EJ E-House (China) Holdings Limited American Depositary Share

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

Date of event requiring this shell company report . . . . . . . . . . . . . . . . . . .

For the transition period from                       to

Commission file number: 001-33616

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Securities registered or to be registered pursuant to Section 12(g) of the Act:

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Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

o Yes    x No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

o Yes    x No

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes    o No

Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).

x Yes    o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

o Item 17    o Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes    x No

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

o Yes    o No

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INTRODUCTION

Unless otherwise indicated and except where the context otherwise requires, references in this annual report on Form 20-F to:

·                   “ADSs” refers to our American depositary shares, each of which represents one ordinary share;

·                   “Beijing Jiajujiu” refers to Beijing Jiajujiu E-Commerce Co., Ltd., one of our consolidated variable interest entities;

·                   “Beijing Leju” refers to Beijing Yisheng Leju Information Services Co., Ltd., one of our consolidated variable interest entities;

·                   “China” or “PRC” refers to the People’s Republic of China, excluding, for the purpose of this annual report only, Taiwan, Hong Kong and Macau;

·                   “CRIC” refers to China Real Estate Information Corporation, our wholly-owned subsidiary;

·                   “CRIC system” refers to our proprietary real estate information database and analysis system;

·                   “GFA” refers to gross floor area;

·                   “HKD” or “Hong Kong dollars” refers to the legal currency of the Hong Kong Special Administrative Region;

·                   “Leju” refers to Leju Holdings Limited, our majority-owned subsidiary;

·                   “liquid assets” refers to the difference between (i) cash and cash equivalents and restricted cash, and (ii) short-term borrowings.

·                   “primary real estate market” refers to the market for newly constructed residential and commercial real properties, and “primary real estate agency services” refers to agency services provided for the primary real estate market;

·                   “RMB” or “Renminbi” refers to the legal currency of China;

·                   “secondary real estate market” refers to the market for existing residential and commercial real properties, and “secondary real estate brokerage services” refers to brokerage services provided for the secondary real estate market;

·                   “Shanghai Fangjia” refers to Shanghai Fangjia Information Technology Co., Ltd., one of our consolidated variable interest entities;

·                   “Shanghai Kushuo” refers to Shanghai Kushuo Information Technology Co., Ltd., one of our consolidated variable interest entities;

·                   “Shanghai Weihui” refers to Shanghai Weihui Business Information Consulting Co., Ltd., one of our consolidated variable interest entities;

·                   “Shanghai Yi Xin” refers to Shanghai Yi Xin E-Commerce Co., Ltd., one of our consolidated variable interest entities;

·                   “shares” or “ordinary shares” refers to our ordinary shares, par value $0.001 per share;

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·                   “VIEs” refers to any or all of Beijing Leju, Shanghai Yi Xin, Beijing Jiajujiu, Shanghai Kushuo, Shanghai Fangjia and Shanghai Weihui (each a “VIE”), all of which are domestic PRC companies in which we do not have equity interests but whose financial results have been consolidated into our consolidated financial statements in accordance with U.S. GAAP due to our having effective control over, and our being the primary beneficiary of, these companies;

·                   “we,”“us,”“our company,”“our” or “E-House” refers to E-House (China) Holdings Limited, a Cayman Islands company, its predecessor entities and its subsidiaries and consolidated VIEs; and

·                   “$,”“dollars,”“US$” or “U.S. dollars” refers to the legal currency of the United States.

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FORWARD-LOOKING STATEMENTS

This annual report on Form 20-F contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that 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 these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “likely to” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include:

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

·                   our ability to attract clients and further enhance our brand recognition; and

·                   trends and competition in the real estate services industry.

You should read thoroughly this annual report and the documents that we refer to in this annual report 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. Other sections of this annual report include additional factors which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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Our selected consolidated statement of operations data for the fiscal years ended December 31, 2011 and 2012 and our consolidated balance sheet data as of December 31, 2011, 2012 and 2013 have been derived from our audited consolidated financial statements not included in this annual report.

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.

Our historical results do not necessarily indicate results expected for any future periods.

Note:

(1)           Each ADS represents one ordinary share.

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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 E-House 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).

We define adjusted net income (loss) attributable to E-House 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 below 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 E-House 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.

