could severely disrupt our business operations.

        Our operations are vulnerable to interruption and damage from natural and other types of disasters, including earthquakes, fire, floods, environmental accidents, power loss, communication failures and similar events. If any natural disaster or other extraordinary events were to occur in the area where we operate, our ability to operate our business could be seriously impaired. Our business could be materially and adversely affected by any outbreak of H7N9 bird flu, H1N1 swine influenza, avian influenza, severe acute respiratory syndrome, or SARS, or another epidemic. Any prolonged occurrence of swine influenza, avian influenza, SARS or other adverse public health developments in China could severely disrupt our business operations and adversely affect our results of operations.

Potential strategic investments, acquisitions or new business initiatives may disrupt our ability to manage our business effectively.

        Strategic investments, acquisitions or new business initiatives and any subsequent integration of new companies or businesses will require significant attention from our management, in particular to ensure that such changes do not disrupt any existing collaborations, or affect our users' opinion and perception of our services and customer support. In addition, in the case of acquisitions or new business initiatives our management will need to ensure that the acquired or new business is effectively integrated into our existing operations. The diversion of our management's attention and any difficulties encountered in integration could have a material adverse effect on our ability to manage our business. In addition, strategic investments, acquisitions or new business initiatives could expose us to potential risks, including:

    risks associated with the assimilation of new operations, services, technologies and personnel;

    unforeseen or hidden liabilities;

    the diversion of resources from our existing businesses and technologies;

    the inability to generate sufficient revenues to offset the costs and expenses of the transaction; and

    potential loss of, or harm to, relationships with employees, customers and users as a result of the integration of new businesses or investment.

Certain of our leased office premises contain defects in the leasehold interests and if we are forced to relocate operations affected by such defects, our operations may be adversely affected.

        As of December 31, 2013, we had leased office premises in 53 cities in China, in addition to a branch office in Hong Kong and our principal executive offices in Beijing, China. A number of these leased properties contain defects in the leasehold interests. Such defects include the lack of proper title or right to lease with respect to 7 leased premises and the landlords' failure to duly register the leases with the relevant PRC government authority with respect to 68 leased premises.

        Under PRC regulations, in situations where a tenant lacks evidence of the landlord's title or right to lease, the relevant lease agreement may not be valid or enforceable and may also be subject to challenge by third parties. In addition, under PRC laws and regulations, while the failure to register the lease agreement does not affect its effectiveness between the tenant and the landlord, such lease agreement may be subject to challenge by and unenforceable against a third party who leases the same property from the landlord and has duly registered the lease with the competent PRC government authority. This risk may be mitigated if we continue to occupy the leased premises under our lease. Furthermore, the landlord and the tenant may be subject to administrative fines for such failure to register the lease.

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        We have taken steps to cause our landlords to procure valid evidence as to the title or right to lease, as well as to complete the lease registration procedures. However, we cannot assure you that such defects will be cured in a timely manner or at all. Our operations may be interrupted and additional relocation costs may be incurred if we are required to relocate operations affected by such defects.

We have limited business insurance coverage.

        The insurance industry in China is still at an early stage of development and PRC insurance companies offer only limited business insurance products. As a result, we do not have any business disruption insurance or litigation insurance coverage for our operations in China. Any business disruption, litigation or natural disaster may cause us to incur substantial costs and result in the diversion of our resources, as well as significantly disrupt our operations, and have a material adverse effect on our business, financial position and results of operations.

Risks Related to Our Carve-out from E-House and Our Relationships with E-House

We have no experience operating as a stand-alone public company.

        We have no experience conducting our operations as a stand-alone public company. We are controlled by E-House, which has provided us with accounting, administrative, marketing, internal control, customer service and legal support, and has also provided us with the services of a number of its executives and employees. As E-House will continue to be our controlling shareholder following this offering, we expect E-House to continue to provide us with certain support services, but to the extent E-House does not continue to provide us with these support services, we will need to provide such services on our own. For example, with respect to our sales of discount coupons for property developments in Beijing, for regulatory reasons the fees for such discount coupons are collected by E-House on our behalf and either remitted to us or used to offset amounts owed by us to E-House. In the past, E-House has not charged any fee or commission for its provision of this service to us. There can be no assurance that E-House will not charge a fee or commission for this services, or any similar service that E-House may provide to us in the future. We may encounter operational, administrative and strategic difficulties as we adjust to operating as a stand-alone public company, which may cause us to react slower than our competitors to industry changes, may divert our management's attention from running our business or may otherwise harm our operations.

        In addition, our management team will need to develop the expertise necessary to comply with the numerous regulatory and other requirements applicable to public companies, including requirements relating to corporate governance, listing standards and investor relations issues. While we were a wholly owned subsidiary of E-House, we were indirectly subject to requirements to maintain an effective internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404. However, as a stand-alone public company, our management will have to evaluate our internal control system independently with new thresholds of materiality, and to implement necessary changes to our internal control system. We cannot guarantee that we will be able to do so in a timely and effective manner.

Our financial information included in this prospectus may not be representative of our financial condition and results of operations if we had been operating as a stand-alone public company.

        The consolidated financial statements included in this prospectus were prepared on a carve-out basis. We made numerous estimates, assumptions and allocations in our financial information because E-House did not account for us, and we did not operate, as a separate, stand-alone company for any period prior to the completion of this offering.

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        Prior to the establishment of our holding company in November 2013, the operations of the online real estate business of E-House were carried out by various companies owned or controlled by E-House. For periods both before and after November 2013, our consolidated financial statements include the assets, liabilities, revenues, expenses and changes in shareholders' equity and cash flows that were directly attributable to our real estate online services whether held or incurred by E-House or by us. In cases involving assets and liabilities not specifically identifiable to any particular operation of E-House, only those assets and liabilities transferred to us are included in our consolidated balance sheets. Our financial statements included elsewhere in this prospectus include our direct expenses as well as allocations for various selling, general and administrative expenses of E-House that are not directly related to online services. These expenses consist primarily of share-based compensation expenses and shared marketing and management expenses including accounting, administrative, marketing, internal control, customer service and legal support. These allocations were made using a proportional cost allocation method and were based on revenues and headcount as well as estimates of actual time spent on the provision of services attributable to our Company. Although our management believes that the assumptions underlying our financial statements and the above allocations are reasonable, our financial statements may not necessarily reflect our results of operations, financial position and cash flows as if we had operated as a stand-alone public company during the periods presented. See "Our Relationship with E-House" for our arrangements with E-House and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the notes to our consolidated financial statements included elsewhere in this prospectus for our historical cost allocation. In addition, upon becoming a stand-alone public company, we will establish our own financial and other support systems or contract with third parties to replace E-House's systems, the cost of which could be significantly different from cost allocation with E-House for the same services. Therefore, you should not view our historical results as indicators of our future performance.

        Although we have entered into a series of agreements with E-House relating to our ongoing business partnership and service arrangements with E-House, we cannot assure you we will continue to receive the same level of support from E-House after we become a stand-alone public company. Our current clients and partners may react negatively to our carve-out from E-House. Any of the foregoing could materially and adversely affect our business.

Our agreements with E-House may be less favorable to us than similar agreements negotiated between unaffiliated third parties. In particular, our non-competition agreement with E-House limits the scope of business that we are allowed to conduct.

        We have entered into a series of agreements with E-House prior to this offering and the terms of such agreements may be less favorable to us than would be the case if they were negotiated with unaffiliated third parties. In particular, under the non-competition agreement we have entered into with E-House, we have agreed during a specified non-competition period not to compete with E-House in any business conducted by E-House as described in its periodic filings with the SEC, other than the business we are engaged in as described in this prospectus. Such contractual limitations restrict our ability to diversify our revenue sources. In addition, pursuant to our master transaction agreement with E-House, we have agreed to indemnify E-House for, among other things, liabilities arising from litigation and other contingencies related to our business and assumed these liabilities as part of our carve-out from E-House. The allocation of assets and liabilities between E-House and us may not reflect the allocation that would have been reached by two unaffiliated parties. Moreover, so long as E-House continues to control us, we may not be able to bring a legal claim against E-House in the event of contractual breach, notwithstanding our contractual rights under the agreements described above and other inter-company agreements entered into from time to time.

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Any negative development with respect to E-House may materially and adversely affect our business and brand.

        We are a subsidiary of E-House and will continue to be an affiliate of E-House after the offering. We have benefited significantly from E-House in marketing our services. For example, we have benefited from E-House by providing services to E-House's clients. If E-House loses its market position or suffers any negative publicity, it could have an adverse impact on our business, our marketing efforts, our relationships with strategic partners and customers, our reputation and brand.

E-House will control the outcome of shareholder actions of our company.

        Upon completion of this offering, assuming the underwriters do not exercise their over-allotment option and we issue and sell 2,029,420 ordinary shares in the private placement to Tencent concurrently with this offering, E-House will hold 76.3% of our ordinary shares and voting power. E-House has advised us that it does not anticipate disposing of its voting control in us in the near future. E-House's voting power gives it the power to control actions that require shareholder approval under Cayman Islands law, our memorandum and articles of association and NYSE requirements, including the election and removal of a majority of our board of directors, significant mergers and acquisitions and other business combinations, changes to our memorandum and articles of association, the number of shares available for issuance under share incentive plans, and the issuance of significant amounts of our ordinary shares in private placements.

        E-House's voting control may cause transactions to occur that might not be beneficial to you as a holder of our ADSs, and may prevent transactions that would be beneficial to you. For example, E-House's voting control may prevent a transaction involving a change of control of us, including transactions in which you as a holder of our ADSs might otherwise receive a premium for your securities over the then-current market price. In addition, E-House is not prohibited from selling a controlling interest in us to a third party and may do so without your approval and without providing for a purchase of your ADSs. If E-House is acquired or otherwise undergoes a change of control, any acquirer or successor will be entitled to exercise the voting control and contractual rights of E-House, and may do so in a manner that could vary significantly from that of E-House.

We will be a "controlled company" within the meaning of the Corporate Governance Rules of the NYSE and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements.

        Immediately after the closing of this offering and our issuance and sale of 2,029,420 ordinary shares in the private placement to Tencent concurrently with this offering, E-House will hold (i) 76.3% of our then outstanding ordinary shares, assuming the underwriters do not exercise their over-allotment option, or (ii) 75.5% of our then outstanding ordinary shares if the underwriters exercise their over-allotment option in full. As a result, we will be a "controlled company" within the meaning of applicable corporate governance standards. Under the Corporate Governance Rules of the NYSE, a company of which more than 50% of the voting power is held by an individual, group or another company is a "controlled company" and may elect not to comply with certain corporate governance requirements, including:

    the requirement that we have a majority of independent directors on our board of directors;

    the requirement that we have a nominating committee that is composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities;

    the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities; and

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    the requirement for an annual performance evaluation of the nominating and compensation committees.

        Following this offering, we intend to utilize the foregoing exemptions from the applicable corporate governance requirements. As a result, we will not have a majority of independent directors nor a separate nominating committee. In addition, our compensation committee will not consist entirely of independent directors and we will not be required to have an annual performance evaluation of the compensation committee. See "Management." Accordingly, you will not have the same protections afforded to shareholders of companies that are subject to all of the applicable corporate governance requirements.

We may have conflicts of interest with E-House and, because of E-House's controlling ownership interest in our company, may not be able to resolve such conflicts on favorable terms for us.

        Conflicts of interest may arise between E-House and us in a number of areas relating to our past and ongoing relationships. Potential conflicts of interest include the following:

    Indemnification arrangements with E-House.  We have agreed to indemnify E-House with respect to lawsuits and other matters relating to our real estate online services business, including operations of that business when it was a business unit of E-House. These indemnification arrangements could result in our having interests that are adverse to those of E-House, for example, different interests with respect to settlement arrangements in a litigation matter. In addition, under these arrangements, we have agreed to reimburse E-House for liabilities incurred (including legal defense costs) in connection with any litigation, while E-House will be the party prosecuting or defending the litigation.

    Non-competition arrangements with E-House.  We and E-House have each agreed not to compete in each other's core business. E-House has agreed not to compete with us in the business of providing real estate e-commerce, online advertising and listing services anywhere in the world. We have agreed not to compete with E-House in any other business conducted by E-House as described in its periodic filings with the SEC, other than the business we are engaged in as described in this prospectus.

    Employee recruiting and retention.  Because both we and E-House are engaged in real estate services in China, we may compete with E-house in the hiring of new employees, in particular with respect to real estate information and research. We have a non-solicitation arrangement with E-House that would restrict either E-House or us from hiring any of the other's employees.

    Our board members or executive officers may have conflicts of interest.  Mr. Xin Zhou, our chairman, is currently also serving as E-House's co-chairman and chief executive officer. Some of our board members and executive officers are also board members and executive officers of E-House and/or also own shares or options in E-House. E-House may continue to grant incentive share compensation to our board members and executive officers from time to time. These relationships could create, or appear to create, conflicts of interest when these persons are faced with decisions with potentially different implications for E-House and us.

    Sale of shares in our company.  E-House may decide to sell all or a portion of our shares that it holds to a third party, including to one of our competitors, thereby giving that third party substantial influence over our business and our affairs. Such a sale could be contrary to the interests of certain of our shareholders, including our employees or our public shareholders.

    Allocation of business opportunities.  Business opportunities may arise that both we and E-House find attractive, and which would complement our respective businesses. E-House may decide to take the opportunities itself, which would prevent us from taking advantage of the opportunity.

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    Developing business relationships with E-House's competitors.  So long as E-House remains our controlling shareholder, we may be limited in our ability to do business with its competitors, such as other real estate services companies in China or other companies with which E-House does not want to conduct business. This may limit our ability to market our services for the best interest of our company and our other shareholders.

    Application of proceeds.  Based on E-House's controlling interest in our Company, E-House will have the ability to direct the application of the net proceeds of this offering. There can be no assurance that such proceeds will be applied as set forth under "Use of Proceeds" or that such application will not conflict with your interests as a shareholder.

        Although our company is becoming a stand-alone public company, we expect to operate, for as long as E-House is our controlling shareholder, as an affiliate of E-House. E-House may from time to time make strategic decisions that it believes are in the best interests of its business and its shareholders. These decisions may be different from the decisions that we would have made on our own. E-House's decisions with respect to us or our business may be resolved in ways that favor E-House and therefore E-House's own shareholders, which may not coincide with the interests of our other shareholders. We may not be able to resolve any potential conflicts, and even if we do so, the resolution may be less favorable to us than if we were dealing with an unaffiliated shareholder. Even if both parties seek to transact business on terms intended to approximate those that could have been achieved among unaffiliated parties, this may not succeed in practice.

Risks Related to Our Corporate Structure

If the PRC government finds that the agreements that establish the structure for operating our advertising services business and real estate online business in China do not comply with PRC governmental restrictions on foreign investment in the advertising industry or the internet information service industry, we could be subject to severe penalties.

        Leju Holdings Limited is a Cayman Islands company and a foreign person under PRC law. Due to PRC government restrictions on foreign investment in the internet and advertising industries, we conduct part of our business through contractual arrangements with our affiliated PRC entities. Our e-commerce business with respect to new residential properties is operated through our contractual arrangements with Shanghai Yi Xin and its shareholders. Our e-commerce business with respect to home furnishing is operated through our contractual arrangements with Beijing Jiajujiu and its shareholders. Our online advertising business for new residential properties websites and our secondary listings business are operated through our contractual arrangements with Beijing Leju and its shareholders. Beijing Leju and its subsidiaries, Shanghai Yi Xin, and Beijing Jiajujiu and its subsidiaries and branches hold the licenses and approvals that are essential for our business operations.

        We have entered into, through our PRC subsidiaries, Shanghai SINA Leju, Shanghai Yi Yue and Beijing Maiteng, a series of contractual arrangements with Beijing Leju, Shanghai Yi Xin, Beijing Jiajujiu and their respective shareholders. These contractual arrangements enable us to (i) direct the activities that most significantly affect the economic performance of Beijing Leju, Shanghai Yi Xin, Beijing Jiajujiu and their subsidiaries and branches; (ii) receive substantially all of the economic benefits from the three consolidated VIEs and their subsidiaries in consideration for the services provided by our PRC subsidiaries; and (iii) have an exclusive option to purchase all or part of the equity interests in the consolidated VIEs, when and to the extent permitted by PRC law, or request any existing shareholder of the consolidated VIEs to transfer all or part of the equity interest in the consolidated VIEs to another PRC person or entity designated by us at any time in our discretion. These agreements make us their "primary beneficiary" for accounting purposes under U.S. GAAP. For descriptions of these contractual arrangements, see "Related Party Transactions—Contractual Arrangements with Beijing Leju, Shanghai Yi Xin and Beijing Jiajujiu (the consolidated VIEs)."

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        If the PRC government finds that these contractual arrangements do not comply with its restrictions on foreign investment in the internet business or advertising industry, or if the PRC government otherwise finds that we, Beijing Leju, Shanghai Yi Xin or Beijing Jiajujiu, or any of their subsidiaries and branches is in violation of PRC laws or regulations or lack the necessary permits or licenses to operate our business, the relevant PRC regulatory authorities, including the State Administration for Industry and Commerce, which regulates advertising companies, and the MIIT, which regulates internet information service companies, would have broad discretion in dealing with such violations, including:

    revoking our business and operating licenses;

    discontinuing or restricting our operations;

    imposing fines or confiscating any of our income that they deem to have been obtained through illegal operations;

    imposing conditions or requirements with which we or our PRC subsidiaries and affiliates may not be able to comply;

    requiring us or our PRC subsidiaries and affiliates to restructure the relevant ownership structure or operations;

    restricting or prohibiting our use of the proceeds from this offering to finance the business and operations of the consolidated VIEs; or

    taking other regulatory or enforcement actions that could be harmful to our business.

        The imposition of any of these penalties could have a material and adverse effect on our business, financial condition and results of operations. If any of these penalties results in our inability to direct the activities of any of Beijing Leju, Shanghai Yi Xin or Beijing Jiajujiu that most significantly impact its economic performance, and/or our failure to receive the economic benefits from any of Beijing Leju, Shanghai Yi Xin or Beijing Jiajujiu, we may not be able to consolidate the entity in our consolidated financial statements in accordance with U.S. GAAP.

We rely on contractual arrangements with Beijing Leju, Shanghai Yi Xin and Beijing Jiajujiu and their respective shareholders for a portion of our operations, which may not be as effective as direct ownership in providing operational control.

        We rely on contractual arrangements with Beijing Leju, Shanghai Yi Xin and Beijing Jiajujiu and their respective shareholders to operate our online real estate business and our real estate advertising business. For descriptions of these contractual arrangements, see "Related Party Transactions—Contractual Arrangements with Beijing Leju, Shanghai Yi Xin and Beijing Jiajujiu (the consolidated VIEs)." These contractual arrangements may not be as effective as direct ownership in providing us with control over Beijing Leju, Shanghai Yi Xin or Beijing Jiajujiu. These contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. If any of the other parties fail to perform their obligations under these contractual arrangements, we may have to incur substantial costs and resources to enforce such arrangements, and we would have to rely on legal remedies under PRC law, including seeking specific performance or injunctive relief and claiming damages, which we cannot assure you will be effective. Furthermore, the legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements, which may make it difficult to exert effective control over Beijing Leju, Shanghai Yi Xin and Beijing Jiajujiu, and our ability to conduct our business may be negatively affected.

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        In 2011, 2012 and 2013, Beijing Leju, Shanghai Yi Xin, Beijing Jiajujiu and their respective subsidiaries and branches contributed in aggregate 84.9%, 95.3% and 94.3% of our total net revenues, respectively. In the event we are unable to enforce the contractual arrangements, we may not be able to have the power to direct the activities that most significantly affect the economic performance of Beijing Leju, Shanghai Yi Xin, Beijing Jiajujiu and their respective subsidiaries and branches, and our ability to conduct our business may be negatively affected, and we may not be able to consolidate the financial results of Beijing Leju, Shanghai Yi Xin, Beijing Jiajujiu and their respective subsidiaries and branches into our consolidated financial statements in accordance with U.S. GAAP.

The shareholders of our consolidated VIEs may have potential conflicts of interest with us, and if any such conflicts of interest are not resolved in our favor, our business may be materially and adversely affected.

        We have designated individuals who are PRC nationals to be the shareholders of our consolidated VIEs in China, Beijing Leju, Shanghai Yi Xin, and Beijing Jiajujiu. These individuals may have conflicts of interest with us. Each of Shanghai Yi Xin and Beijing Jiajujiu is 70% owned by Mr. Zuyu Ding, E-House's co-president and 30% owned by Mr. Weijie Ma, our co-president and acting chief financial officer. Beijing Leju is 80% owned by Mr. Xudong Zhu, the head of E-House's offline advertising operations, and 20% owned by Mr. Zuyu Ding, E-House's co-president. None of Mr. Zhu, Mr. Ding and Mr. Ma has a significant equity stake in our company. We cannot assure you that when conflicts of interest arise, they will act in the best interests of our company or that conflicts of interests will be resolved in our favor. In addition, they may breach or cause our VIEs and their subsidiaries to breach or refuse to renew the existing contractual arrangements that allow us to effectively control our consolidated VIEs and their subsidiaries and receive economic benefits from them. Currently, we do not have arrangements to address potential conflicts of interest between the shareholders of our consolidated VIEs and our company. We rely on them to abide by the laws of the Cayman Islands and China, which provide that directors and/or officers owe a fiduciary duty to our company, which requires them to act in good faith and in the best interests of our company and not to use their positions for personal gain. If we cannot resolve any potential conflicts of interest or disputes between us and the individual shareholders of our consolidated VIEs which may arise, we would have to rely on legal proceedings to enforce our rights, which could be costly and unsuccessful.

Our ability to enforce the equity pledge agreements between us and the shareholders of Beijing Leju, Shanghai Yi Xin or Beijing Jiajujiu may be subject to limitations based on PRC laws and regulations.

        Pursuant to the equity pledge agreements relating to our consolidated VIEs, Beijing Leju, Shanghai Yi Xin and Beijing Jiajujiu, the shareholders of the consolidated VIEs pledge their equity interest in the consolidated VIEs to our subsidiaries to secure their and the relevant consolidated VIEs' performance of the obligations under the relevant contractual arrangements. The equity pledges under these equity pledge agreements have been registered with the relevant local branch of the State Administration for Industry and Commerce. According to the PRC Property Law and PRC Guarantee Law, the pledgee and the pledgor are prohibited from making an agreement prior to the expiration of the debt performance period to transfer the ownership of the pledged equity to the pledgee when the obligor fails to pay the debt due. However, under the PRC Property Law, when an obligor fails to pay its debt when due, the pledgee may choose to either conclude an agreement with the pledgor to obtain the pledged equity or seek payments from the proceeds of the auction or sell-off of the pledged equity. If any of the consolidated VIEs or its shareholders fails to perform its obligations secured by the pledges under the equity pledge agreements, one remedy in the event of default under the agreements is to require the pledgor to sell the equity interests in the relevant consolidated VIE in an auction or private sale and remit the proceeds to our subsidiaries in China, net of related taxes and expenses. Such an auction or private sale may not result in our receipt of the full value of the equity interests in the relevant consolidated VIE. We consider it very unlikely that the public auction process would be undertaken since, in an event of default, our preferred approach would be to ask our PRC subsidiary

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that is a party to the exclusive call option agreement with the consolidated VIE's shareholder, to designate another PRC person or entity to acquire the equity interest in the consolidated VIE and replace the existing shareholder pursuant to the exclusive call option agreement.

        In addition, in the registration forms of the local branch of State Administration for Industry and Commerce for the pledges over the equity interests under the equity pledge agreements, the amount of registered equity interests pledged to our PRC subsidiaries was stated as the pledgor's portion of the registered capital of the consolidated VIE. The equity pledge agreements with the shareholders of the consolidated VIEs provide that the pledged equity interest constitute continuing security for any and all of the indebtedness, obligations and liabilities under the relevant contractual arrangements, and therefore the scope of pledge should not be limited by the amount of the registered capital of the consolidated VIEs. However, there is no guarantee that a PRC court will not take the position that the amount listed on the equity pledge registration forms represents the full amount of the collateral that has been registered and perfected. If this is the case, the obligations that are supposed to be secured in the equity pledge agreements in excess of the amount listed on the equity pledge registration forms could be determined by the PRC court to be unsecured debt, which takes last priority among creditors and often does not have to be paid back at all. We do not have agreements that pledge the assets of the consolidated VIEs and their subsidiaries for the benefit of us or our PRC subsidiaries, although the consolidated VIEs grant our PRC subsidiaries options to purchase the assets of the consolidated VIEs and their equity interests in their subsidiaries under the exclusive call option agreement.

Contractual arrangements we have entered into with Beijing Leju, Shanghai Yi Xin and Beijing Jiajujiu may be subject to scrutiny by the PRC tax authorities and a finding that we, Beijing Leju, Shanghai Yi Xin or Beijing Jiajujiu owe additional taxes could reduce our net income and the value of your investment.

        Under PRC laws and regulations, arrangements and transactions among related parties may be audited or challenged by the PRC tax authorities. We could face material and adverse consequences if the PRC tax authorities determine that the contractual arrangements we have entered into with Beijing Leju, Shanghai Yi Xin or Beijing Jiajujiu do not represent an arm's-length price and adjust the taxable income of Beijing Leju, Shanghai Yi Xin, Beijing Jiajujiu or their subsidiaries and branches in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction of expense deductions recorded by Beijing Leju, Shanghai Yi Xin, Beijing Jiajujiu or their subsidiaries and branches, which could in turn increase their PRC tax liabilities. In addition, the PRC tax authorities may impose late payment fees and other penalties on our consolidated VIEs for underpayment of taxes. Our consolidated net income may be materially and adversely affected if our consolidated VIEs' tax liabilities increase or if they are found to be subject to late payment fees or other penalties.

Risks Related to Doing Business in China

Changes in PRC government policies could have a material and adverse effect on overall economic growth in China, which could adversely affect our business.

        We conduct substantially all of our business in China. As the real estate industry is highly sensitive to business spending, credit conditions and personal discretionary spending levels, it tends to decline during general economic downturns. Accordingly, our results of operations, financial condition and prospects are subject, to a significant degree, to economic developments in China. While China's economy has experienced significant growth in the past three decades, growth has been uneven across different periods, regions and among various economic sectors of China. The PRC government may implement measures that are intended to benefit the overall economy even if they would be expected to have a negative effect on the real estate industry. The real estate industry is also sensitive to credit policies. In recent years, the PRC government adjusted the People's Bank of China's statutory deposit reserve ratio and benchmark interest rates several times in response to various economic situations.

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Any future monetary tightening may reduce the overall liquidity in the economy and reduce the amount of credit available for real estate purchase. Higher interest rates may increase borrowing costs for purchasers who rely on mortgage loans to finance their real estate purchase. These could negatively affect overall demand for real estate and adversely affect our operating and financial results. We cannot assure you that China will continue to have rapid or stable economic growth in the future or that changes in credit or other government policies that are intended to create stable economic growth will not adversely impact the real estate industry.

        While China's economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall PRC economy, but may also have a negative effect on us. The PRC government has implemented certain measures, including interest rate increases, to control the pace of economic growth. These measures may cause decreased economic activity in China, and since 2012, the PRC economy has slowed down. Any prolonged slowdown in the PRC economy may reduce the demand for our products and services and adversely affect our results of operations and financial condition.

Uncertainties with respect to the PRC legal system could adversely affect us.

        We conduct our business primarily through our subsidiaries and consolidated VIEs in China. Our operations in China are governed by PRC laws and regulations. Our subsidiaries are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws applicable to foreign-invested enterprises. The PRC legal system is based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. PRC legislation and regulations have gradually enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, because these laws and regulations are relatively new, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.

Governmental control of currency conversion may affect the value of your investment.

        The PRC government imposes controls on the convertibility of Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. Restrictions on currency exchanges between the Renminbi and other currencies may limit our ability to utilize our revenues and funds, in particular in relation to capital account transactions such as investments and loans. We receive substantially all of our revenues in the Renminbi. Under our current structure, our income will be primarily derived from dividend payments from our PRC subsidiaries. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiaries and our consolidated VIEs to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations.

        Under current PRC regulations, the Renminbi is convertible for "current account transactions," which include among other things dividend payments and payments for the import of goods and services, subject to compliance with certain procedural requirements. Although the Renminbi has been fully convertible for current account transactions since 1996, we cannot assure you that the relevant PRC government authorities will not limit or eliminate our ability to purchase and retain foreign currencies for current account transactions in the future.

        Conversion of the Renminbi into foreign currencies and of foreign currencies into the Renminbi, for payments relating to "capital account transactions," which principally include investments and loans,

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generally requires the approval of the State Administration of Foreign Exchange, or SAFE, and other relevant PRC governmental authorities. Restrictions on the convertibility of the Renminbi for capital account transactions could affect the ability of our PRC subsidiaries and affiliated PRC operating companies to make investments overseas or to obtain foreign exchange through debt or equity financing, including by means of loans or capital contributions from us.

Fluctuations in exchange rates could have a material adverse effect on our results of operations and the value of your investment.

        The value of the Renminbi against the U.S. dollar and other currencies is affected by, among other things, changes in China's political and economic conditions and China's foreign exchange policies. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar, and the Renminbi has appreciated more than 30% against the U.S. dollar since then. However, the People's Bank of China regularly intervenes in the foreign exchange market to limit fluctuations in the Renminbi exchange rates and achieve policy goals. It is difficult to predict how long the current currency exchange trend may last and when and how this relationship between the Renminbi and the U.S. dollar may change again.

        There remains significant international pressure on the Chinese government to adopt a flexible currency policy to allow the Renminbi to appreciate against the U.S. dollar. Significant revaluation of the Renminbi may have a material adverse effect on your investment. As our costs and expenses are mostly denominated in the Renminbi, the appreciation of the Renminbi against the U.S. dollar would increase our costs in U.S. dollar terms. In addition, as our operating subsidiaries and consolidated VIEs in China receive revenues in the Renminbi, any significant depreciation of the Renminbi against the U.S. dollar may have a material and adverse effect on our revenues in U.S. dollar terms and financial condition, and the value of, and any dividends payable on, our ordinary shares. For example, to the extent that we need to convert U.S. dollars into the Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we receive from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount available to us. These and other effects on our financial data resulting from fluctuations in the value of the Renminbi against the U.S. dollar could have a material and adverse effect on the trading price of our ADSs.

        Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert the Renminbi into foreign currency. As a result, fluctuations in exchange rates may have a material adverse effect on your investment.

PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident beneficial owners or our PRC subsidiaries to liability or penalties, limit our ability to inject capital into our PRC subsidiaries, limit our PRC subsidiaries' ability to increase their registered capital or distribute profits to us, or may otherwise adversely affect us.

        SAFE issued a public notice, commonly referred to as Circular 75, in October 2005 requiring PRC domestic residents to register with the local SAFE branch before establishing, or acquiring control of, any company outside of China for the purpose of capital financing with assets or equities of PRC companies, referred to in the notice as an "offshore special purpose company." PRC residents who are

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beneficial owners of offshore special purpose companies and have completed round trip investments but did not make foreign exchange registrations for overseas investments before November 1, 2005 were retroactively required to register with the local SAFE branch before March 31, 2006. PRC resident beneficial owners are also required to amend their registrations with the local SAFE branch in certain circumstances. We are aware that our PRC resident beneficial owners subject to the SAFE registration requirements have registered with the Shanghai SAFE branch and will amend such registration to reflect the recent changes to our corporate structure.

        We cannot provide any assurances that all of our beneficial owners who are PRC residents will continue to make, obtain or amend any applicable registrations or approvals required by these SAFE regulations. The failure or inability of our PRC resident beneficial owners to comply with the registration procedures set forth therein may subject us to fines and legal sanctions, restrict our cross-border investment activities, or limit our ability to contribute additional capital into our PRC subsidiaries, or limit our PRC subsidiaries' ability to pay dividends or make other distributions to our company or otherwise adversely affect our business. Moreover, failure to comply with the SAFE registration requirements could result in liability under PRC laws for evasion of foreign exchange restrictions. Furthermore, pursuant to our agreements with Tencent, our PRC subsidiaries, Shanghai SINA Leju, Shanghai Yi Yue and Beijing Maiteng are restricted from paying dividends to us until each of our individual beneficial shareholders who are PRC residents and subject to SAFE registration as described above submits its application to SAFE and each of such PRC subsidiaries submits an application with SAFE as required. We intend to cause such applications to be submitted in the near future.

        As it is uncertain how the SAFE regulations will be interpreted or implemented, we cannot predict how these regulations will affect our business operations or future strategy. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchange activities, including the remittance of dividends and foreign currency-denominated borrowings, which may adversely affect our results of operations and financial condition. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the SAFE regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.

Failure to comply with PRC regulations regarding the registration requirements for employee stock ownership plans or share option plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.

        Under the applicable regulations and SAFE rules, PRC citizens who participate in an employee stock ownership plan or a stock option plan in an overseas publicly listed company are required to register with SAFE and complete certain other procedures. In February 2012, SAFE promulgated the Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plans of Overseas Publicly-Listed Companies, or the Stock Option Rules, which replaced the Application Procedures of Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Ownership Plan or Stock Option Plans of Overseas Publicly-Listed Companies issued by SAFE in March 2007. Pursuant to the Stock Option Rules, if a PRC resident participates in any stock incentive plan of an overseas publicly-listed company, a qualified PRC domestic agent must, among other things, file on behalf of such participant an application with SAFE to conduct the SAFE registration with respect to such stock incentive plan and obtain approval for an annual allowance with respect to the purchase of foreign exchange in connection with the exercise or sale of stock options or stock such participant holds. Such participating PRC residents' foreign exchange income received from the sale of stock and dividends distributed by the overseas publicly-listed company must be fully remitted into a PRC collective foreign currency account opened

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and managed by the PRC agent before distribution to such participants. We and our PRC resident employees who have been granted stock options or other share-based incentives of our Company will be subject to the Stock Option Rules when our Company becomes an overseas listed company upon the completion of this offering. If we or our PRC resident participants fail to comply with these regulations, we and/or our PRC resident participants may be subject to fines and legal sanctions. See "Regulation—Regulations relating to Foreign Exchange Control and Administration—Foreign Exchange Registration of Employee Stock Incentive Plans."

PRC regulations relating to acquisitions in China require us to obtain certain approvals from the Ministry of Commerce and the failure to obtain such approvals could have a material and adverse effect on our business, results of operations, reputation and the trading price of our ADSs.

        The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, jointly issued by six PRC regulatory agencies and amended by the Ministry of Commerce in 2009, include provisions that purport to require the Ministry of Commerce's approval for acquisitions by offshore entities established or controlled by domestic companies, enterprises or natural persons of onshore entities that are related to such domestic companies, enterprises or natural persons. However, the interpretation and implementation of the M&A Rules remain unclear with no consensus currently existing regarding the scope and applicability of the Ministry of Commerce approval requirement on foreign acquisitions among related parties.

        We have entered into contractual arrangements with each of Beijing Leju, Shanghai Yi Xin and Beijing Jiajujiu and their respective shareholders, which provide us with substantial ability to control each of these entities. See "Related Party Transactions."

        If the Ministry of Commerce subsequently determines that their approval was required for such contractual arrangements, we may need to apply for a remedial approval. There can be no assurance that we will be able to obtain such approval or waiver of such approval from the Ministry of Commerce. Inability to obtain such approval or waiver from the Ministry of Commerce may have a material and adverse effect on our business. Further, we may be subject to certain administrative punishments or other sanctions from the Ministry of Commerce. The Ministry of Commerce or other regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the repatriation of U.S. dollars into the PRC, or take other actions that could have further material and adverse effects on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ADSs.

The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of PRC companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.

        The M&A Rules and recently adopted regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex. For example, the M&A Rules require that the PRC Ministry of Commerce be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that have or may have impact on the national economic security; or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand. Mergers, acquisitions or contractual arrangements that allow one market player to take control of or to exert decisive impact on another market player must also be notified in advance to the PRC Ministry of Commerce when the threshold under the Provisions on Thresholds for Prior Notification of Concentrations of Undertakings, or the Prior Notification Rules, issued by the State Council in August 2008 is triggered. In addition, the Implementing Rules Concerning Security Review on the Mergers and Acquisitions by Foreign Investors of Domestic

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Enterprises, issued by the PRC Ministry of Commerce in August 2011, specify that mergers and acquisitions by foreign investors involved in "an industry related to national security" are subject to strict review by the PRC Ministry of Commerce, and prohibit any activities attempting to bypass such security review, including by structuring the transaction through a proxy or contractual control arrangement. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required approval processes, including obtaining approval from the PRC Ministry of Commerce or its local counterparts may delay or inhibit our ability to complete such transactions. We cannot preclude the possibility that the PRC Ministry of Commerce or other government agencies may publish explanations contrary to our understanding or broaden the scope of such security reviews in the future, in which case our future acquisitions in the PRC, including those by way of entering into contractual control arrangements with target entities, may be closely scrutinized or prohibited. Our ability to expand our business or maintain or expand our market share through future acquisitions would as such be materially and adversely affected.

Our PRC subsidiaries and consolidated VIEs are subject to restrictions on paying dividends or making other payments to us, which may restrict our ability to satisfy our liquidity requirements.

        We are a holding company registered in the Cayman Islands. We rely on dividends from our PRC subsidiaries as well as service and other fees paid to our PRC subsidiaries by our consolidated VIEs for our cash and financing requirements, such as the funds necessary to pay dividends and other cash distributions to our shareholders, including holders of our ADSs, and service any debt we may incur.

        Our consolidated VIEs are directly held by certain PRC individuals designated by us and thus are not able to make dividend payments to our PRC subsidiaries and holding companies outside the PRC. We have the right to charge our consolidated VIEs service fees through our relevant PRC subsidiaries pursuant to the exclusive technical support agreements entered into with our consolidated VIEs, which together with the other agreements with our consolidated VIEs and their respective shareholders, enable us to enjoy substantially all of the economic benefits of our consolidated VIEs. These contractual arrangements we have entered into with our consolidated VIEs may be subject to scrutiny by the PRC tax authorities. See "Risk Factors—Risks Related to Our Corporate Structure—Contractual arrangements we have entered into with Beijing Leju, Shanghai Yi Xin and Beijing Jiajujiu may be subject to scrutiny by the PRC tax authorities and a finding that we, Beijing Leju, Shanghai Yi Xin or Beijing Jiajujiu owe additional taxes could reduce our net income and the value of your investment." Our consolidated VIEs have paid and will continue to pay the service fees to our relevant PRC subsidiaries pursuant to the exclusive technical support agreements between them.

        Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our PRC subsidiaries is required to set aside at least 10% of its after-tax profits after making up previous years' accumulated losses each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of its registered capital. In addition, at the discretion of each of our PRC subsidiaries, it may also allocate a portion of its after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserves are not distributable as cash dividends. In addition, the PRC Enterprise Income Tax Law, or the EIT Law, and its implementation rules provide that withholding tax rate of 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC-resident enterprises are incorporated. We have not received any dividend payments or other distributions from our PRC subsidiaries, and as we currently intend to retain all of the available funds and any future earnings of our PRC subsidiaries to fund the

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development and growth of our business, we do not expect to receive any dividend payments or other distributions from our PRC subsidiaries in the foreseeable future.

        Furthermore, if our PRC subsidiaries and consolidated VIEs incur debt on their own behalf in the future, the instruments governing the debt may restrict the ability of our consolidated VIEs to pay service fees to our PRC subsidiaries or the ability of our PRC subsidiaries to pay dividends to us, which may restrict our ability to satisfy our liquidity requirements. Our contractual arrangements with our consolidated VIEs enable us to prevent them from entering into debt arrangements that may be detrimental to us because these contractual arrangements provide us with the ability to direct the activities that most significantly affect the economic performance of our consolidated VIEs. In addition, the exclusive call option agreements among our PRC subsidiaries, consolidated VIEs and their respective shareholders specifically provide that the applicable consolidated VIE shall not, and its shareholders shall ensure that the consolidated VIE does not, incur any loan or offer any guarantee without the prior written consent of our applicable PRC subsidiary. However, any limitation on the ability of our PRC subsidiaries or consolidated VIEs to pay dividends or make other payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC operating subsidiaries.

        As an offshore holding company of our PRC operating subsidiaries, we may make loans to our PRC subsidiaries and consolidated VIEs, or may make additional capital contributions to our PRC subsidiaries, subject to satisfaction of applicable governmental registration and approval requirements.

        Any loans we extend to our PRC subsidiaries, which are treated as foreign-invested enterprises under PRC law, cannot exceed the statutory limit and must be registered with the local counterpart of the SAFE. The statutory limit for the total amount of foreign debt of a foreign-invested company is the difference between the amount of total investment and the amount of registered capital of such foreign-invested company as approved by the Ministry of Commerce or its local counterpart. The current statutory limit on the loans we may make to Beijing Maiteng, our PRC subsidiary, is HK$40 million ($5.2 million). The current total investment in each of our other PRC subsidiaries, namely, Shanghai SINA Leju, Shanghai Yi Yue, City Rehouse, Shanghai Xiangle Information Technology Limited and Shanghai Fangxin Information Technology Co., Ltd., is in the same amount of their respective registered capital. In order for us to make loans to any of our PRC subsidiaries, the subsidiary would need to apply to the Ministry of Commerce or its local counterpart to increase its total investment. The permitted maximum amount of foreign loans that the subsidiary is eligible to raise would be equal to the difference between the total investment and the registered capital. After the increase of total investment is approved by the Ministry of Commerce or its local counterpart, we may extend loans to the relevant PRC subsidiary in an amount that does not exceed the difference referenced above. Any loans we extend to our consolidated VIEs or other PRC operating companies that are domestic PRC entities, must be approved by the National Development and Reform Commission or its local counterpart and must also be registered with SAFE or its local branches.

        We may also decide to finance our PRC subsidiaries by means of capital contributions. According to the relevant PRC regulations on foreign-invested enterprises in China, these capital contributions are subject to approval by the Ministry of Commerce or its local counterpart. In addition, on August 29, 2008, SAFE promulgated the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of Payment and Settlement of Foreign Currency Capital of Foreign Invested Enterprises, or Circular 142, regulating the conversion by a foreign-invested enterprise of foreign currency registered capital into Renminbi by restricting how the converted Renminbi may be used. Circular 142 provides that the Renminbi fund converted from foreign currency registered capital of a foreign-invested enterprise can only be used for purposes within the approved business scope of such

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foreign-invested enterprise and cannot be used for equity investments within the PRC, unless otherwise provided by law. Moreover, SAFE strengthened its oversight of the flow and use of the Renminbi fund converted from foreign currency registered capital of a foreign-invested enterprise. The use of such Renminbi fund may not be altered without SAFE approval, and such Renminbi fund may not in any case be used to repay Renminbi loans if the proceeds of such loans have not been used. Violations of Circular 142 could result in severe monetary or other penalties. Furthermore, SAFE promulgated a circular in November 2010 which tightens the regulations over settlement of net proceeds from overseas offerings like this offering and requires that the settlement of net proceeds must be consistent with the description in the prospectus for the offering. SAFE also promulgated a circular in November 2011, which prohibits a foreign-invested enterprise from using Renminbi funds converted from its foreign currency registered capital to provide entrustment loans or repay loans borrowed from non-financial enterprises. These circulars may limit our ability to transfer the net proceeds from this offering to our consolidated VIEs and the subsidiaries of our PRC subsidiaries, and we may not be able to convert the net proceeds from this offering into Renminbi to invest in or acquire any other PRC companies, or establish other consolidated VIEs in China. Despite the restrictions under these SAFE circulars, our PRC subsidiaries may use their income in Renminbi generated from their operations to finance the relevant consolidated VIEs through entrustment loans to the consolidated VIEs or loans to such VIEs' shareholders for the purpose of making capital contributions to such VIEs. In addition, our PRC subsidiaries can use Renminbi funds converted from foreign currency registered capital to carry out any activities within their normal course of business and business scope, including to purchase or lease servers and other relevant equipment and fund other operational needs in connection with their provision of services to the relevant consolidated VIEs under the applicable exclusive technical support agreements.

        In light of the various requirements imposed by PRC regulations on loans to, and direct investment in, PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans to our PRC subsidiaries or any consolidated VIE or future capital contributions by us to our PRC subsidiaries. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds we expect to receive from this offering and to fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

The discontinuation of any of the preferential tax treatments currently available to us in the PRC or imposition of any additional PRC taxes on us could adversely affect our financial condition and results of operations.

        Pursuant to a Circular on Enterprise Income Tax Preferential Treatments issued by the State Administration of Taxation and the Ministry of Finance effective as of February 22, 2008, as partially amended by a Circular on Enterprise Income Tax Policies for Further Encouraging the Development of the Software Industry and the Integrated Circuit Industry, a qualified software enterprise is eligible to be exempted from income tax for its first two profitable years, followed by a 50% reduction in income tax, to a rate of 12.5%, for the subsequent three years. Shanghai SINA Leju was recognized as a qualified software enterprise in February 2009 and was further approved by the local tax authority in June 2009, and, thus, became eligible to be exempted from income tax for 2009, followed by a 50% reduction in income tax from 2010 through 2012. Another wholly owned subsidiary Shanghai Fangxin Information Technology Co. Ltd., or Shanghai Fangxin, was recognized as a qualified software enterprise and was further approved by the local tax authority in October 2012 to become eligible for being exempted from income tax for 2012 and 2013, followed by a 50% reduction in income tax from 2014 through 2016. Shanghai SINA Leju was granted status as a high and new technology enterprise and was entitled to enjoy a favorable statutory tax rate of 15% for 2013 and 2014. If Shanghai SINA Leju or Shanghai Fangxin fails to maintain software enterprise status or high and new technology

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enterprise status, their applicable enterprise income tax rate may increase to up to 25%, which could have a material and adverse effect on our financial condition and results of operations.

        Various local governments in China have also provided discretionary preferential tax treatments to us. However, at any time, these local governments may decide to reduce or eliminate these preferential tax treatments. Furthermore, these local implementations of tax laws may be found in violation of national laws or regulations, and as a consequence, we may be subject to retroactive imposition of higher taxes as a result. We are required under U.S. GAAP to accrue taxes for these contingencies. The change in accounting requirement for reporting tax contingencies, any reduction or elimination of these preferential tax treatments and any retroactive imposition of higher taxes could have an adverse effect on our results of operations.

We face uncertainty with respect to indirect transfer of equity interests in PRC resident enterprises by their non-PRC holding companies.

        We face uncertainties on the reporting and consequences on private equity financing transactions, share exchange or other transactions involving the transfer of shares in our company by investors who are non-PRC resident enterprises. According to the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises issued by the PRC State Administration of Taxation on December 10, 2009, with retroactive effect from January 1, 2008, or SAT Circular 698, and its subsequent application rules, where a non-PRC resident enterprise transfers the equity interests in a PRC resident enterprise indirectly through a disposition of equity interests in an overseas holding company, or an Indirect Transfer, and such overseas holding company is located in a tax jurisdiction that: (i) has an effective tax rate less than 12.5% or (ii) does not tax foreign income of its residents, the non-PRC resident enterprise, as the seller, shall report such Indirect Transfer to the competent tax authority of the PRC resident enterprise within 30 days of execution of the equity transfer agreement for such Indirect Transfer. The PRC tax authority will examine the true nature of the Indirect Transfer, and if the tax authority considers that the foreign investor has adopted an abusive arrangement without reasonable commercial purposes and for the purpose of avoiding or reducing PRC tax, they will disregard the existence of the overseas holding company that is used for tax planning purposes and re-characterize the Indirect Transfer. As a result, gains derived from such Indirect Transfer may be subject to PRC withholding tax at the rate of up to 10%. We cannot assure you that the PRC tax authorities will not, at their discretion, adjust any capital gains and impose tax return filing obligations on us or require us to provide assistance for the investigation of PRC tax authorities with respect thereto. Any PRC tax imposed on a transfer of our shares or any adjustment of such gains would cause us to incur additional costs and may have a negative impact on the value of your investment in us. SAT Circular 698 also points out that when a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price lower than the fair market value, the competent tax authorities have the power to make a reasonable adjustment on the taxable income of the transaction.

Dividends payable to us by our PRC subsidiaries may be subject to PRC withholding taxes or we may be subject to PRC taxation on our worldwide income, and dividends distributed to our investors may be subject to PRC withholding taxes under the EIT Law and our investors may be subject to PRC withholding tax on the transfer of our ordinary shares or ADSs.

        Under the EIT Law and its implementation rules, all domestic and foreign invested companies would be subject to a uniform enterprise income tax at the rate of 25% and dividends from a PRC subsidiary to its foreign parent company will be subject to a withholding tax at the rate of 10%, unless such foreign parent company's jurisdiction of incorporation has a tax treaty with China that provides for a reduced rate of withholding, or the tax is otherwise exempted or reduced pursuant to PRC tax laws.