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

Exchange Rate Information

Our reporting and financial statements are expressed in the U.S. dollar, which is our reporting and functional currency. However, our business is conducted in China and substantially all of our revenues are denominated in Renminbi. This annual report contains translations of RMB amounts into U.S. dollars at specific rates solely for the convenience of the reader. The conversion of RMB into U.S. dollars in this annual report, for the amounts not otherwise recorded in our consolidated financial statements included elsewhere in this annual report, is based on the certified exchange rate published by the Board of Governors of the Federal Reserve Bank. Unless otherwise noted, all translations from RMB to U.S. dollars and from U.S. dollars to RMB in this annual report were made at a rate of RMB6.4778 to US$1.00, the certified exchange rate in effect on December 31, 2015. We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, 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 RMB into foreign currencies and through restrictions on foreign trade. On April 15, 2016, the certified exchange rate was RMB6.4730 to US$1.00.

The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this annual report or will use in the preparation of our periodic reports or any other information to be provided to you. The source of these rates is the Federal Reserve Statistical Release.

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Source: Federal Reserve Statistical Release

Note:

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

B.                                     Capitalization and Indebtedness

Not applicable.

C.                                     Reasons for the Offer and Use of Proceeds

Not applicable.

D.                                     Risk Factors

Risks Related to Our Business

Our business is susceptible to fluctuations in the real estate market of China, which may materially and adversely affect our revenues and results of operations.

We conduct our real estate services business primarily in China. Our business depends substantially on the conditions of the PRC real estate market. Demand for private residential real estate in China has grown rapidly in the recent decade but such growth is often coupled with volatility in market conditions and fluctuation in real estate prices. Fluctuations of supply and demand in China’s real estate market are caused by economic, social, political and other factors. Over the years, governments at both national and local levels have announced and implemented various policies and measures aimed to regulate the real estate markets, in some cases to stimulate further development and more purchase of residential real estate units and in other cases to restrict these activities from growing too rapidly. These measures can affect real estate buyers’ eligibility to purchase additional units, their downpayment requirements and financing, as well as availability of land to developers and their ability to obtain financing. These measures have affected and may continue to affect the conditions of the China’s real estate market and cause fluctuations in real estate pricing and transaction volume. See “—Risks Related to Our Business—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 the real estate market adversely affect real estate transaction volumes or prices, our financial condition and results of operations may be materially and adversely affected.

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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 restrictive rules on the real estate market, which include:

·                   minimum down payments for the first self-use housing unit purchased by a family must be no less than 20% of the purchase price;

·                   minimum down payments for the second housing unit purchased by a family must be no less than 40% of the purchase price, 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;

·                   business tax is imposed and calculated on the full sales revenues for the sale of all housing units held for less than two years, and on the difference between the sales revenue and the amount paid for the housing unit for the sale of non-ordinary housing units which were purchased two 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. 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.

To stimulate real property market, the Chinese government has released certain policies to loosen some of the restrictive measures in 2015 and 2016. For example, the Chinese government lowered the percentage of down payment for purchase of houses during 2015 and 2016, and relaxed real property related tax policies in early 2016. Certain cities have also loosened their local housing price control measures in 2015 and 2016. However, we cannot assure you that the PRC government will not retighten the policy or 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.

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

The global macroeconomic environment is facing challenges, including the escalation of the European sovereign debt crisis since 2011, the end of quantitative easing by the U.S. Federal Reserve and the economic slowdown in the Eurozone in 2014. The Chinese economy has slowed down since 2012 and such slowdown may continue. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States and China. There have been concerns over unrest and terrorist threats in the Middle East, Europe and Africa, which have resulted in volatility in oil and other markets, and over the conflicts involving Ukraine and Syria. There have also been concerns on the relationship among China and other Asian countries, which may result in or intensify potential conflicts in relation to territorial disputes. Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. Any severe or prolonged slowdown in the global or Chinese 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.

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Failure to maintain or enhance our brands or image could have a material and adverse effect on our business and results of operations.

We believe our “E-House” brand is associated with a leading integrated real estate services company with consistent high-quality services among both real estate developers and individual real estate buyers in China. Our “CRIC” brand is associated with a leading real estate information and consulting service provider and the “Leju” brand is associated with a leading real estate online platform in China. Our 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. If we are unable to satisfy customer needs or if our public image or reputation were otherwise diminished, our business transactions with our customers may decline, which could in turn adversely affect our results of operations.

We may not be able to successfully execute our strategy of expanding into new geographical markets in China, which could have a material and adverse effect on our business and results of operations.

We plan to continue to expand our business into new geographical areas in China, especially for our mobile community services app called “Shi Hui”. As China is a large and diverse market, consumer trends and demands may vary significantly by region and our experience in the markets in which we currently operate may not be applicable in other parts of China. As a result, we may not be able to leverage our experience to expand into other parts of China. When we enter new markets, we may face intense competition from companies with greater experience or an established presence in the targeted geographical areas or from other companies with similar expansion targets. In addition, our business model may not be successful in new and untested markets and markets with a different legal and business environment, such as Hong Kong and Macau. Therefore, we may not be able to grow our revenues in the new cities we enter into due to the substantial costs involved.