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        Under the Administrative Measures for Non-Residents Enjoying Tax Treaty Benefits (Trial Implementation), effective on October 1, 2009, our Hong Kong subsidiaries need to obtain approval from the relevant local branch of the State Administration of Taxation in order to enjoy the preferential withholding tax rate of 5% in accordance with the Arrangement between Mainland China and Hong Kong for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income. The PRC State Administration of Taxation further clarified in a circular that tax treaty benefits will be denied to "conduit" or shell companies without business substance and that a beneficial ownership analysis will be used based on a "substance-over-form" principle to determine whether or not to grant the tax treaty benefits. It is unclear at this stage whether this circular applies to dividends from our PRC subsidiaries paid to us through our Hong Kong subsidiaries. However, it is possible that our Hong Kong subsidiaries might not be considered as "beneficial owners" of any dividends from their PRC subsidiaries and as a result would be subject to withholding tax at the rate of 10%. As a result, there is no assurance that our Hong Kong subsidiaries will be able to enjoy the preferential withholding tax rate.

        In addition, under the EIT Law, enterprises organized under the laws of jurisdictions outside of China with their "de facto management bodies" located within China may be considered PRC resident enterprises and therefore be subject to PRC enterprise income tax at the rate of 25% on their worldwide income. Under the implementation rules of the EIT Law, "de facto management bodies" are defined as the bodies that have material and overall management and control over the business, personnel, accounts and properties of the enterprise. A subsequent circular issued by the State Administration of Taxation provides that a foreign enterprise controlled by a PRC company or a PRC company group will be classified as a "resident enterprise" with its "de facto management bodies" located within China if the following requirements are satisfied: (i) the senior management and core management departments in charge of its daily operations function mainly in the PRC; (ii) its financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (iii) its major assets, accounting books, company seals, and minutes and files of its board and shareholders' meetings are located or kept in the PRC; and (iv) more than half of the enterprise's directors or senior management with voting rights reside in the PRC.

        The EIT Law and its implementation rules are relatively new and ambiguities exist with respect to the interpretation of the provisions relating to resident enterprise issues. Although our offshore holding companies are not controlled by any PRC company or company group, we cannot assure you that we will not be deemed to be a PRC resident enterprise under the EIT Law and its implementation rules. If we were considered a PRC resident enterprise, we would be subject to the PRC enterprise income tax at the rate of 25% on our worldwide income; dividend income we receive from the PRC subsidiaries, however, may be exempt from PRC tax since such income is exempted under the EIT Law to a PRC resident recipient. However, as there is still uncertainty as to how the EIT Law and its implementation rules will be interpreted and implemented, and the PRC foreign exchange control authorities have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated as PRC resident enterprises, we cannot assure you that we are eligible for such PRC enterprise income tax exemptions or reductions. In addition, ambiguities also exist with respect to the interpretation of the provisions relating to identification of PRC-sourced income. If we were considered a PRC resident enterprise, any dividends payable to non-resident holders of our ordinary shares or ADSs, and the gains such investors may realize from the transfer of our ordinary shares or ADSs, may be treated as PRC-sourced income and therefore be subject to a 10% PRC withholding tax (or 20% in the case of non-resident individual holders), unless otherwise exempted or reduced pursuant to treaties or applicable PRC law.

        If we became a PRC resident enterprise under the new PRC tax system and received income other than dividends, our profitability and cash flows would be adversely affected due to our worldwide income being taxed in China under the EIT Law. Additionally, we would incur an incremental PRC

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dividend withholding tax cost if we distributed our profits to our ultimate shareholders. There is, however, not necessarily an incremental PRC dividend withholding tax on the piece of the profits distributed from our PRC subsidiaries, since they would have been subject to PRC dividend withholding tax even if we were not a PRC tax resident.

Foreign ownership of the real estate agency and brokerage business in China is subject to government approval, which may limit our ability to establish new PRC operating entities or to increase the registered capital of our existing entities in the future.

        Currently, we mainly use City Rehouse and its subsidiaries to provide support for our e-commerce business. Certain of the support services provided by City Rehouse and its subsidiaries may be regarded as real estate agency and brokerage services under PRC law. Pursuant to the latest Foreign Investment Industrial Guidance Catalogue, foreign ownership of the real estate agency and brokerage business in China is subject to government approval. Accordingly, the establishment of, or investment in any company with a registered business scope of, real estate agency and brokerage services in China by our PRC subsidiaries directly is, and by our PRC subsidiaries indirectly through their subsidiaries may be, subject to approval of the PRC Ministry of Commerce or its relevant local counterparts which should be obtained before registering such company with SAIC or its local counterparts. Although City Rehouse has not obtained approval from the competent local branch of the PRC Ministry of Commerce in connection with its establishment of, or investment in, its subsidiaries with a registered business scope of real estate brokerage business, each subsidiary of City Rehouse has obtained and maintained a business license with such business scope, and none of such subsidiaries has received any notice of warning or penalties from the competent authorities for lacking such approval. At the time of registration of each of its subsidiaries with the local SAIC, City Rehouse had not provided our full corporate structure to the local SAIC for review as it was not required by the local SAIC or applicable PRC law. We intend to seek approval from the local branch of the PRC Ministry of Commerce for City Rehouse's ownership in each of its subsidiaries that has a registered business scope of engaging in the real estate brokerage business. We are in the process of preparing the relevant application documents. However, it may be difficult and time-consuming for us to obtain such approval, or we may not be able to obtain it at all. If the relevant PRC government authorities require us to have such approval, the lack of such approval may lead to our relevant subsidiary being ordered to cease conducting the relevant e-commerce support services business or becoming subject to warnings, fines or revocation of its licenses. In addition, these approval requirements may also limit our ability to set up new subsidiaries to provide similar support service to our e-commerce business.

        In addition, pursuant to the relevant regulations regarding real estate agency and brokerage businesses, a real estate broker must conduct a filing with the real estate administrative authority within 30 days after issuance of its business license. We have completed the filing with the competent local real estate administrative authorities for our ten PRC operating entities which currently provide support services considered to be real estate agency and brokerage services under the PRC law. In addition, among our other 21 PRC operating entities with the registered business scope of real estate brokerage business which are intended to provide support services to our e-commerce business, we are in the process of making such filings with the relevant local real estate administrative authorities for three entities, and are in the process of preparing the relevant application documents with respect to all the remaining 18 entities which intend to make such filings. The requirements of the local real estate administrative authority for such filing may vary in different cities and we cannot assure you that we will be able to complete such filing in a timely manner or at all. If we fail to properly complete such filings, it may limit the ability of the relevant PRC operating entities to provide similar support service to our e-commerce business.

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Our auditor, like other independent registered public accounting firms operating in China, is not permitted to be subject to inspection by the Public Company Accounting Oversight Board, and as such, investors may be deprived of the benefits of such inspection.

        Our independent registered public accounting firm that issued the audit reports included in this prospectus filed with the SEC, as an auditor of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board (United States), or PCAOB, is required by the laws of the United States to undergo regular inspections by PCAOB to assess its compliance with the laws of the United States and professional standards. Because our auditor is located in China, a jurisdiction where PCAOB is currently unable to conduct inspections without the approval of the PRC authorities, our auditor, like other independent registered public accounting firms operating in China, is currently not inspected by PCAOB.

        Inspections of other firms that PCAOB has conducted outside of China have identified deficiencies in those firms' audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. The inability of PCAOB to conduct inspections of independent registered public accounting firms operating in China makes it more difficult to evaluate the effectiveness of our auditor's audit procedures or quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections and lose confidence in our reported financial information and procedures and the quality of our financial statements.

Proceedings instituted by the SEC against five PRC-based accounting firms, including our independent registered public accounting firm, could result in financial statements being determined to not be in compliance with the requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act.

        In late 2012, the SEC commenced administrative proceedings under Rule 102(e) of its Rules of Practice and also under the Sarbanes-Oxley Act of 2002 against the Chinese affiliates of the "big four" accounting firms,(including our auditors) and also against Dahua (the former BDO affiliate in China). The Rule 102(e) proceedings initiated by the SEC relate to these firms' inability to produce documents, including audit work papers, in response to the request of the SEC pursuant to Section 106 of the Sarbanes-Oxley Act of 2002, as the auditors located in the PRC are not in a position lawfully to produce documents directly to the SEC because of restrictions under PRC law and specific directives issued by the China Securities Regulatory Commission. The issues raised by the proceedings are not specific to our auditors or to us, but affect equally all audit firms based in China and all China-based businesses with securities listed in the United States.

        In January 2014, the administrative judge reached an Initial Decision that the "big four" accounting firms should be barred from practicing before the Commission for six months. However, it is currently impossible to determine the ultimate outcome of this matter as the accounting firms have filed a Petition for Review of the Initial Decision and pending that review the effect of the Initial Decision is suspended. The SEC Commissioners will review the Initial Decision, determine whether there has been any violation, and if so, determine the appropriate remedy to be placed on these audit firms. Once such an order was made, the accounting firms would have a further right to appeal to the US Federal courts, and the effect of the order might be further stayed pending the outcome of that appeal.

        Depending upon the final outcome, listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined to not be in compliance with the requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, including possible delisting. Moreover, any negative news about the proceedings against these audit firms may cause investor concerns regarding China-based, United States listed companies and the market price of our ADSs may be adversely affected.

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Risks Related to Our ADSs

An active trading market for our shares or our ADSs may not develop and the trading price for our ADSs may fluctuate significantly.

        Our ADSs have been approved for listing on the NYSE. Prior to the completion of this offering, there has been no public market for our ADSs or our ordinary shares underlying the ADSs, and we cannot assure you that a liquid public market for our ADSs will develop. If an active public market for our ADSs does not develop following the completion of this offering, the market price and liquidity of our ADSs may be materially and adversely affected. Even if an active public market for our ordinary shares or ADSs develops, we cannot assure you that it will continue. The initial public offering price for our ADSs will be determined by negotiation between us and the underwriters based upon several factors, and we can provide no assurance that the trading price of our ADSs after this offering will not decline below the initial public offering price. As a result, investors in our securities may experience a significant decrease in the value of their ADSs.

The trading prices of our ADSs are likely to be volatile, which could result in substantial losses to investors.

        The trading prices of our ADSs are likely to be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, like the performance and fluctuation in the market prices or the underperformance or deteriorating financial results of other similarly situated companies in China that have listed their securities in the United States in recent years. The securities of some of these companies have experienced significant volatility since their initial public offerings, including, in some cases, substantial price declines in the trading prices of their securities. The trading performances of these Chinese companies' securities after their offerings, including companies in the internet, real estate and real estate services businesses, may affect the attitudes of investors toward Chinese companies listed in the United States, which consequently may impact the trading performance of our ADSs, regardless of our actual operating performance. In addition, any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting or other practices at other Chinese companies may also negatively affect the attitudes of investors towards Chinese companies in general, including us, regardless of whether we have engaged in such practices. In addition, securities markets may from time to time experience significant price and volume fluctuations that are not related to our operating performance, such as the large decline in share prices in the United States, China and other jurisdictions in late 2008, early 2009, the third quarter of 2011 and the second quarter of 2012, which may have a material adverse effect on the market price of our ADSs.

        In addition to market and industry factors, the price and trading volume for our ADSs may be highly volatile for factors specific to our own operations, including the following:

    variations in our net revenues, earnings and cash flow;

    announcements of new investments, acquisitions, strategic partnerships, or joint ventures by us or our competitors;

    announcements of new services and expansions by us or our competitors;

    changes in financial estimates by securities analysts;

    fluctuations in our operating metrics;

    additions or departures of key personnel;

    release of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities;

    detrimental negative publicity about us, our competitors or our industry;

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    regulatory developments affecting us or our industry; and

    potential litigation or regulatory investigations.

        Any of these factors may result in large and sudden changes in the volume and price at which our ADSs will trade.

The approval of the China Securities Regulatory Commission may be required in connection with this offering and, if required, we cannot assure you that we will be able to obtain such approval.

        On August 8, 2006, six PRC regulatory agencies, including the China Securities Regulatory Commission, or CSRC, promulgated the M&A Rules, which became effective on September 8, 2006 and was amended on June 22, 2009. This regulation, among other things, requires offshore special purpose vehicles, or SPVs, formed for the purpose of an overseas listing and controlled by PRC companies or individuals, to obtain CSRC approval prior to listing their securities on an overseas stock exchange. The application of this regulation remains unclear. Our PRC legal counsel, Fangda Partners, has advised us that, based on their understanding of the current PRC laws, rules and regulations, neither CSRC approval nor any other governmental authorization is required under the M&A Rules in the context of this offering because the ownership structures of our PRC subsidiaries and consolidated VIEs were not established through acquisition of equity interests or assets of any PRC domestic company by foreign entities as defined under the M&A Rules.

        However, we have been advised by our PRC legal counsel that there are uncertainties regarding the interpretation and application of the PRC law, and there can be no assurance that the PRC government will ultimately take a view that is not contrary to the above opinion of our PRC legal counsel. If it is determined that the CSRC approval is required for this offering, we may face sanctions by CSRC or other PRC regulatory agencies for failure to seek the CSRC approval for this offering. These sanctions may include fines and penalties on our operations in the PRC although, to our knowledge, no definitive rules or interpretations have been issued to determine or quantify such fines or penalties, delays or restrictions on the repatriation of the proceeds from this offering into the PRC, restrictions on or prohibition of the payments or remittance of dividends by our PRC subsidiaries, or other actions that may have a material adverse effect on our business and the trading price of our ADSs. CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable to us, to halt this offering before the settlement and delivery of the ADSs that we are offering. Consequently, if you engage in market trading or other activities in anticipation of and prior to the settlement and delivery of the ADSs we are offering, you would be doing so at the risk that the settlement and delivery may not occur.

We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements.

        We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we may take advantage of certain exemptions from various requirements applicable to other public companies that are not emerging growth companies including, most significantly, not being required to comply with the auditor attestation requirements of Section 404 for so long as we are an emerging growth company until the fifth anniversary from the date of our initial listing.

        The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. If we elect not to comply with the abovementioned auditor attestation requirements or to comply with new or revised accounting standards, our investors may not have access to certain information they may deem important.

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We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to United States domestic public companies.

        Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:

    the rules under the Exchange Act requiring the filing with the SEC, of quarterly reports on Form 10-Q or current reports on Form 8-K;

    the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act;

    the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and

    the selective disclosure rules by issuers of material nonpublic information under Regulation FD.

        We will be required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results on a quarterly basis as press releases, distributed pursuant to the rules and regulations of the NYSE. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely as compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information, which would be made available to you, were you investing in a U.S. domestic issuer.

If securities or industry analysts cease to publish research or reports about our business, or if they adversely change their recommendations regarding our ADSs, the market price for our ADSs and trading volume could decline.

        The trading market for our ADSs will be influenced by research or reports that industry or securities analysts publish about our business. If one or more analysts who cover us downgrade our ADSs, the market price for our ADSs would likely decline. If one or more of these analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for our ADSs to decline.

The sale or availability for sale, or perceived sale or availability for sale, of substantial amounts of our ADSs could adversely affect their market price.

        Sales of substantial amounts of our ADSs in the public market after the completion of this offering, or the perception that these sales could occur, could adversely affect the market price of our ADSs and could materially impair our ability to raise capital through equity offerings in the future. There will be 10,000,000 ADSs outstanding immediately after this offering, or 11,500,000 ADSs if the underwriters exercise their options to purchase additional ADSs in full. The ADSs sold in this offering will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, or the Securities Act, and shares held by our existing shareholders may also be sold in the public market in the future subject to the restrictions in Rule 144 and Rule 701 under the Securities Act and the applicable lock-up agreements. In connection with this offering, we and our officers, directors and existing shareholders have agreed not to sell any shares or ADSs for 180 days after the date of this prospectus without the prior written consent of the underwriters. However, the underwriters may release the securities subject to lock-up agreements from the lock-up restrictions at any time, subject to applicable regulations of the Financial Industry Regulatory Authority, Inc. In addition, ordinary shares subject to our outstanding options as of the closing of this offering will

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become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements, the lock-up agreements and Rules 144 and 701 under the Securities Act. We may also issue additional options in the future which may be exercised for additional ordinary shares. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of our ADSs. See "Underwriting" and "Shares Eligible for Future Sale" for a more detailed description of the restrictions on selling our securities after this offering.

Because the initial public offering price is substantially higher than the pro forma net tangible book value per share, you will experience immediate and substantial dilution.

        If you purchase ADSs in this offering, you will pay more for each ADS than the corresponding amount paid by existing shareholders for their ordinary shares. As a result, you will experience immediate and substantial dilution of approximately $8.50 per ADS (assuming that no outstanding options to acquire ordinary shares are exercised). This number represents the difference between our pro forma net tangible book value per ADS of $1.50 as of December 31, 2013, after giving effect to this offering and the concurrent private placement to Tencent and the initial public offering price of $10.00 per ADS and after deducting underwriting discounts and commissions, estimated offering expenses and estimated fees and expenses in connection with the concurrent private placement to Tencent payable by us. See "Dilution" for a more complete description of how the value of your investment in our ADSs will be diluted upon the completion of this offering.

Our articles of association contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our ordinary shares and ADSs.

        We will adopt our amended and restated memorandum and articles of association that will become effective immediately upon completion of this offering. Our new memorandum and articles of association contain provisions to limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. For example, our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares, in the form of ADS, or otherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of our ADSs may fall and the voting and other rights of the holders of our ordinary shares and ADSs may be materially and adversely affected.

You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law.

        We are an exempted company limited by shares incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles of association, the Companies Law (2013 Revision) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law

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of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States.

        Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records or to obtain copies of lists of shareholders of these companies. Our directors have discretion under our existing articles of association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.

        Certain corporate governance practices in the Cayman Islands, which is our home country, differ significantly from requirements for companies incorporated in other jurisdictions such as the United States. Currently, we do not plan to rely on home country practice with respect to any corporate governance matter. However, if we choose to follow home country practice in the future, our shareholders may be afforded less protection than they otherwise would under rules and regulations applicable to U.S. domestic issuers.

        As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States. For a discussion of significant differences between the provisions of the Companies Law of the Cayman Islands and the laws applicable to companies incorporated in the United States and their shareholders, see "Description of Share Capital—Differences in Corporate Law."

Judgments obtained against us by our shareholders may not be enforceable in our home jurisdiction.

        We are a Cayman Islands company and a substantial majority of our assets are located outside of the United States. A significant percentage of our current operations are conducted in China. In addition, a significant majority of our current directors and officers are nationals and residents of countries other than the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the United States federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers.

        There are uncertainties as to whether Cayman Islands courts would:

    recognize or enforce against us judgments of courts of the United States based on certain civil liability provisions of U.S. securities laws; and

    impose liabilities against us, in original actions brought in the Cayman Islands, based on certain civil liability provisions of U.S. securities laws that are penal in nature.

        There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands will in certain circumstances recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. For more information regarding the relevant laws of the Cayman Islands and China, see "Enforceability of Civil Liabilities."

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We have not determined a specific use for a portion of the net proceeds from this offering, and we may use these proceeds in ways with which you may not agree and such use may not produce income or increase our ADS price.

        We have not determined a specific use for a portion of the net proceeds of this offering, and our management will have considerable discretion in deciding how to apply these proceeds. You will not have the opportunity to assess whether the proceeds are being used appropriately before you make your investment decision. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. We cannot assure you that the net proceeds will be used in a manner that would improve our results of operations or increase our ADS price, or that these net proceeds will be placed only in investments that generate income or appreciate in value.

The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to vote the ordinary shares underlying your ADSs.

        As a holder of our ADSs, you will only be able to exercise the voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will vote the underlying ordinary shares in accordance with these instructions. You will not be able to directly exercise your right to vote with respect to the underlying shares unless you withdraw the shares. Under our amended and restated memorandum and articles of association which will become effective immediately upon completion of this offering, the minimum notice period required for convening a general meeting is 7 days. When a general meeting is convened, you may not receive sufficient advance notice to withdraw the shares underlying your ADSs to allow you to vote with respect to any specific matter. If we ask for your instructions, the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions. This means that you may not be able to exercise your right to vote and you may have no legal remedy if the shares underlying your ADSs are not voted as you requested.

Because we do not expect to pay dividends in the foreseeable future after this offering, you must rely on price appreciation of our ADSs for return on your investment.

        We currently intend to retain most, if not all, of our available funds and any future earnings after this offering to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our ADSs as a source for any future dividend income.

        Our board of directors has complete discretion as to whether to distribute dividends. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiary, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our ADSs will likely depend entirely upon any future price appreciation of our ADSs. There is no guarantee that our ADSs will appreciate in value after this offering or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in our ADSs and you may even lose your entire investment in our ADSs.

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You may not receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make them available to you.

        The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities underlying our ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not properly registered or distributed under an applicable exemption from registration. The depositary may also determine that it is not feasible to distribute certain property through the mail. Additionally, the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of our ADSs.

You may not be able to participate in rights offerings and may experience dilution of your holdings.

        We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the Securities Act with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. The depositary may, but is not required to, attempt to sell these undistributed rights to third parties, and may allow the rights to lapse. We may be unable to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.

You may be subject to limitations on transfer of your ADSs.

        Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of our ADSs generally when our share register or the books of the depositary are closed, or at any time if we or the depositary thinks that it is advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement. As a result, you may be unable to transfer your ADSs when you wish to.

We will incur increased costs as a result of being a public company, particularly after we cease to qualify as an "emerging growth company."

        Upon completion of this offering, we will become a public company and expect to incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC, and the NYSE, impose various

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requirements on the corporate governance practices of public companies. As a company with less than $1.0 billion in revenues for our last fiscal year, we qualify as an "emerging growth company" pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, in the assessment of the emerging growth company's internal control over financial reporting and permission to delay adopting new or revised accounting standards until such time as those standards apply to private companies. However, we have elected to "opt out" of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted for public companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

        We will remain an emerging growth company until the earliest of (i) the last day of our fiscal year during which we have total annual gross revenues of at least $1.0 billion; (ii) the last day of our fiscal year following the fifth anniversary of the completion of this offering; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (iv) the date on which we are deemed to be a "large accelerated filer" under the Exchange Act, which would occur if the market value of our ADSs that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above.

        We expect these rules and regulations to increase our legal and financial compliance costs and to make some corporate activities more time-consuming and costly. After we are no longer an "emerging growth company," we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the other rules and regulations of the SEC. For example, as a result of becoming a public company, we will need to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures. We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. In addition, we will incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.

        In the past, shareholders of a public company often brought securities class action suits against the company following periods of instability in the market price of that company's securities. If we were involved in a class action suit, it could divert a significant amount of our management's attention and other resources from our business and operations, which could harm our results of operations and require us to incur significant expenses to defend the suit. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.

We may be classified as a passive foreign investment company, or PFIC, for United States federal income tax purposes, which could subject United States investors in our ADSs or ordinary shares to significant adverse United States income tax consequences.

        We will be classified as a "passive foreign investment company," or PFIC, if, in the case of any particular taxable year, either (i) 75% or more of our gross income for such year consists of certain types of "passive" income or (ii) 50% or more of the average quarterly value of our assets

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(as determined on the basis of fair market value) during such year produce or are held for the production of passive income (the "asset test"). Although the law in this regard is unclear, we treat our consolidated affiliated entities as being owned by us for U.S. federal income tax purposes, not only because we exercise effective control over the operation of such entities but also because we are entitled to substantially all of their economic benefits, and, as a result, we consolidate their operating results in our consolidated financial statements. Assuming that we are the owner of our PRC consolidated affiliated entities for U.S. federal income tax purposes, and based upon our current income and assets (taking into account the proceeds from this offering) and projections as to the value of our ADSs and ordinary shares following the offering, we do not presently expect to be classified as a PFIC for the current taxable year or the foreseeable future.

        While we do not expect to become a PFIC, because the value of our assets for purposes of the asset test will generally be determined by reference to the market price of our ADSs or ordinary shares, fluctuations in the market price of our ADSs or ordinary shares may cause us to become a PFIC for the current or subsequent taxable years. The determination of whether we will be or become a PFIC will also depend, in part, on the composition of our income and assets, which will be affected by how, and how quickly, we use our liquid assets and the cash raised in this offering. Under circumstances where we determine not to deploy significant amounts of cash for active purposes or not to treat our consolidated affiliated entities as owned by us for United States federal income tax purposes, our risk of being classified as a PFIC may substantially increase. Because there are uncertainties in the application of the relevant rules and PFIC status is a factual determination made annually after the close of each taxable year, there can be no assurance that we will not be a PFIC for the current taxable year or any future taxable year.