If we fail to successfully execute the business plans for our strategic alliances and other new business initiatives, our results of operations and prospects may be materially and adversely affected.

Since 2008, we have formed strategic alliances with a number of leading real estate developers in China including Evergrande Real Estate Group, or Evergrande. The success of these strategic alliances depends on, among others, our successful sales and marketing of the projects and properties, the developers’ ability to make timely delivery of properties in satisfactory quality and quantity and purchasers’ ability to obtain financing and complete their purchase obligations. If we fail to successfully market and sell these new properties, or if purchasers fail to complete their purchase obligations for any reason, we may not be able to continue the existing strategic alliances or enter into new strategic relationships with leading real estate developers and our results of operations and prospects may be materially and adversely affected.

Through an agreement that we entered into with SINA Corporation, or SINA, in 2009, we own SINA’s real estate operations through our majority-owned subsidiary Leju. To a large extent, the operations and revenues of Leju’s business rely on SINA’s cooperation with us. The domain names of some major websites of Leju’s business are owned by SINA and licensed to Leju through agreements which we initially entered into with SINA in 2009 with terms through 2019 and which we amended and restated in 2014 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, Leju is also 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 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.

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In August 2010, we launched for Baidu, Inc., or Baidu, its real estate website, house.baidu.com, and home furnishing website, jiaju.baidu.com, to offer search-based advertising for China’s real estate and home furnishing industries pursuant to our strategic cooperation agreement with Baidu, which expired in December 2015. In August 2011, we became Baidu’s premier strategic online real estate partner and obtained the exclusive right, through December 2015, to sell Baidu’s real estate Brand-Link product, a form of keyword advertising. Although Baidu still works with us as a product partner, our strategic partnership was not renewed upon expiration in December 2015. There can be no assurance that Baidu will continue to be our product partner. Changes in our relationship with Baidu or the termination thereof could materially and adversely affect our business and results of operations, if we are unable to secure substituting customers or sources of revenues.

On March 10, 2014, Leju 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, Leju and Tencent have agreed to jointly develop software and tools for use on Tencent’s social communication platform, Weixin, to facilitate Leju’s opening of Weixin public accounts associated with real estate projects. Leju agreed to adopt Weixin payment solutions as the default payment method for real estate O2O e-commerce transactions conducted by its users on Weixin. Leju 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. Tencent is also a substantial shareholder of Leju. Leju is currently operating numerous Weixin accounts related to various real estate projects throughout China. If Tencent does not fulfill its obligations under the strategic cooperation agreement or otherwise reduces its support for our online real estate operations, our business may be materially and adversely affected.

Leju has also established strategic cooperation relationships with Weibo Corporation, or Weibo, a leading social media platform in China and majority owned subsidiary of SINA, and has opened and operated numerous Weibo accounts related to real estate. In addition, Leju has a strategic venture with CITIC, pursuant to which CITIC introduced “Leju Loan”, an innovative financial product that aims to provide added liquidity and improve the overall purchasing power of home buyers through Leju’s online platform. There can be no assurance that we will be able to maintain our strategic cooperation relationships with Weibo through Leju, or that we will be able to execute on any other new initiatives successfully and achieve the expected results.

We may also explore other business initiatives to expand the scope of our products and services. In July 2014, we launched our community value-added services, our real estate financial services and our home price rating website under our real estate information and consulting services. Failure to execute our business plans for these new business initiatives could have material and adverse effect on the results of our operations.

Our business faces risks associated with the application of the e-commerce business model to the real estate industry.

Our e-commerce business was established in 2011 and has experienced rapid growth to become an integral part of our online real estate service operations. 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, and our results of operations or profitability could be adversely affected.

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

Our revenues increased 13% to $1,023.7 million for the year ended December 31, 2015 from $904.5 million for the year ended December 31, 2014. We intend to continue to expand our services and 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 demands on us to maintain the quality of our services to ensure that our brands do not suffer as a result of any deviations, whether actual or perceived, in 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 and launch new business initiatives. 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.

We may lose our competitive advantage if we fail to obtain and maintain accurate, comprehensive and reliable data in our CRIC system or prevent disruptions or failure in the performance of our CRIC system.

We have devoted substantial resources to developing, maintaining and updating our proprietary real estate information database and analysis system, which we refer to as the CRIC system. Our ability to provide consistent high-quality services and maintain our competitive advantage relies in large part on the accuracy, comprehensiveness and reliability of the data contained in our CRIC system. The task of establishing and maintaining accurate and reliable data is challenging. We rely on third-party data providers for a significant amount of the information in our CRIC system. While we attempt to ensure the accuracy of our data by using multiple sources and performing quality control checks, some of the data provided to us may be inaccurate. If our data, including the data we obtain from third parties, is not current, accurate, comprehensive or reliable, we could experience reduced demand for our services or be subject to legal claims by our customers, which could adversely affect our business and financial performance. In addition, our staff use integrated standard internal processes to update our CRIC system. Any inefficiencies, errors or technical problems with related applications could reduce the quality of our data, which may result in reduced demand for our services and a decrease in our revenues.

Any frequent or recurring disruption or failure in the performance of our CRIC system could also adversely affect the quality of our services and damage our reputation and our effort to successfully market the CRIC system. Our system is vulnerable to damage or interruption as a result of power loss, telecommunications failures, computer viruses, fires, floods, earthquakes, hacking or other attempts to disrupt our systems, and similar events. Our servers, which are located in Shanghai, may also be vulnerable to break-ins, sabotage and vandalism. Our disaster recovery planning does not account for all possible scenarios. If we experience frequent or persistent system failures, the quality of our services and our reputation could be harmed. The steps we need to take to increase the reliability of our CRIC system and to maintain complete backups may be costly, which could reduce our operating margin, and such steps may not reduce the frequency or duration of system failures and service interruptions.

If we are unable to compete successfully, our financial condition and results of operations may be harmed.

We encounter intense competition in each of our business segments on a national, regional and local level. Competition in the industry is primarily based on quality of services, brand name recognition, geographic coverage, commission rates or service fees, and range of services. Compared to real estate development, providing real estate services does not require significant capital commitments. This low barrier to entry allows new competitors to enter our markets with relative ease. The new competitive landscape has placed additional demands on us to increase the amount of resources we provide to our customers and increase the quality of our services in order to retain our customers. New and existing competitors may offer competitive rates, greater convenience or superior services, which could attract customers away from us, resulting in lower revenues for our operations. Competition among real estate services companies may cause a decrease in commission rates or service fees we receive and higher costs to attract or retain talented employees.

Although we are one of the largest real estate agency companies in China, our relative competitive position varies significantly by service type and geographic area. We may not be able to continue to compete effectively, maintain our current fee arrangements or margin levels or ensure that we will not encounter increased competition. Some of our competitors, such as Hopefluent Group Holdings Limited, SYSWIN Inc and Fangdd, may have smaller aggregate businesses than us, but may be more established and have greater market presence and brand name recognition on a local or regional basis. We are also subject to competition from other large national and international firms such as World Union Real Estate Consultancy (China) Ltd., Jones Lang LaSalle, Centaline Group and SouFun Holdings Limited. These firms may have more financial or other resources than us. If we fail to compete effectively, our business operations and financial condition will suffer.

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In addition, we expect more companies to enter the real estate online service industry in China and a wider range of real estate online services to be introduced. As the real estate online services industry in China is relatively new and constantly evolving, existing or future competitors of our real estate online business may be able to better position themselves to compete as the industry matures. Currently, the largest competitor of our real estate online business at the national level is fang.com , formerly soufun.com , with which we compete on all of our real estate online business lines. We also compete with providers for online property listings, including 58.com , which acquired anjuke.com in 2015. In addition, we have faced and may continue to face competition from regionally focused websites providing regional real estate listings together with localized services, such as house365.com in the Nanjing market. Some of these websites may have a larger user base, better brand recognition or stronger market influence. It is also possible that websites with large traffic may decide to provide real estate-related listing and other online services. Moreover, regionally and locally focused websites providing regional real estate listings together with localized services have offered and may continue to offer strong competition in the regions that we operate.

Our results of operations and cash flows may fluctuate due to seasonal variations in the real estate market and the non-recurring nature of our services provided to real estate developers.

Our operating income and earnings have historically been substantially lower during the first quarter than other quarters. This results from the relatively low level of real estate activities during the winter and the Chinese New Year holiday period, which falls within the first quarter each year.

We generated a majority of our total revenues from services provided to real estate developers, and expect to continue to rely on real estate developers to generate a significant portion of our revenues for the foreseeable future. Revenues from our services to real estate developers are typically generated on a project-by-project basis. The timing of obtaining sales permits varies from project to project and is subject to uncertain and potentially lengthy delays as developers need to obtain a series of other permits and approvals related to the development before obtaining the sales permit.