        If we are classified as a PFIC in any taxable year, a U.S. holder (as defined in "Taxation—United States Federal Income Tax Considerations") may incur significantly increased U.S. income tax on gain recognized on the sale or other disposition of the ADSs or ordinary shares and on the receipt of distributions on the ADSs or ordinary shares to the extent such gain or distribution is treated as an "excess distribution" under the U.S. federal income tax rules and such holders may be subject to burdensome reporting requirements. Further, if we are classified as a PFIC for any year during which a U.S. holder holds our ADSs or ordinary shares, we generally will continue to be treated as a PFIC for all succeeding years during which such U.S. holder holds our ADSs or ordinary shares. For more information see "Taxation—United States Federal Income Tax Considerations—Passive Foreign Investment Company Rules."

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements that reflect our current expectations and views of future events. The forward looking statements are contained principally in the sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." Known and unknown risks, uncertainties and other factors, including those listed under "Risk Factors," may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

        You can identify some of these forward-looking statements by words or phrases such as "may," "will," "expect," "anticipate," "aim," "estimate," "intend," "plan," "believe," "is/are likely to," "potential," "continue" or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include statements relating to:

    our anticipated growth strategies;

    our future business development, results of operations and financial condition;

    our ongoing relationships with E-House, SINA and Baidu, among others;

    expected changes in our revenues and certain cost or expense items;

    our ability to attract customers and further enhance our brand recognition; and

    trends and competition in the online real estate services industry.

        These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results could be materially different from our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in "Prospectus Summary—Our Challenges," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business," "Regulation" and other sections in this prospectus. You should thoroughly read this prospectus and the documents that we refer to with the understanding that our actual future results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements.

        This prospectus contains certain data and information that we obtained from various government and private publications, including reports published by independent industry consultants, namely eMarketer, Euromonitor, IDC and iResearch and other independent industry consultants. Statistical data in these publications also include projections based on a number of assumptions. Our industry may not grow at the rate projected by market data, or at all. Failure of this market to grow at the projected rate may have a material and adverse effect on our business and the market price of our ADSs. In addition, the rapidly changing nature of our industry results in significant uncertainties for any projections or estimates relating to the growth prospects or future condition of our market. Furthermore, if any one or more of the assumptions underlying the market data are later found to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.

        The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this prospectus and the documents that we refer to in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.

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USE OF PROCEEDS

        We expect to receive (i) net proceeds from this offering of approximately $88.0 million, or approximately $101.9 million if the underwriters exercise their over-allotment option in full, after deducting underwriting discounts and the estimated offering expenses payable by us, and (ii) net proceeds of approximately $18.9 million from the concurrent private placement to Tencent, after deducting estimated fees and expenses payable by us in connection with the concurrent private placement, based upon the initial public offering price of $10.00 per ADS.

        The primary purposes of this offering are to create a public market for our shares for the benefit of all shareholders, retain talented employees by providing them with equity incentives, and obtain additional capital. We plan to use the net proceeds of this offering as follows:

    approximately $40.0 million to enhance our technology infrastructure and develop new products and services for our online platform;

    approximately $30.0 million for geographic expansion, including adding new business lines in existing cities and converting outsourced operations to direct operations in approximately 30 smaller cities in various provinces in China; and

    the balance for general corporate purposes, including funding potential acquisitions of complementary businesses and strategic investments, although we are not currently negotiating any such transactions.

        The foregoing represents our current intentions based upon our present plans and business conditions to use and allocate the net proceeds of this offering. Our management, however, will have significant flexibility and discretion to apply the net proceeds of this offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus. See "Risk Factors—Risks Related to Our ADSs—We have not determined a specific use for a portion of the net proceeds from this offering, and we may use these proceeds in ways with which you may not agree and such use may not produce income or increase our ADS price."

        Pending any use described above, we plan to invest the net proceeds in short-term, interest-bearing, debt instruments or demand deposits.

        In using the proceeds of this offering, we are permitted under PRC laws and regulations as an offshore holding company to provide funding to our PRC subsidiaries only through loans or capital contributions, and to our consolidated VIEs only through loans. Subject to satisfaction of applicable government registration and approval requirements, we may extend inter-company loans to our PRC subsidiaries or make additional capital contributions to our PRC subsidiaries to fund their capital expenditures or working capital. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all. See "Regulation—Regulations relating to Foreign Exchange Control and Administration—Foreign Exchange Administration" and "Risk Factors—Risks Related to Doing Business in China—PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC operating subsidiaries."

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DIVIDEND POLICY

        Our board of directors has complete discretion on whether to distribute dividends. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.

        We have not previously paid, and do not have any present plan to pay, any cash dividends on our ordinary shares in the foreseeable future after this offering. We currently intend to retain all of our available funds and any future earnings to operate and expand our business.

        We are a holding company incorporated in the Cayman Islands. We rely principally on dividends from our subsidiaries in China for our cash requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to us. See "Regulation—Regulations relating to Dividend Distributions."

        Our board of directors has complete discretion as to whether to distribute dividends and intends on paying dividends only to the extent cash is available in the offshore entities. If we pay any dividends, we will pay our ADS holders to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See "Description of American Depositary Shares." Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.

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CAPITALIZATION

        The following table sets forth our capitalization as of December 31, 2013:

    on an actual basis;

    on an as adjusted basis to reflect the sale of 10,000,000 ordinary shares in the form of ADSs by us in this offering, and the issuance of 2,029,420 ordinary shares to Tencent in the private placement concurrently with this offering for Tencent to maintain a 15% equity interest in us (on a fully diluted basis, including all options and restricted shares and any other rights to acquire our shares that are granted and outstanding, and assuming the underwriters exercise their over-allotment option to purchase additional ADSs in full) as of the consummation of this offering, in each case at the initial public offering price of $10.00 per ADS, after deducting the underwriting discounts and commissions, estimated offering expenses and estimated fees and expenses in connection with our concurrent private placement to Tencent payable by us.

        You should read this table together with our consolidated financial statements and the related notes included elsewhere in this prospectus and the information under "Management's Discussion and Analysis of Financial Condition and Results of Operations."

 
  As of
December 31, 2013
 
 
  Actual   As adjusted(1)  
 
  (in thousands of $)
 

Shareholders' equity:

             

Ordinary shares, $0.001 par value, 500,000,000 shares authorized, 120,000,000 shares issued and outstanding on an actual basis, and 132,029,420 shares issued and outstanding as adjusted

    120     132  

Additional paid-in capital

    686,378     793,208  

Accumulated deficit

    (443,294 )   (443,294 )

Subscription receivables

    (120 )   (120 )

Accumulated other comprehensive income

    5,622     5,622  
           

Total Leju equity

    248,706     355,548  

Non-controlling interest

    3,084     3,084  
           

Total equity(1)

    251,790     358,632  
           

Total capitalization

    251,790     358,632  
           
           

Notes:

(1)
The as adjusted information discussed above is illustrative only.

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DILUTION

        If you invest in our ADSs, your interest will be diluted to the extent of the difference between the initial public offering price per ADS and our net tangible book value per ADS after this offering. Dilution results from the fact that the initial public offering price per ordinary share is substantially in excess of the book value per ordinary share attributable to the existing shareholders for our presently outstanding ordinary shares.

        Our net tangible book value as of December 31, 2013 was approximately $91.6 million, or $0.76 per ordinary share as of that date, and $0.76 per ADS. Net tangible book value represents the amount of our total consolidated tangible assets, less the amount of our total consolidated liabilities excluding the liability relating to exclusive rights. Dilution is determined by subtracting net tangible book value per ordinary share, after giving effect to (i) the additional proceeds we will receive from this offering, from the initial public offering price of $10.00 per ADS, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and (ii) our issuance and sale of 2,029,420 ordinary shares to Tencent in the private placement concurrently with this offering, at the price of $10.00 per ordinary share, and after deducting estimated fees and expenses in connection with our concurrent private placement to Tencent payable by us.

        Without taking into account any other changes in such net tangible book value after December 31, 2013, other than to give effect to (i) our issuance and sale of 10,000,000 ADSs in this offering, at the initial public offering price of $10.00 per ADS, and after deduction of underwriting discounts and commissions and estimated offering expenses payable by us (assuming the over-allotment option is not exercised), and (ii) our issuance and sale of 2,029,420 ordinary shares to Tencent in the private placement concurrently with this offering, at the price of $10.00 per ordinary share, and after deduction of estimated fees and expenses payable by us, our net tangible book value at December 31, 2013 would have been $1.50 per outstanding ordinary share, including ordinary shares underlying our outstanding ADSs, or $1.50 per ADS. This represents an immediate increase in net tangible book value of $0.74 per ordinary share, or $0.74 per ADS, to existing shareholders and an immediate dilution in net tangible book value of $8.50 per ordinary share, or $8.50 per ADS, to purchasers of ADSs in this offering.

        The following table illustrates the dilution on a per ordinary share basis at the initial public offering price of $10.00 per ordinary share and assuming all ADSs are exchanged for ordinary shares:

 
  Per Ordinary share   Per ADS  

Initial public offering price

    $10.00     $10.00  

Net tangible book value as of December 31, 2013

    $0.76     $0.76  

Net tangible book value as adjusted to give effect to this offering and the concurrent private placement to Tencent as of December 31, 2013

    $1.50     $1.50  

Amount of dilution in net tangible book value to new investors in the offering and the concurrent private placement

    $8.50     $8.50  

        The following table summarizes, as of December 31, 2013, the differences between the shareholders as of December 31, 2013 and the new investors with respect to the number of ordinary shares purchased from us in this offering and the concurrent private placement, the total consideration paid and the average price per ordinary share paid at the initial public offering price of $10.00 per

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ADS before deducting estimated underwriting discounts and commissions and estimated offering expenses.

 
  Ordinary
shares
Purchased
  Total
Consideration
   
   
 
 
  Average Price
Per Ordinary
share
  Average Price
Per ADS
 
 
  Number   Percent   Amount   Percent  
 
   
   
  ($)
   
  ($)
  ($)
 

Existing shareholders

    120,000,000     90.9 %   685,335,834     85.1 %   5.71     5.71  

Concurrent private placement to Tencent

    2,029,420     1.5 %   20,294,200     2.5 %   10.00     10.00  

New investors

    10,000,000     7.6 %   100,000,000     12.4 %   10.00     10.00  
                               

Total

    132,029,420     100.0 %   805,630,034     100.0 %   6.10     6.10  
                           
                           

        The as adjusted information discussed above is illustrative only.

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EXCHANGE RATE INFORMATION

        Substantially all of our operations are conducted in China and substantially all of our revenues are denominated in Renminbi. This prospectus contains translations of Renminbi amounts into U.S. dollars at specific rates solely for the convenience of the reader. Unless otherwise noted, all translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this prospectus were made at a rate of RMB6.0537 to $1.00, the noon buying rate in The City of New York for cable transfers of Renminbi as certified for customs purposes by the Federal Reserve Bank of New York on December 31, 2013. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, at the rates stated below, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign trade. On April 11, 2014, the noon buying rate was RMB6.2111 to $1.00.

        The following table sets forth, for the periods indicated, information concerning exchange rates between the Renminbi and the U.S. dollar based on the noon buying rate in New York City as certified for customs purposes by the Federal Reserve Bank of New York. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this prospectus or will use in the preparation of our periodic reports or any other information to be provided to you.

 
  Noon Buying Rate  
Period
  Period End   Average(1)   Low   High  
 
  (RMB per U.S. Dollar)
 

2009

    6.8259     6.8295     6.8470     6.8176  

2010

    6.6000     6.7603     6.8330     6.6000  

2011

    6.2939     6.4475     6.6364     6.2939  

2012

    6.2301     6.2990     6.3879     6.2221  

2013

    6.0537     6.1478     6.2438     6.0537  

October

    6.0943     6.1032     6.1209     6.0815  

November

    6.0922     6.0929     6.0993     6.0903  

December

    6.0537     6.0894     6.0927     6.0815  

2014

                         

January

    6.0590     6.0509     6.0600     6.0402  

February

    6.1448     6.0810     6.1448     6.0591  

March

    6.2164     6.1729     6.2273     6.1183  

April (through April 11, 2014)

    6.2111     6.2073     6.2123     6.1966  

Source: Federal Reserve Bank of New York

(1)
Period averages are calculated from month-end rates. Monthly averages are calculated using the average of the daily rates during the relevant period.

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ENFORCEABILITY OF CIVIL LIABILITIES

        We are incorporated in the Cayman Islands to take advantage of certain benefits associated with being a Cayman Islands exempted company, such as:

    political and economic stability;

    an effective judicial system;

    a favorable tax system;

    the absence of exchange control or currency restrictions; and

    the availability of professional and support services.

        However, certain disadvantages accompany incorporation in the Cayman Islands. These disadvantages include:

    the Cayman Islands has a less developed body of securities laws as compared to the United States and provides significantly less protection to investors; and

    Cayman Islands companies may not have standing to sue before the federal courts of the United States.

        Our constituent documents do not contain provisions requiring that disputes, including those arising under the securities laws of the United States, between us, our officers, directors and shareholders, be arbitrated.

        Substantially all of our operations are conducted in China, and substantially all of our assets are located in China. A majority of our directors and executive officers are nationals or residents of jurisdictions other than the United States and a substantial portion of their assets are located outside the United States. As a result, it may be difficult for a shareholder to effect service of process within the United States upon these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

        We have appointed Law Debenture Corporate Services Inc., located at 400 Madison Avenue, 4th Floor, New York, New York 10017 as our agent upon whom process may be served in any action brought against us under the securities laws of the United States.

        We have been advised by our Cayman Islands legal counsel, Maples and Calder, that the courts of the Cayman Islands are unlikely (i) to recognize or enforce against us judgments of courts of the United States predicated upon the civil liability provisions of the securities laws of the United States or any State; and (ii) in original actions brought in the Cayman Islands, to impose liabilities against us predicated upon the civil liability provisions of the securities laws of the United States or any State, so far as the liabilities imposed by those provisions are penal in nature. In those circumstances, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, and or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman

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Islands Court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.

        Fangda Partners, our counsel as to PRC law, has advised us that there is uncertainty as to whether the courts of China would:

    recognize or enforce judgments of U.S. courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or

    entertain original actions brought in the PRC against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.

        Fangda Partners has further advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other form of reciprocity with the United States or the Cayman Islands that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC law or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States or in the Cayman Islands. Under the PRC Civil Procedures Law, foreign shareholders may originate actions based on PRC law against us in the PRC, if they can establish sufficient nexus to the PRC for a PRC court to have jurisdiction, and meet other procedural requirements, including, among others, the plaintiff must have a direct interest in the case, and there must be a concrete claim, a factual basis and a cause for the suit.

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CORPORATE HISTORY AND STRUCTURE

        Leju Holdings Limited was incorporated in November 2013 by our parent company, E-House, a leading real estate services company in China listed on the NYSE. E-House will remain our parent company and controlling shareholder after this offering. Leju Holdings Limited is a holding company. Substantially all of our operations are conducted through the PRC subsidiaries and consolidated VIEs under China Online Housing, Omnigold, E-Real and E-House Tianjin, each of which became our subsidiary in December 2013 as part of a restructuring by E-House. China Online Housing was incorporated as a joint venture of SINA and E-House in 2008 to operate the SINA real estate and home furnishing websites and related business, including online advertising services. China Online Housing became a consolidated subsidiary of E-House in 2009 and a wholly owned subsidiary of E-House in 2012. Omnigold was incorporated by E-House in October 2010 to operate the home furnishing services business and is currently 84% owned by us. E-Real and E-House Tianjin were incorporated by E-House in June 2011 and March 2012, respectively and are wholly owned by us. E-Real was initially incorporated to operate in the real estate e-commerce business and E-House Tianjin supports our real estate e-commerce business.

        The following diagram illustrates our corporate structure, including our principal operating subsidiaries and consolidated VIEs as of the date of this prospectus.

GRAPHIC


Note:

(1)
Beijing Yisheng Leju Information Services Co., Ltd., or Beijing Leju is a VIE established in China in 2008 and is 80% owned by Mr. Xudong Zhu and 20% owned by Mr. Zuyu Ding, and each of Shanghai Yi Xin E-Commerce Co., Ltd., or Shanghai Yi Xin and Beijing Jiajujiu E-Commerce Co., Ltd., or Beijing Jiajujiu is a VIE established in China in 2011 and is 70% owned by Mr. Zuyu Ding and 30% owned by Mr. Weijie Ma. We effectively control Beijing Leju, Shanghai Yi Xin and Beijing Jiajujiu through contractual arrangements. See "Related Party Transactions—Contractual Arrangements with Beijing Leju, Shanghai Yi Xin and Beijing Jiajujiu (the consolidated VIEs)."

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(2)
The registered business scope of each of Shanghai Yi Yue Information Technology Co., Ltd., or Shanghai Yi Yue, Shanghai Xiangle Information Technology Limited, or Shanghai Xiangle, Shanghai SINA Leju Information Technology Co., Ltd., or Shanghai SINA Leju, Shanghai Fangxin Information Technology Co., Ltd., or Shanghai Fangxin, and Beijing Maiteng Fengshun Science and Technology Co., Ltd., or Beijing Maiteng, contains the business of development of computer software which falls in the encouraged category for foreign investment in the Foreign Investment Industrial Guidance Catalogue. The registered business scope of each of E-House City Rehouse Real Estate Broker (Shanghai) Co., Ltd., or City Rehouse, and all its subsidiaries contains the business of real estate brokerage service which falls in the restricted category for foreign investment in the Foreign Investment Industrial Guidance Catalogue. Under PRC law, foreign investors are allowed to own 100% of PRC subsidiaries with a registered business scope which includes real estate brokerage services so long as they obtain necessary approval from the relevant government authorities. Currently, City Rehouse and all its subsidiaries provide supporting services to our e-commerce business and no longer provide any secondary real estate brokerage services. The other businesses listed in the registered business scope of each of Shanghai Yi Yue, Shanghai Xiangle, Shanghai SINA Leju, Shanghai Fangxin, Beijing Maiteng, and City Rehouse and all its subsidiaries are not listed in the Foreign Investment Industrial Guidance Catalogue and thus fall in the permitted category for foreign investment under PRC law.

(3)
We are in the process of deregistering Shanghai Xiangle.

        Due to PRC legal restrictions on foreign ownership and investment in the internet information service and advertising businesses, we conduct such activities through contractual arrangements with our consolidated VIEs in China. Our e-commerce business with respect to new residential properties is operated through our contractual arrangements with Shanghai Yi Xin and its shareholders. Our e-commerce business with respect to home furnishing is operated through our contractual arrangements with Beijing Jiajujiu and its shareholders. Our online advertising business for new residential properties websites and our secondary listings business are operated through our contractual arrangements with Beijing Leju and its shareholders. We have entered into, through our PRC subsidiaries, Shanghai SINA Leju, Shanghai Yi Yue and Beijing Maiteng, a series of contractual arrangements with Beijing Leju, Shanghai Yi Xin, Beijing Jiajujiu and their respective shareholders. These contractual arrangements enable us to (i) direct the activities that most significantly affect the economic performance of Beijing Leju, Shanghai Yi Xin, Beijing Jiajujiu and their subsidiaries and branches; (ii) receive substantially all of the economic benefits from the three consolidated VIEs and their subsidiaries in consideration for the services provided by our PRC subsidiaries; and (iii) have an exclusive option to purchase all or part of the equity interests in the consolidated VIEs, when and to the extent permitted by PRC law, or request any existing shareholder of the consolidated VIEs to transfer all or part of the equity interest in the consolidated VIEs to another PRC person or entity designated by us at any time in our discretion. These agreements make us their "primary beneficiary" for accounting purposes under U.S. GAAP. For descriptions of these contractual arrangements, see "Related Party Transactions—Contractual Arrangements with Beijing Leju, Shanghai Yi Xin and Beijing Jiajujiu (the consolidated VIEs)."

        As a result of these contractual arrangements, Leju through our PRC subsidiaries, is the primary beneficiary of these PRC entities and accounts for them as VIEs, and consolidates the financial results of these entities into our financial statements in accordance with U.S. GAAP. If our consolidated VIEs and their shareholders fail to perform their obligations under these contractual arrangements, we could be limited in our ability to exercise effective control over our consolidated VIEs. Further, if we are unable to maintain effective control over our consolidated VIEs, we would not be able to continue to consolidate our consolidated VIEs' financial results in our consolidated financial statements. Substantially all of our revenues are derived from our consolidated VIEs and we rely on dividends and service fees paid to us by our PRC subsidiaries and our consolidated VIEs in China. Entities apart from our consolidated VIEs contributed in aggregate 15.1%, 4.7% and 5.7% of our total net revenues in 2011, 2012 and 2013, respectively. Our operations not conducted through contractual arrangements with the consolidated VIEs primarily consist of outsourcing arrangements business, support services for online advertising business and agency services included with our e-commerce business. In 2011, 2012 and 2013, the total amount of service fees that our PRC subsidiaries received from our consolidated VIEs under all the service agreements between our PRC subsidiaries and consolidated VIEs was $16.1 million, $7.6 million and $24.5 million, respectively. As of December 31, 2013, the amount of

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service fees payable to us by the consolidated VIEs was $48.1 million, of which $22.5 million has been paid to us during the first two months of 2014. We are subject to foreign exchange control restrictions and restrictions on foreign investment into our PRC subsidiaries and consolidated VIEs, and the payment of dividends by our PRC subsidiaries to our Cayman holding company is subject to certain restrictions under the PRC laws and regulations, all of which may restrict our ability to access the revenues and cash of our PRC subsidiaries and consolidated VIEs. For a description of these contractual arrangements, see "Related Party Transactions—Contractual Arrangements with Beijing Leju, Shanghai Yi Xin and Beijing Jiajujiu (the consolidated VIEs)" and "Risk Factors—Risks Related to Our Corporate Structure."

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OUR RELATIONSHIP WITH E-HOUSE

        We are a subsidiary of E-House, which will remain our parent company and controlling shareholder after this offering. E-House first reported its real estate online services business as a separate segment in its annual report on Form 20-F for the year ended December 31, 2009. Prior to this offering, E-House has provided us with accounting, administrative, marketing, internal control, customer service and legal support, and has also provided us with the services of a number of its executives and employees. Upon the completion of this offering, E-House will be our controlling shareholder, with a shareholding of 76.3% of our then outstanding ordinary shares assuming the underwriters do not exercise their over-allotment option and we issue and sell 2,029,420 ordinary shares in the private placement to Tencent concurrently with this offering. Upon becoming a stand-alone public company, we will contract with third parties to provide certain services to us as a public company, the costs of which may be higher than our current cost allocation with E-House for the same services.

        Prior to the completion of this offering, we plan to enter into a series of agreements with E-House with respect to various ongoing relationships between us. These include a master transaction agreement, an offshore transitional services agreement, an onshore transitional services agreement, a non-competition agreement and an onshore cooperation agreement. The following are summaries of these agreements. For the complete text of these agreements, please see the copies included as exhibits to the registration statement filed with the SEC of which this prospectus is a part. For certain related risks, see "Risk Factors—Risks Related to Our Carve-out from E-House and Our Relationships with E-House."

Master Transaction Agreement

        The master transaction agreement contains provisions relating to our carve-out from E-House. The master transaction agreement provides for cross-indemnities that generally will place the financial responsibility on us for all liabilities associated with the current and historical real estate online services business and operations that have been conducted by or transferred to us, and generally will place on E-House the financial responsibility for liabilities associated with all of E-House's other current and historical businesses and operations, in each case regardless of the time those liabilities arise. The master transaction agreement also contains indemnification provisions under which we and E-House will indemnify each other with respect to breaches of the master transaction agreement or any related inter-company agreement.

        In addition, we have agreed to indemnify E-House against liabilities arising from misstatements or omissions in this prospectus or the registration statement of which it is a part, except for misstatements or omissions relating to information that E-House provided to us specifically for inclusion in this prospectus or the registration statement of which it forms a part. We also have agreed to indemnify E-House against liabilities arising from any misstatements or omissions in our subsequent SEC filings and from information we provide to E-House specifically for inclusion in E-House's annual or quarterly reports following the completion of this offering, but only to the extent that the information pertains to us or our business or to the extent E-House provides us prior written notice that the information will be included in its annual or quarterly reports and the liability does not result from the action or inaction of E-House. Similarly, E-House will indemnify us against liabilities arising from misstatements or omissions in its subsequent SEC filings or with respect to information that E-House provided to us specifically for inclusion in this prospectus, the registration statement of which this prospectus forms a part, or our annual or quarterly reports following the completion of this offering.