It is therefore difficult to predict the interval between the time we sign the agency agreements and the time we launch the sale for the projects. We recognize commission revenue from our primary real estate agency services upon achieving the successful sale of a property unit. “Successful sale,” as defined in individual contracts with our developer clients, depends on, among other things, the delivery of the down payment and some purchasers may not deliver the down payments on time. This makes it difficult for us to forecast revenues and increases period-to-period fluctuations.

For some of our consulting projects in relation to land acquisition and property development, we agree to a fixed fee arrangement conditional upon the delivery of a final product, such as closing a land acquisition transaction or providing a market study report. Because such consulting projects may take anywhere from a month to a year to perform, the timing of recognizing revenues from such projects may cause fluctuations in our quarterly revenues and even our annual revenues. Furthermore, difficulty in predicting when these projects will begin and how long it will take for us to complete them makes it difficult for us to forecast revenues.

Revenues from our online services are closely linked with the timing of various real estate project launches, which could also fluctuate from period to period.

In addition, we have in the past entered into, and expect to continue to enter into, contracts from time to time with developers requiring us to pay deposits, which has from time to time resulted in our operating with negative cash flows or, if we fail to recover such deposits, could have a material and adverse effect on our liquidity, financial condition and results of operations.

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Our reliance on a concentrated number of real estate developers may materially and adversely affect us.

Revenues derived from services we rendered to the top ten clients in each of 2013, 2014 and 2015, accounted for approximately 17%, 15% and 14%, respectively, of our total revenues. No single client accounted for over 10% of our total revenues in 2013, 2014 or 2015. In the future, these real estate developers, all of which are independent third parties, may not continue to engage our services at the same level, or at all, or they may experience financial or other difficulties that prevent them from making timely delivery of their properties under development. Should these real estate developers terminate or substantially reduce their business with us and we fail to find alternative real estate developers to provide us with revenue-generating business, or if any of them fail to make timely delivery of their properties under development, our financial condition and results of operations may be materially and adversely affected.

We face long cycles to settle our accounts receivable and customer deposits, which could materially and adversely affect our results of operations.

As part of the industry practice, many of our developer clients elect to settle our commission and other service fees only upon the completion of the entire project or a phase of a project. Our working capital levels are therefore affected by the time lag between the time we actually make sales, bill our clients and collect the funds owed to us. This also results in large accounts receivable balances. As of December 31, 2015, our accounts receivable balance, net of allowance for doubtful accounts, totaled approximately $462.3 million. Some of our developer clients require us to pay an upfront and refundable deposit as demonstration of our financial strength and commitment to provide high quality service, and refund our customer deposits subject to certain pre-determined criteria at a date specified in the agency contracts. If any of our clients with significant outstanding accounts receivable balances were to become insolvent or otherwise unable to make payments in a timely manner, or at all, we would have to make further provisions against such accounts receivable and customer deposits, or write off the relevant amounts, either of which could adversely affect our profitability and liquidity position.

To improve the security of our accounts receivable and deposits, we sometimes enter into agreements with our developer clients whereby they agree to use properties or the right to properties with pre-sale permit license as collateral against amounts owed to us. In the event of non-payment, we would then resell the properties or the right to properties under construction for cash. The resale price is subject to market conditions and could fall short of the amounts owed to us against which these properties or rights to properties under construction are used as collateral, in which case we would need to write off a portion of our accounts receivable or deposits, which could materially and adversely affect our results of operations.

We may be subject to liabilities in connection with real estate brokerage activities.

As a licensed real estate broker, we and our licensed employees are subject to statutory obligations not to sell properties that fail to meet the statutory sales conditions or provide false statements on the conditions of any property in any advertisement. We must present clients with relevant title certificates or sales permits of the properties and the related letter of authorization. Failure to fulfill these obligations could subject us or our employees to litigation from parties who purchased, sold or leased properties we brokered. We or our employees may become subject to claims by other participants in real estate transactions claiming that we or our employees did not fulfill our statutory obligations as brokers. See “Item 4. Information on the Company—B. Business Overview—Regulation.”

If we fail to hire, train and retain qualified managerial and other employees, our business and results of operations could be materially and adversely affected.

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. Mr. Xin Zhou, our co-chairman and chief executive officer, is particularly important to our future success due to his substantial experience and reputation in the real estate industry. We do not carry, and do not intend to procure, key person insurance on any of our senior management team. The loss of the services of one or more members of our senior management team due to their departure, or otherwise, 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, and competition for such personnel of similar experience is intense. If we fail to retain our senior management, our business and results of operations could be materially and adversely affected.

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Our real estate service professionals interact with our customers on a daily basis. They are critical to maintaining the quality and consistency of our services and our brand and reputation. It is important for us to attract qualified managerial and other employees who have experience in real estate related services and are committed to our service approach. There may be 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 continuous 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 decrease 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.

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

We believe our trademarks and other intellectual property rights are critical to our success. Any unauthorized use of our trademarks and other intellectual property rights could harm our competitive advantages and business. Historically, China has not protected intellectual property rights to the same extent as the United States or the Cayman Islands, and infringement of intellectual property rights continues to pose a serious risk of doing business in China. Monitoring and preventing unauthorized use is difficult. The measures we take to protect our intellectual property rights may not be adequate. Furthermore, the application of laws governing intellectual property rights in China and abroad is uncertain and evolving, and could involve substantial risks to us. 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.

Any competitive advantage that we may derive from our CRIC system depends in large part on our protecting our proprietary rights in it. We have imposed 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. If our employees and consultants do not honor their contractual obligations and 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 “E-House” or “Leju” trademarks or their Chinese equivalents. 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 infringement claims or other claims involving intellectual property, which may be expensive to defend and may disrupt our business and operations.

We cannot be certain that our operations or any aspects of our business do not or will not infringe upon or otherwise violate patents, copyrights, trademark, trade name or other intellectual property rights held by third parties. As a result, we may be subject to claims for breach of contract, defamation, negligence, unfair competition, copyright or trademark infringement, or claims based on other theories. We have been, and from time to time in the future may be, subject to legal proceedings and claims involving the intellectual property. For instance, as part of our business, we collect information and data from various sources and distribute such information and data to others. In particular, we have collected and compiled in our CRIC system real estate-related news, articles, reports, floor plans, architectural drawings, maps and other documents and information prepared by third parties. Although we do not use the information we obtain from clients during the course of providing real estate consulting services, the same information derived from other sources may be found in our database. In such cases, we could be subject to breach of confidentiality or similar claims, whether or not having merit, by those clients. We could also be subject to claims based upon the content that is displayed on our websites or accessible from our websites through links to other websites or information on our websites supplied by third parties. Any lawsuits or threatened lawsuits in which we are involved, either as a plaintiff or as a defendant, could cost us a significant amount of time and money and distract management’s attention from operating our business. Any judgments against us in such suits, or related settlements, could have a material impact on our ability to offer or market our services, harm our reputation and have a material and adverse effect on our results of operations. If a lawsuit against us is successful, we may be required to pay damages or enter into royalty or license agreements that may not be based upon commercially reasonable terms, or we may be unable to enter into such agreements at all. As a result, the scope of information and data we offer to our clients could be reduced, or our methodologies or services could change, which may adversely affect the usefulness of our services and database, and our ability to attract and retain clients.

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

Due to the broad geographic scope of our operations and the wide variety of real estate services we provide, we are subject to numerous national, regional and local laws and regulations specific to the services we perform. Pursuant to the previous Foreign Investment Industrial Guidance Catalogue issued in 2011, foreign ownership of the real estate agency and brokerage business in China was subject to government approval. However, the latest Foreign Investment Industrial Guidance Catalogue, which became effective on April 10, 2015, has loosened the restrictions on foreign ownership of the real estate agency and brokerage business in China by removing it from the restricted category for foreign investment. Accordingly, our PRC subsidiaries or their subsidiaries no longer need approval of the Ministry of Commerce or its relevant local counterparts for the establishment of, or investment in, any new PRC subsidiary with a registered business scope of real estate agency and brokerage services. On the other hand, pursuant to the relevant regulations regarding real estate agency and brokerage businesses, a real estate broker is still required conduct a filing with the real estate administrative authority within 30 days after issuance of its business license. Among our PRC operating entities with the registered business scope of real estate brokerage business, we have completed such filings with the relevant local real estate administrative authorities for some entities, and are in the process of filings or preparing the relevant application documents for the filings with respect to the remaining 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 file records or to obtain or maintain the licenses and permits for conducting our businesses, the relevant branch office or subsidiary may be ordered to cease conducting the relevant real estate services and be subject to warning, fines and revocation of its licenses. Given the large size and scope of real estate sale transactions, both the difficulty of ensuring compliance with the multiple levels of licensing regimes and the possible loss resulting from non-compliance are significant.

In addition to the licenses for our operations, our secondary real estate brokers are required to have the requisite qualification licenses to engage in secondary real estate brokerage services. These licenses must be renewed every one or two years. We are not certain that our secondary real estate brokers can obtain or renew these licenses in a timely manner, if at all. As the State Administration for Industry and Commerce, or its local counterparts, will only issue a license to us to set up and operate a secondary real estate brokerage storefront in certain cities when the storefront has at least five licensed real estate brokers, our business could suffer if our secondary real estate brokers are unable to obtain or renew these qualification licenses in those cities.