        The master transaction agreement contains a general release, under which the parties will release each other from any liabilities arising from events occurring on or before the initial filing date of the registration statement of which this prospectus forms a part, including in connection with the activities

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to implement this offering. The general release does not apply to liabilities allocated between the parties under the master transaction agreement or the other inter-company agreements.

        Furthermore, under the master transaction agreement, we have agreed to use our reasonable best efforts to use the same independent certified public accounting firm selected by E-House and to maintain the same fiscal year as E-House until the first E-House fiscal year-end occurring after the earlier of (i) the first date when E-House no longer owns at least 20% of the voting power of our then outstanding securities and (ii) the first date when E-House ceases to be the largest beneficial owner of our then outstanding voting securities (without considering holdings by certain institutional investors). We refer to this earlier date as the control ending date in this prospectus. We also have agreed to use our reasonable best efforts to complete our audit and provide E-House with all financial and other information on a timely basis so that E-House may meet its deadlines for its filing of annual and quarterly financial statements.

        The master transaction agreement will automatically terminate five years after the first date upon which E-House ceases to own in aggregate at least 20% of the voting power of our then outstanding securities. This agreement can be terminated early by mutual written consent of the parties.

Offshore Transitional Services Agreement

        Under the offshore transitional services agreement, E-House agrees that, during the service period, E-House will provide us with various corporate support services, including:

    accounting support;

    administrative support;

    marketing support;

    internal control support;

    customer service support; and

    legal support.

        E-House also may provide us with additional services that we and E-House may identify from time to time in the future. It may engage third parties to provide services covered by the offshore transitional service agreement.

        The offshore transitional service agreement provides that the performance of a service according to the agreement will not subject the provider of such service to any liability whatsoever except as directly caused by the gross negligence or willful misconduct of the service provider. Liability for gross negligence or willful misconduct is limited to the lower of the price paid for the particular service or the cost of the service's recipient performing the service itself or hiring a third party to perform the service. Under the offshore transitional services agreement, the service provider of each service is indemnified by the recipient against all third-party claims relating to provision of services or the recipient's material breach of a third-party agreement, except where the claim is directly caused by the service provider's gross negligence or willful misconduct.

        The price to be paid for the services provided under the offshore transitional service agreement shall be the actual direct costs and indirect costs of providing such services. Direct costs include compensation and travel expenses attributable to employees, temporary workers, and contractors directly engaged in performing the services as well as materials and supplies consumed in performing the services. Indirect costs include occupancy, information technology supervision and other overhead costs of the department incurring the direct costs of providing the service.

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        The offshore transitional services agreement provides for a service period commencing on the date when the registration statement on Form F-1 is first publicly filed with the SEC, and ending on the date when E-House ceases to own in aggregate at least 20% of the voting power of our then outstanding securities or ceases to be the largest beneficial owner of our then outstanding voting securities, without considering holdings of institutional investors that have acquired our securities in the ordinary course of their business and not with a purpose nor with the effect of changing or influencing our control.

        Either party may terminate the offshore transitional services agreement with respect to either all or part of the services by giving a 90-day prior written notice to the other party. The agreement provides for an early termination fee in the case of early termination by E-House, but does not quantify the amount of or specify the calculation method, for such fee.

Onshore Transitional Services Agreement

        The onshore transitional services agreement adopts terms and conditions similar to those of the offshore transitional services agreement. Under the onshore transitional services agreement, Shanghai Real Estate Sales (Group) Co., Limited, an indirectly wholly owned subsidiary of E-House, or E-House Shanghai, agrees, during the applicable service period, to provide Beijing Leju, Beijing Jiajujiu, Shanghai Yi Xin, Shanghai SINA Leju, Beijing Maiteng, Shanghai Yi Yue and E-House City Rehouse Real Estate Broker (Shanghai) Co., Ltd., or the Leju PRC Entities, and/or their designated PRC affiliates, with various corporate support services, including accounting support, administrative support, internal control and internal audit support, marketing support, customer service support and legal support. E-House Shanghai also may provide the Leju PRC Entities with additional services that the Leju PRC Entities and E-House Shanghai may identify from time to time in the future. E-House Shanghai may engage its PRC affiliates or other third parties to provide services covered by the onshore transitional services agreement.

        The price to be paid for the services provided under the onshore transitional services agreement shall be the actual direct costs and indirect costs of providing such services. Direct costs include compensation and travel expenses attributable to employees, temporary workers, and contractors directly engaged in performing the services as well as materials and supplies consumed in performing the services. Indirect costs include occupancy, information technology supervision and other overhead costs of the department incurring the direct costs of providing the service.

        The onshore transitional services agreement provides for a service period commencing on the date when the registration statement on Form F-1 is first publicly filed with the SEC, and ending on the date when E-House ceases to own in aggregate at least 20% of the voting power of our then outstanding securities or ceases to be the largest beneficial owner of our then outstanding voting securities, without considering holdings of institutional investors that have acquired our securities in the ordinary course of their business and not with a purpose nor with the effect of changing or influencing our control.

        Either E-House Shanghai or the Leju PRC Entities may terminate either all or part of the services by giving a 90-day prior written notice to the other party. The agreement provides for an early termination fee in the case of early termination by the Leju PRC Entities, but does not quantify the amount of or specify the calculation method, for such fee.

Non-competition Agreement

        The non-competition agreement provides for a non-competition period beginning on the date of the agreement and ending on the later of (i) three years after the first date when E-House ceases to own in aggregate at least 20% of the voting power of our then outstanding securities and (ii) five years

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after the date that the registration statement on Form F-1 is first publicly filed with the SEC. This agreement can be terminated early by mutual written consent of the parties.

        E-House has agreed not to compete with us during the non-competition period in the business of providing real estate e-commerce, online advertising and listing services, anywhere in the world. We have agreed not to compete with E-House during the non-competition period in any business conducted by E-House as described in its periodic filings with the SEC, other than the businesses we are engaged in as described in this prospectus.

        The non-competition agreement also provides for a mutual non-solicitation obligation that neither E-House nor we may, during the non-competition period, hire, or solicit for hire, any active employees of or individuals providing consulting services to the other party, or any former employees of or individuals providing consulting services to the other party within six months of the termination of their employment or consulting services, without the other party's consent, except for solicitation activities through generalized non-targeted advertisement not directed to such employees or individuals that do not result in a hiring within the non-competition period.

Onshore Cooperation Agreement

        Under this onshore cooperation agreement, E-House Shanghai, Beijing Leju, Beijing Jiajujiu and Shanghai Yi Xin agree that they will cooperate with each other in sharing information about potential demands for products and/or services and developing clients. If any party is aware that its customers, suppliers or other business partners may have demands for the products and/or services of the primary business of any other party, it will share such information with such other party, to the extent not in violation of any applicable law and its confidentiality obligations or other terms under any contract binding on such party. Furthermore, the parties agree to cooperate with each other, to the extent commercially reasonable and in the manner deemed to be appropriate, in referring the principal products and/or services of any other party, joint pitching for and negotiating with clients, and entering into agreements with clients. In the event the parties jointly enter into an agreement with a client, they shall determine their respective rights and obligations in writing through amicable negotiations, and based on the principle of fairness and the fair market values of the products and/or services offered by the parties. The parties agree not to charge any fees for their cooperation and assistance provided under the agreement unless they separately and explicitly agree otherwise.

        The onshore cooperation agreement provides for a term commencing on its date of execution and ending on the date when E-House ceases to own in aggregate at least 20% of the voting power of our then outstanding securities or ceases to be the largest beneficial owner of our then outstanding voting securities, without considering holdings of institutional investors that have acquired our securities in the ordinary course of their business and not with a purpose nor with the effect of changing or influencing our control. The onshore cooperation agreement does not provide any early termination right.

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SELECTED CONSOLIDATED FINANCIAL DATA

        The following selected consolidated statements of operations data and selected consolidated statement of cash flow data for the years ended December 31, 2011, 2012 and 2013 and selected consolidated balance sheet data as of December 31, 2012 and 2013 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results are not necessarily indicative of results expected for future periods. Our selected consolidated financial data also includes certain non-GAAP measures, which are not required by, or presented in accordance with, U.S. GAAP, but are included because we believe they are indicative of our operating performance and are used by investors and analysts to evaluate companies in our industry. You should read this Summary Consolidated Financial Data section together with our consolidated financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.

 
  Year Ended December 31,  
 
  2011   2012   2013  
 
  (in thousands of $,
except share and per share data)

 

Summary Consolidated Statement of Operations Data

                   

Revenues

                   

E-commerce

        26,996     170,205  

Online advertising

    132,076     138,767     145,445  

Listing

    5,015     5,533     19,772  
               

Total revenues

    137,091     171,296     335,422  

Cost of revenues

    (37,583 )   (54,118 )   (63,991 )

Selling, general and administrative expenses

    (121,610 )   (163,535 )   (226,143 )

Goodwill impairment charge

    (417,822 )        

Other operating income

    14     153     600  
               

Income (loss) from operations

    (439,911 )   (46,203 )   45,888  

Interest income

    676     257     1,082  

Other loss, net

    (1,026 )   (1,979 )   (1,185 )
               

Income (loss) before taxes and equity in affiliates

    (440,261 )   (47,926 )   45,785  

Income tax benefit (expense)

    2,010     4,077     (3,066 )
               

Income (loss) before equity in affiliates

    (438,250 )   (43,849 )   42,719  

Loss from equity in affiliates

    (2 )   (1 )   (69 )
               

Net income (loss)

    (438,252 )   (43,849 )   42,650  

Less: Net income attributable to non-controlling interest

    580     910     125  
               

Net income (loss) attributable to Leju shareholders

    (438,831 )   (44,759 )   42,525  
               
               

Earnings (loss) per share:

                   

Basic

    (3.66 )   (0.37 )   0.35  

Diluted

    (3.66 )   (0.37 )   0.35  

Weighted average numbers of shares used in computation:

                   

Basic

    120,000,000     120,000,000     120,000,000  

Diluted

    120,000,000     120,000,000     120,000,000  

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  As of
December 31,
 
 
  2012   2013  
 
  (in thousands of $)
 

Selected Consolidated Balance Sheet Data

             

Cash and cash equivalents

    71,090     98,730  

Accounts receivable

    86,652     87,316  

Total current assets

    178,968     222,788  

Intangible assets, net

    163,204     128,530  

Total assets

    393,867     402,938  

Amounts due to related parties

    83,143     4,501  

Total current liabilities

    159,661     123,584  

Total liabilities

    200,588     151,148  

Total Leju equity

    190,173     248,706  

 

 
  Year Ended December 31,  
 
  2011   2012   2013  
 
  (in thousands of $)
 

Selected Consolidated Statements of Cash Flows Data

                   

Net cash provided by operating activities

    11,175     3,325     83,423  

Net cash used in investing activities

    (26,618 )   (18,159 )   (16,657 )

Net cash provided by (used in) financing activities

    26,809     21,504     (41,360 )

Net increase in cash and cash equivalents

    12,709     6,836     27,639  

Cash and cash equivalents at the beginning of the year

    51,545     64,254     71,090  

Cash and cash equivalents at the end of the year

    64,254     71,090     98,730  

Non-GAAP Financial Measures

        The following table sets forth, for the periods specified, our adjusted income (loss) from operations, our adjusted net income (loss) and our adjusted net income (loss) attributable to Leju shareholders. We present these non-GAAP financial measures because they are used by our management to evaluate our operating performance, formulate business plans, and make strategic decisions on capital allocation. These non-GAAP financial measures enable our management to assess our operating results without considering the impact of non-cash charges, including share-based compensation expense, amortization of intangible assets resulting from business combinations and goodwill impairment charge. We also believe they are indicative of our operating performance and are used by investors and analysts to evaluate companies in our industry. These non-GAAP measures of our performance are not required by, or presented in accordance with, U.S. GAAP. Such measures are not a measurement of financial performance or liquidity under U.S. GAAP and should not be considered as an alternative to income from operations, net income or any other performance measures derived in accordance with U.S. GAAP or an alternative to cash flows from operating activities as a measure of liquidity. Our presentation of such measures may not be comparable to similarly titled measures presented by other companies. You should not compare such measures as presented by us with the presentation of such measures by other companies because not all companies use the same definition.

        We define adjusted income (loss) from operations as income (loss) from operations before share-based compensation expense, amortization of intangible assets resulting from business combinations and goodwill impairment charge.

        We define adjusted net income (loss) as net income (loss) before share-based compensation expense (net of tax), amortization of intangible assets resulting from business combinations (net of tax) and goodwill impairment charge (net of tax).

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        We define adjusted net income (loss) attributable to Leju shareholders as net income (loss) before share-based compensation expense (net of tax and non-controlling interests), amortization of intangible assets resulting from business combinations (net of tax and non-controlling interests) and goodwill impairment charge (net of tax and non-controlling interests).

        The use of the above non-GAAP financial measures has material limitations as an analytical tool, as they do not include all items that impact our income (loss) from operations, net income (loss), and net income (loss) attributable to Leju shareholders for the period. We compensate for these limitations by providing the relevant disclosure of our share-based compensation expense, amortization of intangible assets results from business acquisitions, and goodwill impairment charge both in our reconciliations to the financial measures under U.S. GAAP, and in our consolidated financial statements, all of which should be considered when evaluating our performance.

        The following table reconciles our adjusted income (loss) from operations, adjusted net income (loss) and adjusted net income (loss) attributable to Leju shareholders in the periods presented to the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP:

 
  Year Ended December 31,  
 
  2011   2012   2013  
 
  (in thousands of $)
 

Income (loss) from operations

    (439,911 )   (46,203 )   45,888  

Share-based compensation expense(1)

    13,542     15,134     6,311  

Amortization of intangible assets resulting from business acquisitions

    21,321     22,079     22,017  

Goodwill impairment charge

    417,822          
               

Adjusted income (loss) from operations

    12,774     (8,990 )   74,216  
               
               

Net income (loss)

    (438,252 )   (43,849 )   42,650  

Share-based compensation expense (net of tax)(1)

    13,542     15,134     6,311  

Amortization of intangible assets resulting from business acquisitions (net of tax)

    18,535     19,082     14,482  

Goodwill impairment charge (net of tax)

    417,822          
               

Adjusted net income (loss)

    11,647     (9,633 )   63,443  
               
               

Net income (loss) attributable to Leju shareholders

    (438,831 )   (44,759 )   42,525  

Share-based compensation expense (net of tax and non-controlling interests)(1)

    13,542     15,134     6,311  

Amortization of intangible assets resulting from business acquisitions (net of tax and non-controlling interests)

    18,342     18,719     14,197  

Goodwill impairment charge (net of tax and non-controlling interests)

    417,822          
               

Adjusted net income (loss) attributable to Leju shareholders

    10,875     (10,906 )   63,033  
               
               

(1)
Share-based compensation expense includes share-based compensation expenses recorded by us as well as share-based compensation expenses allocated from E-House to us.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section entitled "Selected Consolidated Financial Data and our consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" and elsewhere in this prospectus.

Overview

        We are a leading O2O real estate services provider in China. We offer real estate e-commerce, online advertising and online listing services through our online platform, which comprises local websites covering over 250 cities and various mobile applications. We integrate our online platform with complementary offline services to facilitate residential property transactions. In addition to our own websites, we also operate various real estate and home furnishing websites of SINA and Baidu.

        E-Commerce.    We offer e-commerce services primarily in connection with new residential property sales. Our O2O services for new residential properties include selling discount coupons and facilitating online property viewing, physical property visits and pre-sale customer support. We earn revenue primarily from the sale of discount coupons used for property purchases. Our revenues from e-commerce services in 2011, 2012 and 2013 were nil, $27.0 million and $170.2 million, respectively, representing nil, 15.8% and 50.7%, respectively, of our total revenues for those periods.

        Online Advertising.    We sell advertising primarily on the SINA and Baidu new residential properties and home furnishing websites, each of which is operated by us. In addition, we are the exclusive advertising agent for the SINA home page and non-real estate websites with respect to advertising sold to real estate and home furnishing advertisers. We also have the exclusive right to sell Baidu's Brand-Link product within the real estate industry. Our revenues from online advertising services in 2011, 2012 and 2013 were $132.1 million, $138.8 million and $145.4 million, respectively, representing 96.3%, 81.0% and 43.4%, respectively, of our total revenues for those periods.

        Listing.    We offer fee-based online property listing services to real estate agents and free services to individual property sellers. We operate the SINA and Baidu real estate websites for listings of existing residential properties for sale or lease. Our revenues from listing services in 2011, 2012 and 2013 were $5.0 million, $5.5 million and $19.8 million, respectively, representing 3.7%, 3.2% and 5.9%, respectively, of our total revenues for those periods.

        We have experienced substantial growth in recent years. Our total revenues have increased from $137.1 million in 2011 to $171.3 million in 2012 to $335.4 million in 2013. We incurred net losses of $438.3 million in 2011 and $43.8 million in 2012 and our net income was $42.7 million in 2013. We had adjusted net income of $11.6 million in 2011, adjusted net loss of $9.6 million in 2012 and adjusted net income of $63.4 million in 2013. Substantially all of our operations are in China. For information regarding adjusted net income (loss), see "Selected Consolidated Financial Data—Non-GAAP Financial Measures."

Significant Factors Affecting Our Results of Operations

The PRC real estate industry

        Our results of operations have been, and are expected to continue to be, affected by the general performance of China's real estate industry. Conditions in China's real estate industry have a significant

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impact on each of our business segments, and in particular on our new home business, which relies significantly on the volume of new property launches by property developments and market transaction volume. The following factors typically have a significant impact on China's real estate industry:

    Economic growth, speed of urbanization and demand for residential and commercial properties in China. China's economic growth has been primarily concentrated in China's urban areas, and economic growth, higher standards of living, population growth and urbanization are primary drivers of demand for the purchase or rental of residential properties. Because we focus on China's urban areas, China's economic growth and urbanization are important to our operations. The PRC property industry is dependent on the overall economic growth in China and the associated demand for residential properties.

    Government policies.  The PRC government exercises considerable direct and indirect influence over the real estate industry through its policies and other economic measures. The PRC government regulates real estate purchases and taxation associated with real estate transactions. For greater detail see "Risk Factors—Risks Related to Our Business—Our business is susceptible to fluctuations in China's real estate industry, which may materially and adversely affect our results of operations" and "Risk Factors—Risks Related to Our Business—Our business may be materially and adversely affected by government measures aimed at China's real estate industry." The imposition of new policies, laws and regulations, or changes to current polices, laws and regulations, could have a material impact on the real estate market in China, which would affect our business, financial condition and results of operations.

    Availability and cost of credit.  The availability and cost of credit have a substantial effect on customers' ability to purchase properties and the prices they can afford to pay. This impacts the number of properties that developers are able to market and sell, which is a significant factor affecting our results of operations. The PRC government regulates the proportion of the purchase price of a property that may be financed with credit and the price of credit is generally a function of benchmark interest rates. To the extent that fluctuations in interest rates or regulatory changes impact the availability and cost of financing for property purchases, conditions in the real estate industry, and our results of operations, would be affected.

    Supply of new residential real estate projects.  The growth of the PRC real estate industry depends largely on the launch of new residential real estate projects at affordable prices. Factors such as the overall economy, competition and government land policies can affect the price and availability of new projects. The PRC government and relevant local authorities control various aspects of new projects, including the amount and cost of land for development, each of which affects the supply of new developments and our results of operations.

The PRC internet industry

        We are an internet company and a majority of our revenue is generated from our e-commerce and online advertising services provided on our websites. Therefore, our results of operations are heavily dependent on the continued development of China's internet industry. The internet has emerged as an increasingly attractive and cost-effective advertising channel in China. However, the internet industry in China is heavily regulated. PRC laws, rules and regulations cover virtually every aspect of the internet industry, including entry into the industry, the scope of permissible business activities and foreign investment. Furthermore, the PRC government levies business taxes, value-added taxes, surcharges and cultural construction fees on advertising-related sales in China, such as sales of our e-commerce, online advertising, listing and other value-added services. In addition, because certain of our PRC subsidiaries and consolidated VIEs currently qualify as "high and new technology enterprises," they enjoy tax holidays from the relevant PRC tax authorities or under local governmental policies. The imposition of

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new laws and regulations, or changes to current laws and regulations, could have a material impact on our business, financial condition and results of operations.

Our ability to innovate and market acceptance of our e-commerce services

        We operate in a competitive industry and the extent to which we are able to provide innovative e-commerce services that are attractive to developers and prospective property purchasers has a material effect on our results of operations. For example, we pioneered e-commerce services in China's real estate market in April 2011 by offering online auctions as a promotional tool for our partner developers. In early 2012, we introduced property price discount coupons as a means of generating buyers for our partner developers in conjunction with online advertising and offline customer origination. In November 2013, we formed a strategic partnership with CITIC, pursuant to which CITIC introduced Leju Loan through our online platform. Our results of operations will continue to be significantly affected by the extent to which our evolving e-commerce services, including any future innovations that we may introduce, achieve success in the market.

Our ability to maintain and expand our online platform

        Consumers are able to access our services through various websites and mobile applications, our telephone call center and at property showrooms and other physical locations. Our internet presence includes local websites across China that we either operate directly or outsource to local outsourcing partners. We operate a variety of websites pursuant to our arrangements with SINA and Baidu. Since many of our customers in our new home business are one-time property buyers, we depend on our online platform as a key driver for bringing in new business. The costs of maintaining and expanding our online platform in order to continue to reach a broad base of customers, and our ability to maintain our relationships with SINA and Baidu, has a significant effect on our results of operations.

Our ability to compete effectively

        We face competition in each of our main business activities. We compete with other e-commerce providers for market share in key markets, relationships with developers and for the acquisition of web traffic. We compete for talent with other online businesses and to a lesser extent with traditional businesses. Our industry has become increasingly competitive, and such competition may continue to intensify in future periods. As the barriers to entry for establishing internet-based businesses are typically low, it is possible for new entrants to emerge and rapidly scale up their operations. We expect additional companies to enter the online real estate and home-related internet service industry in China and a wider range of online services in this area to be introduced. See "Business—Competition."

Our ability to expand into new geographic areas in China

        A majority of our revenues is concentrated in China's major urban centers including Beijing, Shanghai, Guangzhou and Tianjin. We expect them to continue to represent a significant portion of our revenues in the near term. We also plan to expand into new geographic areas and sectors and increase our market share in areas and sectors where we currently operate. As of December 31, 2013, we had established real estate-related content, search services, marketing and listing coverage of over 250 cities across China. Our ability to succeed in newly penetrated cities and cities where we intend to increase our presence will have a substantial impact on our results of operations, and we may incur significant additional operating expenses, including hiring new sales and other personnel, in order to expand our operations.

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Selected Statement of Operations Items

Revenues

        E-commerce.    Our e-commerce revenues are principally generated from selling discount coupons to potential property buyers. The discount coupon allows a buyer to purchase specified properties from real estate developers at a discount greater than the price that we charge for the coupon. We recognize such e-commerce revenues upon obtaining confirmation that the discount coupon has been redeemed to purchase a property.

        Online advertising.    Revenues from online advertising services are generated principally from online advertising arrangements, sponsorship arrangements, and to a lesser extent, outsourcing arrangements and keyword advertising arrangements. Online advertising arrangements allow advertisers to place advertisements on particular areas of the websites we operate, in particular formats and over particular periods of time. Advertising revenues from online advertising arrangements are recognized ratably over the contract period of display. Sponsorship arrangements allow advertisers to sponsor a particular area on our websites in exchange for a fixed payment over the contract period. Advertising revenues from sponsorship arrangements are recognized ratably over the contract period. We also generate online advertising revenues from outsourcing certain regional sites for a fixed period of time to local outsourcing partners. In such cases, we earn a fixed advertising fee payable by the local outsourcing partner, which is responsible for website operation and advertising sale and is entitled to retain the fees generated by advertising sales. Our fixed fee is recognized ratably over the term of the contract. Keyword advertising revenues are recognized ratably over the contract period.

        Listing.    We provide online property listing services to secondary brokers and individual property sellers. Listing services entitle secondary brokers to post and make changes to information for properties in a particular area on the website for a specified period of time, in exchange for a fixed fee. Listing revenues are recognized ratably over the contract period of display.

        Deferred revenues are recognized when payments are received in advance of revenue recognition.

Cost of revenues

        Cost of revenues consists of costs associated with the operation of our websites, which includes fees paid to third parties for internet connection, internet content and services, editorial personnel related cost, amortization of intangible assets that relate to internet content, including our real estate advertising agreement with SINA, and the discounted present value of our payments for exclusive rights with Baidu; depreciation associated with website production equipment and fees paid to SINA for advertising on non-real estate SINA websites.

Selling, general and administrative expenses

        Selling, general and administrative expenses comprise marketing expenses, compensation and benefits for personnel other than editorial personnel, expenses of third-party professional services, rental payments relating to office and administrative functions and depreciation, amortization of property and equipment used in our corporate offices and other administrative expenses. Our selling, general and administrative expenses also include amortization of intangible assets that do not relate to internet content, including our license agreement with SINA. Selling general and administrative expenses also include bad debt expenses. Bad debt can result from developer customers not paying amounts owing to us for services rendered and in cases where third parties to whom we outsource certain websites fail to pay fixed fees owed to us.

        Marketing expenses primarily consist of costs for the promotion of corporate image, product marketing and direct marketing. We expense all marketing costs as incurred and classify these costs

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under sales and marketing expense. Our direct marketing activities are primarily intended to attract subscribers for the online advertising services and potential property buyers to purchase our discount coupons.

Share-based compensation expense

        In 2013 a portion of, and in 2011 and 2012 all of, our share-based compensation expense related to E-House's allocation to us of share-based compensation expenses of their senior management. These allocations were made using a proportional cost allocation method and were based on revenues, headcount as well as estimates of actual time spent on the provision of services attributable to our company.

        In November 2013, we adopted a share incentive plan, or the Leju Plan, which allows us to offer a variety of share-based incentive awards to employees, officers, directors and individual consultants who render services to us. The plan permits the grant of three types of awards: options, restricted shares and restricted share units. The maximum number of shares that may be issued pursuant to all awards under the plan shall initially be 10,434,783 ordinary shares, or 8% of our total outstanding shares on an as-converted and fully diluted basis as of the effective date of the plan, and will be increased automatically by 5% of the then total outstanding shares on an as-converted fully diluted basis on each of the third, sixth and ninth anniversaries of the effective date of the plan.

        On December 1, 2013, we granted options to certain of our employees and certain of E-House's employees for the purchase of 7,192,000 ordinary shares at an exercise price of $4.60 per share, pursuant to our share incentive plan. The options expire ten years from the date of grant. The options vest ratably at each grant date anniversary over a period of three years. The grant-date fair value of the options granted was $2.21 per share. On December 16, 2013, we replaced 600,000 options granted to two of our directors with the same number of restricted shares, with all other substantive terms remaining unchanged. On January 21, 2014, we replaced 60,000 options granted to one E-House employee with the same number of restricted shares, with all other substantive terms remaining unchanged. There is no incremental compensation cost from the replacement.

        On March 18, 2014, we granted 866,000 restricted shares to certain of our employees and independent directors. The restricted shares vest ratably at each grant date anniversary over a period of three years.

        As of the date of this prospectus, a total of 6,486,000 options and a total of 1,526,000 restricted shares have been granted and are outstanding under the Leju Plan. We will recognize a total of $25.5 million of compensation cost for those options and restricted shares expected to vest over the requisite service period.

Other Operating Income

        Our other operating income primarily relates to cash subsidies received by the Company's subsidiaries in the PRC from local governments to encourage us to operate in certain local districts.

Interest Income

        We earn interest income primarily from bank deposits.

Other loss, net

        Other loss (net) relates to amortized discounts relating to liability for our exclusive rights purchased from Baidu, in addition to foreign exchange loss/(gain).

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        Our reporting currency is the U.S. dollar, while certain of our subsidiaries have functional currencies other than the U.S. dollar, such as the Renminbi and Hong Kong dollar. Transactions in other currencies are recorded at the rates of exchange prevailing when the transactions occur. Transaction gains and losses are recognized in the consolidated statements of operations.

Income Tax

        We are incorporated in the Cayman Islands as an exempted company. Under the current law of the Cayman Islands, we are not subject to income or capital gains tax in the Cayman Islands. Our subsidiaries in the British Virgin Islands are not subject to income or capital gains tax in the British Virgin Islands. Our subsidiaries in Hong Kong are subject to a profit tax at the rate of 16.5% on assessable profit determined under relevant Hong Kong tax regulations.

        The EIT Law applies a uniform 25% enterprise income tax rate to both foreign-invested enterprises and domestic enterprises, except where a special preferential rate applies. In addition, the EIT Law also provides a five-year transitional period starting from its effective date for those enterprises that were established before March 16, 2007, the date of promulgation of the EIT Law, and that were entitled to preferential income tax rates under the then effective tax laws or regulations.

        Shanghai SINA Leju and Shanghai Fangxin Information Technology Co., Ltd., our subsidiaries in China, were granted software enterprise status, which qualifies these companies for certain tax exemptions. Shanghai SINA Leju is exempt from 100% of income taxes for 2009 and has a 50% income tax rate reduction to 12.5% from 2010 through 2012. Shanghai Fangxin Information Technology Co., Ltd. is exempt from 100% of income taxes for 2012 and 2013 and has a 50% reduction in its income tax rate, or a rate of 12.5%, from 2014 through 2016. Shanghai SINA Leju was designated a High and New Technology Enterprise entitled to a favorable statutory tax rate of 15% for 2013 and 2014.

        We have a tax benefit due to losses incurred in past years. Under PRC tax law we are permitted to carry forward losses for up to five years. We may have a tax benefit for periods for which our Company was profitable on a consolidated basis to the extent our consolidated entities that incurred losses during the period were subject to income tax at a higher effective tax rate as compared with consolidated entities that earned profits during the period.

        Under the EIT Law, dividends payable to a non-PRC resident enterprise from our PRC subsidiaries are subject to a withholding tax which may be as high as 20%, although under the detailed implementation rules of the EIT Law promulgated by the PRC authorities the effective withholding tax is currently 10%. Dividends of PRC subsidiaries that are directly held by Hong Kong entities may benefit from a reduced withholding tax rate of 5% pursuant to the Arrangement between Mainland China and Hong Kong for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income, subject to the approval from the relevant local branch of the State Administration of Taxation in accordance with the Administrative Measures on Tax Treaty Treatment of Nonresidents (Trial) and other relevant tax rules. Our Hong Kong subsidiaries have not sought approval for such preferential withholding tax rate, given that no dividends have been paid by their respective PRC subsidiaries. Dividends from our Hong Kong subsidiaries are exempt from withholding tax. Dividend payments are not subject to withholding tax in the British Virgin Islands or the Cayman Islands.

        Under the EIT Law, enterprises that are established under the laws of foreign countries or regions and whose "de facto management bodies" are located within the PRC territory are considered PRC resident enterprises, and will be subject to the PRC enterprise income tax at the rate of 25% on their worldwide income. Under the implementation rules of the EIT Law, "de facto management bodies" are defined as the bodies that have material and overall management and control over the

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manufacturing and business operations, personnel and human resources, finances and treasury, and acquisition and disposition of properties and other assets of an enterprise. It remains unclear how the PRC tax authorities will interpret such a broad definition. We cannot assure you that we will not be deemed to be a PRC resident enterprise under the EIT Law and be subject to the PRC enterprise income tax at the rate of 25% on our worldwide income. See "Risk Factors—Risks Related to Doing Business in China—Dividends payable to us by our PRC subsidiaries may be subject to PRC withholding taxes or we may be subject to PRC taxation on our worldwide income, and dividends distributed to our investors may be subject to PRC withholding taxes under the EIT Law and our investors may be subject to PRC withholding tax on the transfer of our ordinary shares or ADSs."

Loss from equity in affiliates

        Affiliate companies are entities over which we have significant influence but do not control. Investment in affiliates is accounted for using the equity method of accounting. Under this method, our share of the post-acquisition profits or loss of affiliated companies is recognized as income/(loss) from equity in affiliates in the income statement.

Net income attributable to non-controlling interest

        Net income attributable to non-controlling interest relates to the minority interest in non-wholly-owned subsidiaries that we consolidate.

Critical Accounting Policies

        We prepare our financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates.

        An accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time such estimate is made and if different accounting estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur, could materially impact the consolidated financial statements. We believe that the following accounting policies involve a higher degree of judgment and complexity in their application and require us to make significant accounting estimates. The following descriptions of critical accounting policies, judgments and estimates should be read in conjunction with our consolidated financial statements and other disclosures included in this prospectus.

Revenue Recognition

        We recognize revenue when there is persuasive evidence of an arrangement, service has been rendered, the sales price is fixed or determinable and collectability is reasonably assured. Revenues are recorded, net of sales related taxes.

        We generate online real estate revenues principally from e-commerce, online advertising, and listing services.

        We offer e-commerce services primarily in connection with our O2O services for new residential properties, including facilitating property viewing, pre-sale customer support, discount coupon advertising, and online property auctions. Property viewing and pre-sale customer support are supporting services provided free of charge in connection with discount coupon sales and online property auctions. We earn revenue primarily from the sale of discount coupons used for property

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purchases. Those discount coupons allow buyers to purchase specified properties from real estate developers at discounts greater than the purchase price of the discount coupons charged by us. The discount coupons are refundable at any time before they are redeemed by the buyer to purchase the specified properties. We recognize such e-commerce revenues upon obtaining confirmation letters that prove the use of coupons by property buyers, and when collections of the revenue from sales of discount coupons are reasonably assured. Revenues are recognized based on the net proceeds received.

        Revenue from online advertising services is generated principally from online advertising arrangements, sponsorship arrangements, and to a lesser extent, outsourcing arrangements, and keyword advertising arrangements. Online advertising arrangements allow advertisers to place advertisements on particular areas of the websites we operate, in particular formats and over particular periods of time. Advertising revenues from online advertising arrangements are recognized ratably over the contract period of display when collectability is reasonably assured. Sponsorship arrangements allow advertisers to sponsor a particular area on our websites in exchange for a fixed payment over the contract period. Advertising revenues from sponsorship arrangements are recognized ratably over the contract period. We also generate online advertising revenues from outsourcing certain regional sites for a fixed period of time to local outsourcing partners, who are responsible for both website operation and related advertising sales. Advertising revenues from outsourced websites are recognized ratably over the term of the contract. Keyword advertising revenues are recognized ratably over the contract period when collectability is reasonably assured.

        We also provide listing services to real estate brokers. Listing services entitle real estate brokers to post and make changes to information for properties in a particular area on the website for a specified period of time, in exchange for a fixed fee. Listing revenues are recognized ratably over the contract period of display when collectability is reasonably assured.

        Effective January 1, 2011, we adopted the provisions of Financial Accounting Standards Board, or FASB, Accounting Standards Update, or ASU, 2009-13, "Multiple-Deliverable Revenue Arrangements," prospectively for all new and materially modified arrangements. ASU 2009-13 requires us to allocate revenue to arrangement deliverables using the relative selling price method.

        There are no multiple elements arrangements within the services provided by us.

        However, our parent company, E-House, has multiple element arrangements that may include provision of online advertising services provided by us. The multiple element arrangements may affect the revenue recognition of us. E-House has determined that each of the deliverables is considered a separate unit of account as each has value to the customer on a standalone basis and has been sold separately on a standalone basis, there is no general right of return on delivered items and the delivery or performance of the undelivered item(s) is considered probable and substantially in the control of E-House.

        E-House allocates arrangement consideration in multiple-deliverable revenue arrangements at the inception of an arrangement to all deliverables based on the relative selling price in accordance with the selling price hierarchy, which includes: (i) vendor-specific objective evidence, or VSOE, if available; (ii) third-party evidence, or TPE, if VSOE is not available; and (iii) best estimate of selling price, or BESP, if neither VSOE nor TPE is available.

        VSOE.    E-House determines VSOE based on its historical pricing and discounting practices for the specific service when sold separately. In determining VSOE, E-House requires that a substantial majority of the selling prices for these services fall within a reasonably narrow pricing range. E-House has historically priced its commission rate for the primary real estate services, periodic consulting services, subscription of E-House's real estate information database and online advertising within a narrow range. As a result, E-House has used VSOE to allocate the selling price for these services when they are elements of a multiple element arrangement.

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        TPE.    When VSOE cannot be established for deliverables in multiple element arrangements, E-House applies judgment with respect to whether it can establish a selling price based on TPE. TPE is determined based on competitor prices for similar deliverables when sold separately. Generally, E-House's marketing strategy differs from that of its peers and its offerings contain a significant level of differentiation such that the comparable pricing of services with similar functionality cannot be obtained. Furthermore, E-House is unable to reliably determine what similar competitor services' selling prices are on a stand-alone basis. As a result, E-House has not been able to establish selling price based on TPE.

        BESP.    When it is unable to establish selling price using VSOE or TPE, E-House uses BESP in its allocation of arrangement consideration. The objective of BESP is to determine the price at which E-House would transact a sale if the service were sold on a stand-alone basis. E-House determines BESP for deliverables by considering multiple factors including, but not limited to, prices it charged for similar offerings, market conditions, specification of the services rendered and pricing practices. E-House has used BESP to allocate the selling price of project-based consulting service and promotional event services under these multiple element arrangement. The process for determining BESP involves management judgment. E-House's process considers multiple factors that may vary depending upon the unique facts and circumstances related to each deliverable. If the facts and circumstances underlying the factors E-House considers change, or should subsequent facts and circumstances lead E-House to consider additional factors, E-House's BESP could change in future periods. E-House regularly reviews the evidence of selling price for its services and maintains internal controls over the establishment and updates of these estimates. There were no material changes in estimated selling price for its services during the years ended December 31, 2011 and 2012, nor does E-House expect a material changes in BESP in the foreseeable future.

        If E-House had applied the provisions of ASU 2009-13 for the year ended December 31, 2010, there would have been no material effect on revenue during that period. Additionally, the adoption of ASU 2009-13 did not have a material effect on revenue for the years ended December 31, 2011 and 2012 when compared to the revenue that would have been recognized under the guidance in effect prior to adoption of ASU 2009-13. The effect of adopting this guidance in future periods will depend on the nature of E-House's customer arrangements in those periods, including the nature of services included in those arrangements, the magnitude of revenue associated with certain deliverables in those arrangements, and the timing of delivery of the related services in those arrangements, among other considerations.

        The total amounts of revenue earned by us related to agreements that have been accounted for as multiple element arrangements by E-House were $6.4 million, $8.3 million, and $5.6 million in 2011, 2012 and 2013, respectively.

        Deferred revenues are recognized when payments are received in advance of revenue recognition.

Variable Interest Entities

        PRC laws and regulations currently restrict foreign entities without the required operating track record from investing in companies that provide internet content and advertising services in China. Since we have not been involved in internet information services or advertising services outside China to satisfy the track record requirement, to comply with the PRC laws and regulations, we conduct substantially all of our online advertising and e-commerce business through Beijing Leju, Shanghai Yi Xin and Beijing Jiajujiu, our consolidated VIEs, and their subsidiaries and branches. We have, through three of our subsidiaries in the PRC, entered into contractual arrangements with Beijing Leju, Shanghai Yi Xin, Beijing Jiajujiu and their shareholders such that Beijing Leju, Shanghai Yi Xin and Beijing Jiajujiu are considered VIEs for which we are considered their primary beneficiary. We believe we have substantive kick-out rights pursuant to the terms of the exclusive call option agreements, which give us

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the power to control the shareholders of these consolidated VIEs. More specifically, we believe that the terms of the exclusive call option agreements are currently exercisable and legally enforceable under PRC laws and regulations. We also believe that the minimum amount of consideration permitted by the applicable PRC law to exercise the option does not represent a financial barrier or disincentive for us to exercise our rights under the exclusive call option agreements. Under our shareholder voting rights proxy agreements with the consolidated VIEs and their shareholders, each of the shareholders of the consolidated VIEs irrevocably grants any person designated by us the power to exercise all voting rights to which he is entitled to as shareholder of the consolidated VIEs at that time. Therefore, we believe this gives us the power to direct the activities that most significantly impact the consolidated VIEs' economic performance. We believe that our ability to exercise effective control, together with the exclusive technical support agreements and the equity pledge agreements, give us the rights to receive substantially all of the economic benefits from the consolidated VIEs in consideration for the services provided by our subsidiaries in China. Accordingly, as the primary beneficiary of the consolidated VIEs and in accordance with U.S. GAAP, we consolidate their financial results and assets and liabilities in our consolidated financial statements.

        In 2011, 2012 and 2013, entities apart from our consolidated VIEs contributed in aggregate 15.1%, 4.7% and 5.7%, respectively, of our total net revenues. Our operations not conducted through contractual arrangements with our consolidated VIEs primarily consist of outsourcing arrangements business, support services for online advertising business and agency services included with our e-commerce business. The following table sets forth our revenues, cost of revenues and net income for the consolidated VIEs and other group entities which are not our consolidated VIEs for the years indicated:

 
  2013  
 
  VIEs   Other entities   Total  
 
  (in thousands of $)
 

Total revenues

    316,272     19,150     335,422  

Cost of revenues

    (58,254 )   (5,737 )   (63,991 )

Net income

    1,285     41,365     42,650  

 

 
  2012  
 
  VIEs   Other entities   Total  
 
  (in thousands of $)
 

Total revenues

    163,243     8,053     171,296  

Cost of revenues

    (53,279 )   (839 )   (54,118 )

Net loss

    (1,554 )   (42,295 )   (43,849 )

 

 
  2011  
 
  VIEs   Other entities   Total  
 
  (in thousands of $)
 

Total revenues

    116,401     20,690     137,091  

Cost of revenues

    (37,080 )   (503 )   (37,583 )

Net loss

    (6,575 )   (431,677 )   (438,252 )

        As of December 31, 2012 and 2013, entities apart from our consolidated VIEs accounted for an aggregate of 46.9% and 46.6%, respectively, of our total assets. The assets not associated with our consolidated VIEs primarily consist of cash, intangible assets and goodwill. The total assets held by the consolidated VIEs and other group entities which are not our consolidated VIEs were $209.1 million and $184.7 million, respectively, as of December 31, 2012, and $215.2 million and $187.7 million, respectively, as of December 31, 2013.

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        Pursuant to contractual arrangements that Shanghai SINA Leju, Shanghai Yi Yue and Beijing Maiteng have with our consolidated VIEs, the earnings and cash of our consolidated VIEs are used to pay service fees in Renminbi to three of our PRC subsidiaries in the manner and amount set forth in these agreements. After paying the applicable withholding taxes and making appropriations for its statutory reserve requirement, the remaining net profits of our PRC subsidiaries would be available for distribution to our offshore companies. As of December 31, 2013, the net assets of our PRC subsidiaries and our consolidated VIEs which were restricted due to statutory reserve requirements and other applicable laws and regulations, and thus not available for distribution, was in aggregate $30.2 million. As an offshore holding company of our PRC subsidiaries and consolidated VIEs, we may make loans to our PRC subsidiaries and consolidated VIEs. Any loans to our PRC subsidiaries are subject to registrations with relevant governmental authorities in China. We may also finance our subsidiaries by means of capital contributions. See "Risk Factors—Risks Related to Doing Business in China—PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC operating subsidiaries."

        Furthermore, cash transfers from our PRC subsidiaries to our offshore companies are subject to PRC government control of currency conversion. Restrictions on the availability of foreign currency may affect the ability of our PRC subsidiaries and our consolidated VIEs to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. See "Risk Factors—Risks Related to Doing Business in China—Governmental control of currency conversion may affect the value of your investment." Cash and cash equivalents held by the consolidated VIEs was denominated in RMB and amounted to RMB323 million (US$51.4 million) and RMB389 million (US$63.8 million) as of December 31, 2012 and 2013, respectively.

        We believe that our contractual arrangements with the consolidated VIEs are in compliance with PRC law and are legally enforceable. However, uncertainties in the PRC legal system could limit the our ability to enforce these contractual arrangements and the interests of the shareholders of the consolidated VIEs may diverge from that of our company and that may potentially increase the risk that they would seek to act contrary to the contractual terms, for example by influencing the consolidated VIEs not to pay the service fees when required to do so.

Allowance of Accounts Receivable

        We regularly review the creditworthiness of our customers, and require collateral or other security from our customers in certain circumstances, including existing properties or a right to properties under construction, when accounts receivable become significantly overdue or customer deposits become due but are not duly paid by the real estate developers. In the event of nonpayment, we would then resell the properties or the right to properties under construction for cash. The collection of these secured accounts receivable is dependent on the resale price of the underlying properties, which is subject to the then market conditions.

        The carrying value of accounts receivable is reduced by an allowance that reflects our best estimate of the amounts that will not be collected. We make estimations of the collectability of accounts receivable. Many factors are considered in estimating the allowance, including but not limited to reviewing delinquent accounts receivable, performing aging analyses and customer credit analyses, and analyzing historical bad debt records and current economic trends. Additional allowance for specific doubtful accounts might be made if our customers are unable to make payments due to their deteriorating financial conditions.

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Evaluation of Goodwill

        We perform an annual goodwill impairment test comprised of two steps. The first step compares the fair value of the company to its carrying amount, including goodwill and indefinite lived intangible assets. If the fair value of the company exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of the company exceeds its fair value, the second step compares the implied fair value of goodwill and indefinite lived intangible assets to the carrying value of the company's goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the company. The excess of the fair value of the company over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for purposes of evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. An impairment loss is recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill.

        We perform a goodwill impairment test for the company as of December 31 of each year or when there is a triggering event causing us to believe it is more likely than not that the carrying amount of goodwill may be impaired.

        We utilized the income approach valuation method (level 3). When determining the fair value of the company, we are required to make significant judgments that we believe are reasonable and supportable considering all available internal and external evidence at that time.

        However, these estimates and assumptions by their nature require a higher degree of judgment. Fair value determinations are sensitive to changes in the underlying assumptions and factors including (i) those relating to estimating future operating cash flows to be generated from the company, which is dependent upon internal forecasts and projections developed as part of our routine, long-term planning process; (ii) our strategic plans; and (iii) estimates of long-term growth rates taking into account our assessment of the current economic environment and the timing and degree of any economic recovery.

        The assumptions with the most significant impact on the fair value of the company are those relating to (i) future operating cash flows, which are forecasted for a five-year period from management's budget and planning process; (ii) the terminal value, which is included for the period beyond five years from the balance sheet date based on the estimated cash flow in the fifth year and a terminal growth rate of 2%; and (iii) pre-tax discount rates, which are identified and applied by market-based inputs based on an estimation of weighted average cost of capital considering cost of debt, risk-free rate, equity risk premium, beta, size premium, company-specific risk premium and capital structure. The pre-tax discount rates used for the year ended December 31, 2012 and 2013 were 16.5% and 16.7%, respectively.

        Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair values of the company may include: (i) deterioration of local economies or further slowdown of China's real estate market under the government's continued restrictive policies and further credit tightening measures, which could lead to changes in projected cash flows of us; (ii) an economic recovery that significantly differs from our assumptions, which could change the future growth rate and the terminal growth rate; and (iii) higher cost of capital in the markets, which could result in a higher discount rate. If the assumptions used in the impairment analysis are not met or materially change, we may be required to recognize a goodwill impairment loss which may be material to the financial condition of us.

        2013:

        Under the first step of the goodwill impairment testing for the year ended December 31, 2013, the fair value of the company was approximately 135.5% in excess of its carrying value. We were not at risk of failing the first step of impairment testing.

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        2012:

        Under the first step of the goodwill impairment testing for the year ended December 31, 2012, the fair value of the company was approximately 19.1% in excess of its carrying value.

        Significant increases in discount rate or decrease in future operating cash flows or terminal value in isolation would result in a significantly lower fair value measurement. We performed the following sensitivity analysis to show the maximum change (in isolation) of discount rate, future operating cash flow and terminal grow rate used in the income approach that would still result in the fair value of the company to be higher than its carrying value:

Discount
rate increase:
   
  Terminal growth
rate decrease:
  Future free cash flow
decreased by:
From   To   From   To
16.5%   18.6%   13.0%   2.0%  

        2011:

        A substantial portion of the goodwill on our balance sheet relates to the acquisition of China Online Housing in 2009. Toward the end of the third quarter of 2011, China's real estate market showed signs of further slowdown under the government's continued restrictive policies and further credit tightening. The company's revenue growth started to slow down as developers became more pessimistic about increasing sales volume and more cautious with their advertising spending. We believed that this would result in slower than previously expected growth for our online business over the next several years. These circumstances prompted management to evaluate and test the fair value of the company against its carrying amount in accordance with U.S. GAAP. We concluded that the carrying amount of the company was higher than the fair value and consequently recorded a one-time goodwill impairment charge of $417.8 million during the third quarter of 2011.