Currently we provide access to our CRIC database on the internet mainly through Shanghai CRIC Information Technology Co., Ltd., or Shanghai CRIC, our wholly-owned subsidiary. If relevant PRC governmental authorities deem this to be provision of internet information services under applicable PRC laws and regulations, they may require Shanghai CRIC to obtain a value-added telecommunications business operating license, or ICP license, to continue to provide access to CRIC database through the internet, and Shanghai CRIC could be subject to fines and penalties for operating this business without the proper license. Moreover, because wholly foreign-owned enterprises like Shanghai CRIC are not permitted to obtain an ICP license or engage in “market survey” activities in China, we would need to restructure our operations to have some of our consolidated VIEs carry out these activities.

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Moreover, certain of our consolidated VIEs and their respective subsidiaries, are required to obtain and maintain applicable licenses or approvals from different regulatory authorities in order to provide their current services, including an ICP license. These consolidated VIEs include Beijing Leju, which operates our real estate online business, Shanghai Yi Xin, which operates our real estate e-commerce platform, Beijing Jiajujiu, which operates our online home furnishing websites, Shanghai Kushuo, which operates our real estate offline advertising business, real estate financial services and community value-added services, and Shanghai Fangjia, which operates our real estate home price rating services. We also plan to migrate the operation of community value-added services from Shanghai Kushuo to another VIE, Shanghai Weihui, in the near future. These licenses are essential to the operation of the relevant business segments and are generally subject to annual review by the relevant governmental authorities. Our consolidated VIEs and their respective subsidiaries may also be required to obtain additional licenses. For example, the release, broadcasting and transmission of graphics, video and audio programs or web links 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 internet and network transmission of video and audio programs. During operation of certain of our business segments, we post information, including graphics, web links 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 internet and network transmission of video and audio programs. 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 through our contractual arrangement with SINA. In the case that SINA does not possess the necessary licenses and permits, our video/audio programs and other content hosted by SINA are subject to the risk of being suspended by government authorities. Moreover, we cannot assure you that government would not require us to obtain these licenses separately for operation of our business even if the underlying hosting of the relevant content may be provided by a qualified third party. If we are required to apply for such licenses, we can provide no assurance that we will procure and maintain such additional licenses.

If we fail to properly obtain or maintain the licenses and permits or complete the filing and registrations required to conduct our business, our affected subsidiaries, consolidated VIEs and branch offices in China may be warned, fined, have their licenses or permits revoked, or ordered to suspend or cease providing certain services, or subjected to other penalties, including confiscation of revenues, sanctions or liabilities, which in turn could materially and adversely affect our business, financial condition and results of operations.

Our business may be adversely affected by changes in the laws and regulations governing the internet finance industry in China.

In July 2015, ten PRC central government authorities, including the PBOC, the CBRC, the Ministry of Finance, the Ministry of Public Security and the Cyberspace Administration of China, together released guidelines to set out regulatory principles for internet finance businesses, including those in the peer-to-peer lending, or P2P, industry. According to the guidelines, P2P companies should only serve as intermediaries to provide information services to borrowers and investors, and must not provide credit enhancement services or conduct fund-raising. The guidelines also outline certain regulatory propositions, which would require internet finance companies, including P2P companies, to (i) complete website filing procedures with the administrative departments overseeing telecommunications; (ii) use custody accounts set up with PBOC-approved banks to hold lending capital, and engage an independent auditor to audit such accounts and publish audit results to customers; (iii) improve the disclosure of operational and financial information, provide sufficient risk disclosure, and set up thresholds for qualified investors to provide better protections to investors; (iv) enhance online security management to protect customers’ personal and transactional information; and (v) take measures against money laundering and other financial crimes. Relevant authorities are in the process of implementing detailed rules for the P2P industry, but the content and timing of such new rules, which may impose licensing, reporting or capital adequacy ratio requirements or provide for other requirements for market participants, are uncertain. We cannot assure you that all aspects of our internet fiancne business are in full compliance with the guidelines and the other principles that have been announced in recent years.

Moreover, new laws and regulations may be adopted to establish detailed requirements and/or to require certain licenses or permits for P2P business. Any enhancement in regulatory scrutiny over the industry may adversely affect our business. In addition, if future PRC regulations require that we obtain certain additional licenses or permits or change current business model in order to continue to conduct our internet finance operations, there can be no assurance that we will be able to obtain such licenses or permits or make certain changes to our business model in a timely fashion, or at all. If any of the above situations occurs, our financial condition and business prospects could be adversely affected.