        Based on the impairment tests performed, there was no goodwill impairment as of December 31, 2012 and 2013. We recorded a goodwill impairment charge of $417.8 million, nil and nil for the year 2011, 2012 and 2013, respectively.

Share-based compensation

        In November 2013, we adopted the Leju Plan, which allows us to offer a variety of share-based incentive awards to employees, officers, directors and individual consultants who render services to us. The plan permits the grant of three types of awards: options, restricted shares and restricted share units. The maximum number of shares that may be issued pursuant to all awards under the plan shall initially be 10,434,783 ordinary shares, or 8% of our total outstanding shares on an as-converted and fully diluted basis as of the effective date of the plan, and will be increased automatically by 5% of the then total outstanding shares on an as-converted fully diluted basis on each of the third, sixth and ninth anniversaries of the effective date of the plan.

        On December 1, 2013, we granted options to certain of our employees and certain of E-House's employees for the purchase of 7,192,000 ordinary shares at an exercise price of $4.60 per share, pursuant to our share incentive plan. The options expire ten years from the date of grant. The options vest ratably at each grant date anniversary over a period of three years. The grant-date fair value of the options granted was $2.21 per share. On December 16, 2013, we replaced 600,000 options granted to two of our directors with the same number of restricted shares, with all other substantive terms remaining unchanged. On January 21, 2014, we replaced 60,000 options granted to one E-House employee with the same number of restricted shares, with all other substantive terms remaining unchanged. There is no incremental compensation cost from the replacement.

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        On March 18, 2014, we granted 866,000 restricted shares to certain of our employees and independent directors. The restricted shares vest ratably at each grant date anniversary over a period of three years.

        As of the date of this prospectus, a total of 6,486,000 options and a total of 1,526,000 restricted shares have been granted and are outstanding under the Leju Plan. We will recognize a total of $25.5 million of compensation cost for those options and restricted shares expected to vest over the requisite service period.

        We apply ASC 718, Compensation—Stock Compensation, or ASC 718, to account for our employee share-based payments.

        In accordance with ASC 718, we determine whether an award should be classified and accounted for as a liability award or equity award. All grants of share-based awards to employees classified as equity awards are recognized in the financial statements based on their grant date fair values. Specifically, the grant date fair value of share options are calculated using an option pricing model. We have elected to recognize compensation expense using the straight-line method for all employee equity awards granted with graded vesting based on service conditions provided that the amount of compensation cost recognized at any date is at least equal to the portion of the grant-date value of the options that are vested at that date. To the extent the required vesting conditions are not met resulting in the forfeiture of the share-based awards, previously recognized compensation expense relating to those awards are reversed. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in the subsequent period if actual forfeitures differ from initial estimates.

        Forfeiture rates are estimated based on historical and future expectations of employee turnover rates and are adjusted to reflect future changes in circumstances and facts, if any. Share-based compensation expense is recorded net of estimated forfeitures such that expense is recorded only for those share-based awards that are expected to vest. To the extent we revise these estimates in the future, the share-based payments could be materially impacted in the period of revision, as well as in following periods. We, with the assistance of an independent third party valuation firm, determined the fair value of the stock options granted to employees. The binominal option-pricing model was applied in determining the estimated fair value of the options granted to employees.

        The following table presents the assumptions used to estimate the fair values of the share options granted:

 
  2013

Risk-free rate of return(1)

    2.98%

Contractual life of option(2)

    10 years

Estimated volatility rate(3)

    56.74%

Dividend yield(4)

    0.00%

Note:

(1)
The risk-free rate of return is based on the 10 years US Sovereign Strips curve in effect at the time of grant for a term consistent with the expected term of the awards.

(2)
The contractual life of option is developed giving consideration to vesting period, contractual term and historical exercise pattern of options granted.

(3)
The estimated volatility rate is estimated based on the historical volatility of ordinary shares of several comparable companies in the same industry.

(4)
The dividend yield was estimated based on our expected dividend policy over the expected term of the options. We have not previously paid, and do not have any present plan to pay, any cash dividends on our ordinary shares in the foreseeable future.

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        Determining the fair value of our ordinary shares required us to make complex and subjective judgments, assumptions and estimates, which involved inherent uncertainty. Had our management used different assumptions and estimates, the resulting fair value of our ordinary shares and the resulting share-based compensation expenses could have been different. We took into consideration of the guidance prescribed by the American Institute of Certified Public Accountants (AICPA) Audit and Accounting Practice Aid, Valuation of Privately- Held-Company Equity Securities Issued as Compensation, or the Practice Aid.

        As we have been a private company with no quoted market prices for our ordinary shares, we had to make estimates of the fair value of our ordinary shares at the date of the grant of share options to our senior management. The fair value of our ordinary shares as of December 1, 2013 and March 18, 2014 is US$4.55 and US$12.10 per share, respectively. Given the absence of an active market for our ordinary shares prior to this offering, we engaged an independent appraiser, Jones Lang LaSalle Corporate Appraisal and Advisory Limited, or JLL, to assist in performing contemporaneous valuations of our ordinary shares. The appraisal was performed using the contemporaneous method to determine the fair value of our ordinary shares as of the valuation date. Such appraisal provided us with guidelines in determining the fair value of the ordinary shares, but the determination was made by our management. The fair value of our ordinary shares was developed through the application of the income valuation technique known as the discounted cash flow method, or the DCF method. The determination of the fair value of our ordinary shares requires complex and subjective judgments to be made regarding our projected financial and operating results, our unique business risks, our operating history and prospects as of the valuation date, the liquidity of our shares such as the anticipated timing of a sale of our company or an initial public offering, which is based on the plans made by our board and management. In addition to our estimated cash flows, which were based on our business prospects and financial forecasts as of valuation date, the following major assumptions were used in calculating the fair value of our ordinary shares:

Weighted average cost of capital or WACC

        The WACCs were determined by using the capital asset pricing model, or CAPM, a method that market participants commonly use to price securities. Under CAPM, the discount rate was estimated based on a consideration of a number of factors, including risk-free rate, country risk premium, equity risk premium, size risk premium, and company-specific risk premium as of the valuation date. The risks associated with achieving our forecasts were appropriately assessed in our determination of the appropriate discount rates. If different discount rates had been used, the valuations could have been significantly different. WACC of 17.20% and 17.15% was used for date as of December 1, 2013 and March 18, 2014, respectively.

Comparable companies

        In deriving the WACCs, which are used as the discount rates under the income approach, certain publicly traded companies in similar industry, have similar business, and are subject to similar risks were selected for reference as our guideline companies.

Discount for lack of marketability

        Discount for lack of marketability, or DLOM, was also applied to reflect the fact that there is no ready public market for our shares as we are a closely held private company. Under the Asian option-pricing method, the cost of the put option, which can hedge the price change before the privately held shares can be sold, was considered as a basis to determine the discount for lack of marketability. Based on the analysis, DLOM of 6.3% and 3.8% was used for the valuation of our ordinary shares as of December 1, 2013 and March 18, 2014, respectively.

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        The option-pricing method was used to allocate equity value of our company to ordinary shares, taking into account the guidance prescribed by the Practice Aid. This method involves making estimates of the anticipated timing of a potential liquidity event, such as a sale of our company or an initial public offering, and estimates of the volatility of our equity securities. The anticipated timing is based on the plans of our board and management.

        However, these fair values are inherently uncertain and highly subjective. The assumptions used in deriving the fair values are consistent with our business plan. These assumptions include: (i) no material changes in the existing political, legal and economic conditions in China; (ii) our ability to retain competent management, key personnel and staff to support our ongoing operations; and (iii) no material deviation in market conditions from economic forecasts.

        The fair value of our ordinary shares increased from US$4.55 as of December 1, 2013 to US$12.10 as of March 18, 2014. We believe the increase in the fair value of our ordinary shares was primarily attributable to organic growth of our business, our strong financial performance for the fourth quarter of 2013, our public announcement of and preparation for this offering, the addition of our new chief financial officer who joined our management team in March 2014 and the fact that on March 10, 2014, we entered into a strategic cooperation agreement with Tencent. We believe that this transaction will further extend our presence in the China e-commerce market and create synergies through economies of scale. In view of the above, we adjusted our financial forecast to reflect the expected economic benefits of this transaction. We also lowered the DLOM from 6.3% as of December 1, 2013 to 3.8% as of March 18, 2014 due to our expectations for the timing of our initial public offering and robust capital market conditions in the United States.

Results of Operations

        The following table sets forth a summary of our consolidated results of operations for the periods indicated. This information should be read together with our consolidated financial statements and

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related notes included elsewhere in this prospectus. The operating results in any period are not necessarily indicative of the results that may be expected for any future period.

 
  Year Ended December 31,  
 
  2011   2012   2013  
 
  (in thousands of $,
except share and per share data)

 

Revenues:

                   

E-commerce

        26,996     170,205  

Online advertising

    132,076     138,767     145,445  

Listing

    5,015     5,533     19,772  
               

Total revenues

    137,091     171,296     335,422  

Cost of revenues

    (37,583 )   (54,118 )   (63,991 )

Selling, general and administrative expenses

    (121,610 )   (163,535 )   (226,143 )

Goodwill impairment charge

    (417,822 )        

Other operating income

    14     153     600  
               

Income (loss) from operations

    (439,911 )   (46,203 )   45,888  

Interest income

    676     257     1,082  

Other loss, net

    (1,026 )   (1,979 )   (1,185 )
               

Income (Loss) before taxes and equity in affiliates

    (440,261 )   (47,926 )   45,785  

Income tax benefit (expense)

    2,010     4,077     (3,066 )
               

Income (Loss) before equity in affiliates

    (438,250 )   (43,849 )   42,719  

Loss from equity in affiliates

    (2 )   (1 )   (69 )
               

Net income (loss)

    (438,252 )   (43,849 )   42,650  

Less: Net income attributable to non-controlling interest

    580     910     125  
               

Net income (loss) attributable to Leju shareholders

    (438,831 )   (44,759 )   42,525  
               
               

Earnings (loss) per share:

                   

Basic

    (3.66 )   (0.37 )   0.35  

Diluted

    (3.66 )   (0.37 )   0.35  

Weighted average numbers of shares used in computation:

                   

Basic

    120,000,000     120,000,000     120,000,000  

Diluted

    120,000,000     120,000,000     120,000,000  

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

        Total revenues.    Total revenues increased 95.8% to $335.4 million in 2013 from $171.3 million in 2012, primarily due to increased revenues from our e-commerce business. E-commerce revenues increased 530.5% to $170.2 million in 2013 from $27.0 million in 2012 primarily due to a substantial increase in discount coupon sales as a result of the expansion of our e-commerce business through partnerships with more property developers. We began to sell discount coupons in the first quarter of 2012 and this business grew substantially in 2013. We sold a total of 231,008 discount coupons in 2013, 136,106 of which were redeemed. Online advertising revenues increased 4.8% to $145.4 million in 2013 from $138.8 million in 2012 primarily due to an increase in the volume of advertising sold. Listing revenues increased 257.4% to $19.8 million in 2013 from $5.5 million in 2012 primarily due to wider customer reach and an improved fee structure.

        Cost of revenues.    Cost of revenues increased 18.2% to $64.0 million in 2013 from $54.1 million in 2012 primarily due to increased fees paid to third parties for internet content and services in connection with our listing business since the fourth quarter of 2012, and increased editorial personnel headcount.

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        Selling, general and administrative expenses.    Selling, general and administrative expenses increased 38.3% to $226.1 million in 2013 from $163.5 million in 2012 primarily due to a 114.6% increase in marketing expenses to $96.3 million in 2013 from $44.9 million in 2012 resulting primarily from marketing events relating to our e-commerce business, in addition to increased salary and welfare expenses resulting from increased headcount, increased commission expenses resulting from improved sales, and increased bonus expenses resulting from improved profit. These effects were partially offset by a decrease in share-based compensation expenses following the full vesting of a portion of E-House options in 2012 and 2013 that were allocated to Leju.

        Other operating income.    Other operating income increased 291.2% to $0.6 million in 2013 from $0.2 million in 2012 due to increased cash subsidies received from local governments.

        Income (Loss) from operations.    As a result of the foregoing, our income from operations was $45.9 million in 2013 compared to loss from operations of $46.2 million in 2012.

        Interest income.    Interest income increased 320.8% to $1.1 million in 2013 from $0.3 million in 2012 due to increased funds on deposit and increased interest rates resulting from an increase in the average term of deposits.

        Other loss, net.    Other loss, net, decreased 40.1% to $1.2 million in 2013 from $2.0 million in 2012 due to a 50.3% reduction in amortized discounts related to liability for exclusive rights with Baidu to $0.9 million in 2013 from $1.9 million in 2012 resulting from a decrease in the balance payable to Baidu as a result of installments paid and an extended period for exclusive rights, in addition to a foreign exchange loss of $0.2 million in 2013.

        Income tax benefit (expense).    Income tax expense was $3.1 million in 2013, compared to income tax benefits of $4.1 million in 2012, due to income before taxes and equity in affiliates of $45.8 million in 2013 compared with a loss before taxes and equity in affiliates of $47.9 million in 2012.

        Net Income (Loss).    As a result of the foregoing, we had a net income of $42.7 million in 2013 compared to a net loss of $43.8 million in 2012.

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

        Total revenues.    Total revenues increased 25.0% to $171.3 million in 2012 from $137.1 million in 2011, primarily due to revenues of $27.0 million from our e-commerce business through sales of discount coupons, which commenced in early 2012. Online advertising revenues increased 5.1% to $138.8 million in 2012 from $132.1 million in 2011 primarily due to an increase in the volume of advertising sold. Listing revenues increased 10.3% to $5.5 million in 2012 from $5.0 million in 2011 primarily due to increased listings.

        Cost of revenues.    Cost of revenues increased 44.0% to $54.1 million in 2012 from $37.6 million in 2011 primarily due to increased editorial personnel expenses resulting from increased headcount and a full year of amortization of capitalized fees paid in 2012 for Baidu's Brand-Link products which were acquired in August 2011.

        Selling, general and administrative expenses.    Selling, general and administrative expenses increased 34.5% to $163.5 million in 2012 from $121.6 million in 2011 primarily due to a 44.7% increase in marketing expenses to $44.9 million in 2013 from $31.0 million in 2011 primarily resulting from increased marketing expenses for events relating to the e-commerce business, which commenced operations in 2012; a 41.0% increase in salary expenses resulting from increased headcount; and a $6.2 million increase in bad debt expenses.

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        Goodwill Impairment Charge.    We did not record a goodwill impairment charge in 2012. In the third quarter of 2011, we concluded that the carrying amount of goodwill was higher than its fair value and consequently recorded a one-time goodwill impairment charge of $417.8 million, primarily as a result of a slowdown in China's real estate market, which was believed likely to result in slower than previously expected growth in China Online Housing's business over the following several years. A substantial portion of the goodwill on our balance sheet relates to E-House's acquisition of SINA's equity interest in China Online Housing in 2009, pursuant to which China Online Housing became a consolidated subsidiary of E-House. China Online Housing became our wholly owned subsidiary as a result of a corporate reorganization by E-House in November 2013.

        Other operating income.    Other operating income increased to $0.2 million in 2012 from $13,937 in 2011 due to increased cash subsidies received from local governments.

        Income (Loss) from operations    As a result of the foregoing, our loss from operation was $46.2 million in 2012 compared to loss from operation of $439.9 million in 2011.

        Interest income.    Interest income decreased 61.9% to $0.3 million in 2012 from $0.7 million in 2011 due to reduced funds on deposit and reduced interest rates resulting from a decrease in the average amount of term deposits.

        Other losses, net.    Other losses, net, increased 93.0% to $2.0 million in 2012 from $1.0 million in 2011 primarily due to a 111.2% increase in amortization of discounts related to the liability for our exclusive rights with Baidu acquired in August 2011 to $1.9 million in 2012 from $0.9 million in 2011 resulting from a full period of amortization.

        Income tax benefit.    Income tax benefit increased 102.8% to $4.1 million in 2012 from $2.0 million in 2011 notwithstanding a 89.1% decrease in loss before taxes and equity in affiliates to $47.9 million in 2011 from $440.3 million in 2011, primarily because a large portion of our net loss in 2011 resulted from our one-time goodwill impairment charge which was not deductible for tax purposes.

        Net Income (Loss).    As a result of the foregoing, our net loss was $43.8 million in 2012 compared to a net loss of $438.3 million in 2011.

Our Selected Quarterly Results of Operations

        The following table sets forth our unaudited condensed consolidated selected quarterly results of operations for each of the eight quarters in the period from January 1, 2012 to December 31, 2013. You should read the following table in conjunction with our audited consolidated financial statements and related notes included elsewhere in this prospectus. We have prepared the unaudited consolidated quarterly financial information on the same basis as our audited consolidated financial statements. The unaudited consolidated financial information includes all adjustments, consisting only of normal

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recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for the quarters presented.

 
  Three months ended  
 
  March 31,
2012
  June 30,
2012
  September 30,
2012
  December 31,
2012
  March 31,
2013
  June 30,
2013
  September 30,
2013
  December 31,
2013
 
 
  (in thousands of $, except share and per share data)
 

Revenues:

                                                 

E-commerce

    800     3,324     10,992     11,880     14,690     26,365     51,664     77,486  

Online advertising

    20,684     36,151     39,679     42,253     21,734     40,486     40,003     43,222  

Listing

    654     1,007     1,441     2,431     3,400     5,001     5,727     5,644  

Total revenues

    22,138     40,482     52,112     56,564     39,824     71,852     97,394     126,352  

Cost of revenues

    (11,948 )   (13,054 )   (14,073 )   (15,043 )   (15,344 )   (18,398 )   (16,147 )   (14,102 )

Selling, general and administrative expenses

    (32,904 )   (42,601 )   (39,539 )   (48,491 )   (34,089 )   (47,636 )   (59,574 )   (84,844 )

Other operating income

        103     (4 )   54         141     273     186  

Income (loss) from operations

    (22,714 )   (15,070 )   (1,504 )   (6,916 )   (9,609 )   5,959     21,946     27,592  

Interest income

    68     60     63     66     196     238     365     283  

Other loss, net

    (556 )   (500 )   (434 )   (489 )   (380 )   (421 )   (235 )   (149 )

Income (loss) before taxes and equity in affiliates

    (23,202 )   (15,510 )   (1,875 )   (7,339 )   (9,793 )   5,776     22,076     27,726  

Income tax benefit (expense)

    1,968     1,316     159     634     (13 )   8     30     (3,091 )

Income (loss) before equity in affiliates

    (21,234 )   (14,194 )   (1,716 )   (6,705 )   (9,806 )   5,784     22,106     24,635  

Loss from equity in affiliates

                (1 )           (13 )   (56 )

Net income (loss)

    (21,234 )   (14,194 )   (1,716 )   (6,706 )   (9,806 )   5,784     22,093     24,579  

Less: Net income attributable to non-controlling interest

    (190 )   615     1,059     (574 )   7     89     173     (144 )

Net income (loss) attributable to Leju shareholders

    (21,044 )   (14,809 )   (2,775 )   (6,132 )   (9,813 )   5,695     21,920     24,723  

Earnings (loss) per share:

                                                 

Basic

    (0.18 )   (0.12 )   (0.02 )   (0.05 )   (0.08 )   0.05     0.18     0.21  

Diluted

    (0.18 )   (0.12 )   (0.02 )   (0.05 )   (0.08 )   0.05     0.18     0.21  

Weighted average numbers of shares used in computation:

                                                 

Basic

    120,000,000     120,000,000     120,000,000     120,000,000     120,000,000     120,000,000     120,000,000     120,000,000  

Diluted

    120,000,000     120,000,000     120,000,000     120,000,000     120,000,000     120,000,000     120,000,000     120,000,000  

Non-GAAP Financial Measures

        The following table sets forth, for the periods specified, our adjusted income (loss) from operations, our adjusted net income (loss) and our adjusted net income (loss) attributable to Leju shareholders. We present these non-GAAP financial measures because they are used by our management to evaluate our operating performance, formulate business plans, and make strategic decisions on capital allocation. These non-GAAP financial measures enable our management to assess our operating results without considering the impact of non-cash charges, including share-based compensation expense, amortization of intangible assets resulting from business combinations and goodwill impairment charge. We also believe they are indicative of our operating performance and are used by investors and analysts to evaluate companies in our industry. These non-GAAP measures of our performance are not required by, or presented in accordance with, U.S. GAAP. Such measures are not a measurement of financial performance or liquidity under U.S. GAAP and should not be considered as an alternative to income from operations, net income or any other performance measures derived in accordance with U.S. GAAP or an alternative to cash flows from operating activities as a measure of liquidity. Our presentation of such measures may not be comparable to similarly titled measures presented by other companies. You should not compare such measures as presented by us with the presentation of such measures by other companies because not all companies use the same definition.

        We define adjusted income (loss) from operations as income (loss) from operations before share-based compensation expense, amortization of intangible assets resulting from business combinations and goodwill impairment charge.

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        We define adjusted net income (loss) as net income (loss) before share-based compensation expense (net of tax), amortization of intangible assets resulting from business combinations (net of tax) and goodwill impairment charge (net of tax).

        We define adjusted net income (loss) attributable to Leju shareholders as net income (loss) before share-based compensation expense (net of tax and non-controlling interests), amortization of intangible assets resulting from business combinations (net of tax and non-controlling interests) and goodwill impairment charge (net of tax and non-controlling interests).

        The use of the above non-GAAP financial measures has material limitations as an analytical tool, as they do not include all items that impact our income (loss) from operations, net income (loss), and net income (loss) attributable to Leju shareholders for the period. We compensate for these limitations by providing the relevant disclosure of our share-based compensation expense, amortization of intangible assets results from business acquisitions, and goodwill impairment charge both in our reconciliations to the financial measures under U.S. GAAP, and in our consolidated financial statements, all of which should be considered when evaluating our performance.

        The following table reconciles our adjusted income (loss) from operations, adjusted net income (loss) and adjusted net income (loss) attributable to Leju shareholders in the periods presented to the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP:

 
  Three months ended  
 
  March 31,
2012
  June 30,
2012
  September 30,
2012
  December 31,
2012
  March 31,
2013
  June 30,
2013
  September 30,
2013
  December 31,
2013
 
 
  (in thousands of $)
 

Income (loss) from operations

    (22,714 )   (15,070 )   (1,504 )   (6,915 )   (9,608 )   5,959     21,945     27,592  

Share-based compensation expense

    3,986     4,603     3,827     2,718     1,459     1,751     2,027     1,074  

Amortization of intangible assets resulting from business acquisitions

    5,518     5,518     5,518     5,525     5,503     5,503     5,502     5,509  

Adjusted income (loss) from operations

    (13,210 )   (4,949 )   7,841     1,328     (2,646 )   13,213     29,474     34,175  

Net income (loss)

    (21,233 )   (14,195 )   (1,716 )   (6,705 )   (9,806 )   5,784     22,093     24,579  

Share-based compensation expense (net of tax)

    3,986     4,603     3,827     2,718     1,459     1,751     2,027     1,074  

Amortization of intangible assets resulting from business acquisitions (net of tax)

    4,769     4,770     4,769     4,774     4,127     4,127     4,127     2,101  

Adjusted net income (loss)

    (12,478 )   (4,822 )   6,880     787     (4,220 )   11,662     28,247     27,754  

Net income (loss) attributable to Leju shareholders

    (21,043 )   (14,810 )   (2,775 )   (6,131 )   (9,813 )   5,696     21,919     24,723  

Share-based compensation expense (net of tax and non-controlling interests)

    3,986     4,603     3,827     2,718     1,459     1,751     2,027     1,074  

Amortization of intangible assets resulting from business acquisitions (net of tax and non-controlling interests)

    4,679     4,680     4,678     4,682     4,056     4,056     4,056     2,029  

Adjusted net income (loss) attributable to Leju shareholders

    (12,378 )   (5,527 )   5,730     1,269     (4,298 )   11,503     28,002     27,826  

        The increase in our revenues from quarter to quarter in 2013 was primarily attributable to the growth in our e-commerce business, which in turn was due to increased sales of discount coupons. See "Business—Our Services—E-Commerce—O2O Services for New Residential Properties—Discount Coupons."

        The real estate sector in China is characterized by seasonal fluctuations, which may cause our revenues to fluctuate significantly from quarter to quarter. The first quarter of each year generally contributes the smallest portion of our annual revenues due to reduced real estate transactions, advertising and marketing activities of our customers in the PRC real estate industry during and around the Chinese Lunar New Year holiday, which generally occurs in January or February of each year and

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due to the cold winter weather in northern China. In contrast, the third and fourth quarters of each year generally contribute a larger portion of our annual revenues due to increased real estate transaction, advertising and marketing activity during the months of September and October. See "Risk Factors—Risks Related to Our Business—Our results of operations may fluctuate or otherwise be materially and adversely affected due to seasonal variations."

Our Liquidity and Capital Resources

        Our principal sources of liquidity have been capital contributions from E-House and cash generated from operating activities. Our cash and cash equivalents consist of cash on hand and deposits placed with banks, which are unrestricted as to withdrawal or use and have original maturities of three months or less. We currently anticipate that we will be able to meet our needs to fund operations for at least the next twelve months with operating cash flow and existing cash balances.

        In the future, we may rely significantly on dividends and other distributions paid by our PRC subsidiaries for our cash and financing requirements. There may be potential restrictions on the dividends and other distributions by our PRC subsidiaries. The PRC tax authorities may require us to adjust our taxable income under the contractual arrangements that each of Shanghai SINA Leju, Shanghai Yi Yue and Beijing Maiteng currently has in place with the relevant consolidated VIE in a way that could materially and adversely affect the ability of Shanghai SINA Leju, Shanghai Yi Yue and Beijing Maiteng to pay dividends and make other distributions to us. In addition, under PRC laws and regulations, our PRC subsidiaries including Shanghai SINA Leju, Shanghai Yi Yue and Beijing Maiteng, each as a wholly foreign-owned enterprise in China, may pay dividends only out of their accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiaries are required to set aside at least 10% of their accumulated after-tax profits each year, if any, to fund a statutory reserve fund, until the aggregate amount of such fund reaches 50% of their respective registered capital. At their discretion, our PRC subsidiaries may allocate a portion of their after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends. See "Risk Factors—Risk related to doing business in China—Our PRC subsidiaries and consolidated VIEs are subject to restrictions on paying dividends or making other payments to us, which may restrict our ability to satisfy our liquidity requirements." Furthermore, our investments made as registered capital and additional paid in capital of our PRC subsidiaries, consolidated VIEs and consolidated VIEs' subsidiaries are also subject to restrictions on their distribution and transfer according to PRC laws and regulations.

        As a result, our PRC subsidiaries, consolidated VIEs and consolidated VIEs' subsidiaries in China are restricted in their ability to transfer their net assets to us in the form of cash dividends, loans or advances. As of December 31, 2013, the amount of the restricted net assets, which represents registered capital and additional paid-in capital cumulative appropriations made to statutory reserves, was $30.2 million.

        As an offshore holding company, we are permitted under PRC laws and regulations to provide funding from the proceeds of our offshore fund raising activities to our PRC subsidiaries only through loans or capital contributions, and to our consolidated VIEs only through loans, in each case subject to the satisfaction of the applicable government registration and approval requirements. See "Risk Factors—Risks Related to Doing Business in China—PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC operating subsidiaries." As a result, there is uncertainty with respect to our ability to provide prompt financial support to our PRC subsidiaries and consolidated VIEs when needed. Notwithstanding the forgoing, our PRC subsidiaries may use their own retained earnings (rather than RMB converted from foreign currency denominated capital) to provide financial support to our consolidated VIEs either through entrustment loans from our PRC subsidiaries to our

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consolidated VIEs, or direct loans to such VIEs' nominee shareholders, which would be contributed to the VIEs as capital injections. Such direct loans to the nominee shareholders would be eliminated in our consolidated financial statements against the consolidated VIEs' share capital.

        The following table sets forth a summary of our cash flows for the periods indicated:

 
  Year Ended December 31,  
 
  2011   2012   2013  
 
  (in thousands of $)
 

Net cash provided by operating activities

    11,175     3,325     83,423  

Net cash used in investing activities

    (26,618 )   (18,159 )   (16,657 )

Net cash provided by (used in) financing activities

    26,809     21,504     (41,360 )

Net increase in cash and cash equivalents

    12,709     6,836     27,639  

Cash and cash equivalents at the beginning of the year

    51,545     64,254     71,090  

Cash and cash equivalents at the end of the year

    64,254     71,090     98,730  

Operating Activities

        Net cash provided by operating activities in 2013 was $83.4 million, primarily comprising net income of $42.7 million adjusted for non-cash transactions including depreciation and amortization of $38.3 million, a $28.4 million increase in income tax payable and other tax payable, and a $10.4 million increase in accrued payroll and welfare expense, partially offset by a $21.6 million decrease in amounts due to related parties and a $18.3 million change in deferred tax.

        Net cash provided by operating activities in 2012 was $3.3 million, comprising our net loss of $43.8 million adjusted for non-cash transactions including a depreciation and amortization of $39.8 million, allowance for doubtful accounts of $7.4 million, a $21.7 million increase in amounts due to related parties (primarily resulting from corporate expenses allocated to us from E-House of $21.6 million), a $9.5 million increase in income tax payable and other tax payable, and partially offset by a $32.4 million increase in accounts receivable resulting from increased sales.

        Net cash provided by operating activities in 2011 was $11.2 million, comprising our net loss of $438.3 million adjusted for non-cash transactions including a goodwill impairment charge of $417.8 million relating China Online Housing, depreciation and amortization of $29.2 million, a $17.4 million increase in amounts due to related parties (primarily resulting from corporate expenses allocated to us by E-House of $20.2 million, partially offset by revenues collected by E-House on our behalf $4.9 million), a $8.6 million increase in income tax payable and other tax payable and a $9.0 million increase in accrued payroll and welfare expenses primarily resulting from increased headcount, partially offset by a $29.0 million increase in accounts receivable resulting from increased sales.

Investing Activities

        Our investing activities primarily relate to our purchases and disposals of property and equipment and to our acquisition of subsidiaries.

        Net cash used in investing activities in 2013 was $16.7 million, primarily comprising $17.0 million for deposit for and purchase of property and equipment and intangible assets including $15.3 million for our exclusive rights with Baidu, partially offset by $0.5 million of proceeds from disposal of property and equipment.

        Net cash used in investing activities in 2012 was $18.2 million, primarily comprising $18.2 million for deposit for and purchase of property and equipment and intangible assets including $14.2 million for our exclusive rights with Baidu.

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        Net cash used in investing activities in 2011 was $26.6 million, primarily comprising $14.1 million for deposit for and purchase of property and equipment and intangible assets including $9.4 million for our exclusive rights with Baidu and $12.6 million for purchase of subsidiaries, net of cash acquired, relating to our acquisition of Beijing Jiahua Xinlian Media Advertisement Co., Ltd. and Beijing Shangtuo Shunze Media Advertisement Co., Ltd.

Financing Activities

        Our financing activities prior to this offering have primarily consisted of loan and capital contributions from E-House.

        Net cash used in financing activities in 2013 was $41.4 million, resulting from our repayment of loans from E-House.

        Net cash provided by financing activities in 2012 was $21.5 million primarily comprising loans from related parties of $19.8 million from E-House, and cash contribution from E-House of $1.5 million.

        Net cash provided by financing activities in 2011 was $26.8 million primarily comprising loans from related parties of $16.2 million from E-House, and cash contribution from E-House of $10.6 million.

Contractual Obligations

        The following table sets forth our contractual obligations as of December 31, 2013, which are limited to our operating lease obligations and primarily relate to lease agreements with lessors of our office properties in the PRC:

 
   
  Payments Due by Period  
 
  Total   Less than
1 year
  1-3 years   3-5 years   More than
5 years
 
 
  (in thousands of $)
 

Operating Lease Obligations(1)

    12,970     7,322     4,953     695      

Liability for exclusive rights(2)

    9,021     9,021              
                       

Total

    21,991     16,343     4,953     695      
                       
                       

Notes:

(1)
Our operating lease obligations relate to our obligations under lease agreements with lessors of our corporate offices and business store fronts.
(2)
Our liability for exclusive rights relates to our contractual obligation to pay Baidu for the exclusive right to sell Baidu's real estate related Brand-Link product and to build and operate the Baidu real estate and home furnishing channels.

Off-Balance Sheet Commitments and Arrangements

        We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder's equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

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Inflation

        Inflation in China has not materially impacted our results of operations in recent years. According to the National Bureau of Statistics of China, China's consumer price index increased 3.3%, 5.4% and 2.6% in 2010, 2011 and 2012, respectively.

Quantitative and Qualitative Disclosure about Market Risk

Interest Rate Risk

        Our exposure to interest rate risk primarily relates to the interest income generated by bank deposits with original maturities of three months or less. We have not used any derivative financial instruments to manage our interest risk exposure. Interest-earning instruments carry a degree of interest rate risk. We have not been exposed to material risks due to changes in interest rates. However, our future interest income may be lower than expected due to changes in market interest rates.

Foreign Exchange Risk

        Substantially all of our revenues and most of our expenses are denominated in Renminbi. Our exposure to foreign exchange risk primarily relates to the U.S. dollar proceeds of this offering, most or substantially all of which we expect to convert into Renminbi over time for the uses discussed elsewhere under "Use of Proceeds." We believe the impact of foreign currency risk is not material and we have not used any forward contracts, currency borrowings or derivative instruments to hedge our exposure to foreign currency exchange risk. Although in general our exposure to foreign exchange risks should be limited, the value of your investment in our ADSs will be affected by the foreign exchange rate between U.S. dollars and Renminbi because substantially all of our revenues and expenses are denominated in Renminbi and the functional currency of our principal operating subsidiaries and consolidated VIEs is the Renminbi, while we use the U.S. dollar as our functional and reporting currency and the ADSs will be traded in U.S. dollars.

        The value of the Renminbi against the U.S. dollar and other currencies is affected by, among other things, changes in China's political and economic conditions and China's foreign exchange policies. The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the People's Bank of China. The PRC government allowed the Renminbi to appreciate by more than 20% against the U.S. dollar between July 2005 and July 2008. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, the PRC government has allowed the Renminbi to appreciate slowly against the U.S. dollar again. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future.

        To the extent that we need to convert U.S. dollars we receive from this offering into Renminbi for our operations, acquisitions or other uses within the PRC, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we receive from the conversion. To the extent that we seek to convert Renminbi into U.S. dollars, depreciation of the Renminbi against the U.S. dollar would have an adverse effect on the U.S. dollar amount we receive from the conversion. As of December 31, 2013, we had Renminbi-denominated cash balances of $91.6 million and U.S. dollar-denominated cash balances of $7.1 million. Assuming we had converted the Renminbi-denominated cash balance of RMB558.5 million into U.S. dollars at the exchange rate of $1.00 for RMB6.0969 as of December 31, 2013, this cash balance would have been $91.6 million. Assuming a 1.0% depreciation of the Renminbi against the U.S. dollar, this cash balance would have decreased to $90.7 million as of December 31, 2013.

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Seasonality

        The real estate sector in China is characterized by seasonal fluctuations, which may cause our revenues to fluctuate significantly from quarter to quarter. The first quarter of each year generally contributes the smallest portion of our annual revenues due to reduced real estate transactions, advertising and marketing activities of our customers in the PRC real estate industry during and around the Chinese Lunar New Year holiday, which generally occurs in January or February of each year and due to the cold winter weather in northern China. In contrast, the third and fourth quarters of each year generally contribute a larger portion of our annual revenues due to increased real estate transaction, advertising and marketing activity during the months of September and October. See "Risk Factors—Risks Related to Our Business—Our results of operations may fluctuate or otherwise be materially and adversely affected due to seasonal variations."

Recent Accounting Pronouncements

        In March 2013, the FASB issued ASU 2013-05 related to parent's accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. When a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity, the parent is required to release any related cumulative translation adjustment into net income. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. This ASU is effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. It should be applied prospectively to derecognition events occurring after the effective date. Prior periods should not be adjusted. Early adoption is permitted. If an entity elects to early adopt the amendments, it should apply them as of the beginning of the entity's fiscal year of adoption. The adoption of the amendments will not have a material impact on our consolidated financial statements.

        In July 2013, the FASB issued ASU 2013-11 which provides guidance on financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The ASU requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This ASU applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The adoption of the amendments will not have a material impact on our consolidated financial statements.

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INDUSTRY

The PRC economy

        Over the last decade, China has experienced significant economic growth. China's accession to the World Trade Organization, or the WTO, in 2001 has further accelerated the reform of the PRC economy. Increased consumer spending as well as increased government spending on infrastructure and private sector investments in land developments are important drivers for China's continuous economic growth. Real estate investment increased from RMB3.1 trillion in 2008 to RMB7.2 trillion in 2012, representing a CAGR, of approximately 18.4%. China has one of the fastest growing economies in the world, with CAGR of nominal gross domestic product, or GDP of 13.4% from 2008 to 2012, reaching approximately RMB51.9 trillion for 2012.

 
  Year ended December 31,  
 
  2008   2009   2010   2011   2012   CAGR
2008-2012
 

China GDP (in billions of RMB)

    31,405     34,090     40,151     47,310     51,894     13.4 %

China GDP per capita (RMB)

    23,708     25,608     30,015     35,198     38,420     12.8 %

Source: National Bureau of Statistics of China.

Rapid urbanization and increasing urban household income

        Over the past decade, China's population has been undergoing large scale urbanization, which has resulted in robust demand for new residential properties and is a key driver for the growth of the overall real estate industry. According to the National Bureau of Statistics of China, China's total urban population increased from 542.8 million in 2004 to 711.8 million in 2012, and China's urban population as a percentage of the total population increased from 41.8% in 2004 to 52.6% in 2012. Together with the effect of rapid economic development in China, the average purchasing power of urban households has been increasing. Per capita annual disposable income of urban households in China increased from RMB9,422 in 2004 to RMB24,565 in 2012, representing a CAGR of 12.7%. The following table sets forth the urban population, total population, urbanization rate and per capita disposable income of urban households in China for the periods indicated:

 
  Year ended December 31,  
 
  2004   2005   2006   2007   2008   2009   2010   2011   2012  

Urban population (in millions)

    542.8     562.1     582.9     606.3     624.0     645.1     669.8     690.8     711.8  

Total population (in millions)

    1,299.9     1,307.6     1,314.5     1,321.3     1,328.0     1,334.5     1,340.9     1,347.4     1,354.0  

Urbanization rate (%)

    41.8     43.0     44.3     45.9     47.0     48.3     50.0     51.3     52.6  

Per capita disposable income of urban households (RMB)

    9,422     10,493     11,760     13,786     15,781     17,175     19,109     21,810     24,565  

Source: National Bureau of Statistics of China.

Real estate industry in China

Primary real estate industry in China

        The primary real estate industry in China has experienced rapid growth in recent years. According to the National Bureau of Statistics of China, the total gross floor area, or GFA, of residential properties sold in China grew from 593 million sq.m. in 2008 to 985 million sq.m. in 2012, representing a CAGR of 13.5%. The PRC government launched a RMB4 trillion economic stimulus plan in late 2008 in view of the negative impact of the global economic crisis on the PRC economy. China's primary real estate industry rebounded in early 2009. However prices and volumes of the primary real estate market have experienced volatility and slow growth since then, largely due to the implementation of the

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government's restrictive policies. The following table sets forth the total GFA of all properties and residential properties sold, number of primary residential units sold and the average selling price of residential properties sold in China for the periods indicated:

 
  Year ended December 31,  
 
  2008   2009   2010   2011   2012   CAGR
2008-2012
 

Total GFA of all properties sold (million sq.m.)

    660     948     1,048     1,094     1,113     14.0 %

Total GFA of residential properties sold (million sq.m.)

    593     862     934     965     985     13.5 %

Number of primary residential units sold (in thousands)

    5,566     8,040     8,818     9,140     9,446     14.1 %

Average price of residential properties (RMB/sq.m.)

    3,576     4,459     4,725     4,993     5,430     11.0 %

Source: National Bureau of Statistics of China.

Home furnishing and improvement market in China

        Newly completed housing properties in China are typically empty shells that are not completed with interior decoration and fittings. As such, there is large demand for home furnishing and improvement products and services.

        According to the China Statistical Yearbook, urban households in China spent on average RMB692 per annum in 2008 and RMB1,116 per annum in 2012 on household facilities and services, representing a CAGR of 12.7%. According to Euromonitor International, total market revenues from the home improvement industry in China grew from RMB189.9 billion in 2008 to RMB310.6 billion in 2012, representing a CAGR of 13.1%.

Key real estate policies in China

        For details of key regulatory developments related to the real estate sector in China, please refer to the section "Risk Factors—Risks Related to Our Business—Our business is susceptible to fluctuations in China's real estate industry, which may materially and adversely affect our results of operations" and "Risk Factors—Risks Related to Our Business—Our business may be materially and adversely affected by government measures aimed at China's real estate industry."

Internet industry in China

Internet users and internet penetration in China

        The number of internet users in China has grown rapidly in recent years as the internet becomes a more commonly used medium for information, communication and commerce in China. According to Euromonitor International, the number of internet users in China grew from approximately 299 million in 2008 to approximately 570 million in 2012, representing a CAGR of 17.4%, and the internet penetration rate increased from 22.6% in 2008 to 42.3% in 2012. Although China has the largest number of internet users in the world, China's internet penetration is still relatively low compared to developed countries such as the United States and Japan, which had penetration rates of 81.0% and 79.1%, respectively, in 2012. The continuing development of internet services and mobile devices, reduction in internet access costs and lower computer prices are expected to further drive the increase

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in the number of internet users in China. The following table sets forth the number of internet users in China and internet penetration rates in China, the United States and Japan for the periods indicated:

 
  Year ended December 31,  
 
  2008   2009   2010   2011   2012  

Number of Internet users in China (in millions)

    299     384     458     514     570  

Internet penetration rates in China (% of population)

    22.6     28.9     34.3     38.3     42.3  

Internet penetration rates in the United States (% of population)

    74.0     71.0     74.0     77.9     81.0  

Internet penetration rates in Japan (% of population)

    75.4     78.0     78.2     79.1     79.1  

Source: Euromonitor International

Online advertising in China

        Online advertising can offer viewers greater and quicker access to information as compared with offline advertising. As such, advertisers in China increasingly rely on online advertising to gain exposure to consumers. According to iResearch, China's online advertising market increased from RMB17 billion in 2008 to RMB75 billion in 2012, representing a CAGR of 45.1%. Methods of online advertising may include website graphic advertisements such as banners, online marketplace listings and searched based advertising.

        The following table sets forth the industry growth rate of online advertising revenues in China from 2008 to 2012 for the period indicated:

 
  Year ended December 31,  
 
  2008   2009   2010   2011   2012   CAGR
2008-2012
 

Online advertising revenues in China (in billions of RMB)

    17.0     21.1     32.6     51.3     75.3     45.1 %

Source: iResearch Inc.

Online real estate advertising in China

        Historically, there were limited sources of comprehensive information on China's real estate market conveniently accessible to buyers, developers or other principal industry participants; real estate advertising in China was done through offline media such as television, newspapers and magazines. Also, consumers in China have historically lacked access to comprehensive information essential to making housing decisions, relying instead on disparate sources of information such as real estate brokers, local newspapers, and word of mouth.

        However, technology is changing the way that consumers search for homes and the way in which real estate developers market their new projects. Real estate information websites attract developers and sellers to list their properties online to gain maximum exposure to buyers, while buyers and agents are attracted to search for properties on these websites due to the vast amounts of information and services available, complemented by the ability to tailor search preferences.

        According to iResearch, online advertising spending in China related to the real estate industry grew from approximately RMB0.8 billion in 2009 to RMB3.0 billion in 2012, representing a CAGR of

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53.6%. The following table sets forth the online real estate advertising spending in China for the periods indicated:

 
  Year ended December 31,  
 
  2009   2010   2011   2012   CAGR
2009-2012
 

Real estate online advertising spending in China (in billions of RMB)

    0.8     1.8     2.8     3.0     53.6 %

Source: iResearch Inc.

        According to iResearch, approximately 86.3% of total online real estate advertising spending in China in 2012 was attributable to real estate websites, 10.6% was attributable to portal advertising and 3.1% was attributable to other forms of online advertising.

E-commerce market in China

        As internet access and functionality improve, more and more consumers in China are purchasing products and services online. According to iResearch, online retail gross merchandise value, or GMV, reached RMB1.3 trillion in 2012 having grown from RMB0.5 trillion in 2010, representing a CAGR of 68.2%. The growing population of paying users and greater spending per paying user in China is expected to drive growth in the e-commerce sector in China from RMB1.9 trillion in 2013 to RMB3.6 trillion in 2016, representing a projected CAGR of 24.8%, according to iResearch. The following table summarizes the total online retail GMV in China between 2008 to 2016E:

 
  Year ended December 31,  
 
  2010   2011   2012   2013E   2014E   2015E   2016E  

Total online retail GMV in China (in billions of RMB)

    461     785     1,303     1,850     2,450     3,020     3,600  

Total online retail GMV in China as percentage of total consumer spending in China (%)

    2.9     4.3     6.2     7.7     9.0     10.0     10.8  

Source: iResearch Inc.

        In today's market, an effective combination of online information and marketing with strong offline services and transaction support is crucial to a successful e-commerce platform. Offline services and transaction support, including services such as logistics, are critical components of the e-commerce value chain, crucial in enabling transaction completion as well as enhancing consumers' purchasing experience.

Real estate O2O products and services in China

        O2O real estate services integrate online information and promotion with offline promotion and transaction services, which is attractive to both prospective buyers and real estate industry players. On the online side, O2O real estate services offers a vast amount of internet user information and marketing tools to real estate industry players while potential buyers are provided accurate property purchasing information and services, benefits such as discounts and a reliable transaction platform. On the offline side, O2O real estate services include, but are not limited to, issuances of discount coupons, co-ordination of property visits (or showrooms), property inspections and ratings issued by reliable third parties and on-site transaction support. Some offline services such as signing contracts, payment, loan arrangement and property transfers, among others, are still largely provided by developers, agents and other intermediaries.

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        According to iResearch, O2O e-commerce real estate business models present in China today mainly include real estate information, advertising, brokerage and agency services providers such as Leju, SouFun, SOHU Focus and marketplace platforms such as Taobao marketplace.

        At present, the principal method of generating revenues from O2O real estate services in China is the sales of discount coupons to potential property buyers. A discount coupon entitles a purchaser to purchase a property from the property developer at a particular development at a discount from the advertised price. Discount coupons can help developers gain exposure to home buyers and accurately measure the marginal improvement in the sales of development properties based on the number of coupons redeemed for each development project. The key industry players in China that issue such discount coupons are Leju and SouFun.

Mobile usage and mobile e-commerce in China

        As smartphones and mobile devices become more affordable and technologically more advanced, coupled with greater internet access from upgrades in network connection services, the number of mobile internet users in China has been constantly increasing in recent years. According to iResearch, the number of mobile internet users in China is expected to grow to 745.2 million as of December 31, 2017 from 500.1 million as of December 31, 2013, representing a CAGR of 10.5%. According to eMarketer, as of December 31, 2013, China had approximately 446.8 million smartphone users, representing 43.0% of total mobile phone users globally. It is estimated that the smartphone penetration rate will increase to 50.0% in 2017, according to eMarketer.

 
  As of December 31,  
 
  2010   2011   2012   2013   2014E   2015E   2016E   2017E  

Mobile Internet population in China (million)

    302.7     355.6     420.0     500.1     578.2     637.1     689.3     745.2  

Mobile Internet penetration in China (as % of total Internet users)

    66.2     69.3     74.5     81.0     86.4     87.1     87.2     87.6  

Source: iResearch Inc.


 
  As of December 31,  
 
  2010   2011   2012   2013   2014E   2015E   2016E   2017E  

Smartphone population in China (million)

    87.2     208.5     392.2     446.8     488.0     531.1     572.7     603.7  

Smartphone penetration in China (as % of total mobile phone users)

    13.0     24.0     40.0     43.0     45.0     47.0     49.0     50.0  

Source: eMarketer.

        China's recent growth in mobile e-commerce is largely due to the increase in mobile users. According to iResearch, mobile e-commerce gross merchandise value, or GMV, in China grew to $10.2 billion in 2012, and is expected to reach $115.2 billion in 2016, representing a CAGR of 83.3% from 2012. While, according to IDC, mobile app and software download revenues in China has reached $615.0 million in 2012 from $94.0 million in 2010, and is expected to grow to approximately $4.7 billion in 2017. Such increasing engagement of mobile internet users in China could potentially lead to further mobile e-commerce opportunities and also create further channels for merchants to reach end customers.

 

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