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Failure to maintain effective internal controls over financial reporting could cause us to inaccurately report our financial result or fail to prevent fraud and have a material and adverse effect on our business, results of operations and the trading price of our ADSs.

We are subject to the reporting obligations under U.S. securities laws. Section 404 of the Sarbanes-Oxley Act of 2002 and related rules require public companies to include a report of management on their internal control over financial reporting in their annual reports. This report must contain an assessment by management of the effectiveness of a public company’s internal control over financial reporting. In addition, an independent registered public accounting firm for a public company must attest to and report on management’s assessment of the effectiveness of the company’s internal control over financial reporting. We sometimes hire a professional consultant to assist us in such efforts. Our efforts to implement standardized internal control procedures and develop the internal tests necessary to verify the proper application of the internal control procedures and their effectiveness are a key area of focus for our board of directors, our audit committee and senior management.

Our management has concluded that our internal control over financial reporting was effective as of December 31, 2015. See “Item 15. Controls and Procedures.” Our independent registered public accounting firm has issued an attestation report, which concludes that our internal control over financial reporting was effective in all material aspects as of December 31, 2015. However, if we fail to maintain effective internal control over financial reporting in the future, our management and our independent registered public accounting firm may not be able to conclude that we have effective internal control over financial reporting at a reasonable assurance level. Moreover, effective internal controls over financial reporting are necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, our failure to achieve and maintain effective internal controls over financial reporting could in turn result in the loss of investor confidence in the reliability of our financial statements and negatively impact the trading price of our ADSs. Furthermore, we have incurred and anticipate that we will continue to incur considerable costs, management time and other resources in an effort to continue to comply with Section 404 and other requirements of the Sarbanes-Oxley Act.

Security breaches, computer viruses, “denial of service” and computer hacking attacks could harm our real estate information and online business.

As we further develop our real estate information and online services and further tap into the real estate e-commerce business, we are subject to an increasing risk of security breaches, computer viruses, interruptions of access through the use of “denial of service” attacks, computer hacking or similar attacks. Although we have not experienced a security breach in the past, such attacks may occur to our CRIC system and other aspects of our real estate online operations in the future. Any security breach caused by hacking or other attacks, which involve efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions, loss, corruption or unavailability of data, software, hardware or other computer equipment, and the inadvertent transmission of computer viruses could harm our real estate information and online businesses. Any loss or tampering of our CRIC system or any failure to maintain availability, performance, reliability and security of our network infrastructure or real estate information and online services to the satisfaction of our customers may harm our reputation and our ability to retain existing customers and attract new ones.

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 the outbreak of H7N9 bird flu, H1N1 swine influenza, avian influenza, severe acute respiratory syndrome, or SARS, Ebola or another epidemic. Any such occurrence in China could severely disrupt our business operations and adversely affect our results of operations.

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We have in the past, and may in the future, sell or distribute interests in one or more of our subsidiaries.

As part of our funding exercises or attempts to increase the liquidity of shares in our subsidiaries, we may sell all or part of our interests in one or more of our subsidiaries through a listing of the shares of such subsidiaries or the sale to third parties of all or a portion of our equity interests in such subsidiaries. For example, we sold a 15% equity interest in Leju to Tencent in March 2014, and Leju completed its initial public offering of Leju ADSs and a concurrent private placement of Leju ordinary shares to Tencent in April 2014. As a result of these transactions, our equity interest in Leju was reduced to 75.5% as of April 30, 2014. Furthermore, we were authorized by our board of directors in December 2014 and completed on January 15, 2015 a partial spin-off of Leju by distributing Leju shares to our shareholders, after which our equity interest in Leju was reduced to approximately 70%. Separately, in April 2015, we reached an agreement with Jupai Holdings Limited, or Jupai, a third-party wealth management service provider in China, to transfer to Jupai all equity interests in Scepter Pacific Limited, or Scepter, our 51% owned subsidiary operating our real estate investment fund management business unit, in exchange for Jupai’s ordinary shares. The transaction was closed upon the completion of Jupai’s initial public offering in July 2015.

Following any such sale or distribution of all or part of our interest in a subsidiary, our equity interest in the assets held by such the subsidiary would be reduced by a corresponding amount. Although we would receive the proceeds of any sale of equity interests in a subsidiary, there can be no assurance that such proceeds will accurately reflect the value of such subsidiary to our business, that the price of our ADSs will not fall as a result of such sale or distribution or that we will not be adversely affected by any potential reduction in our consolidated income or cash flows. Furthermore, there can be no assurance that the proceeds of any sale of equity interests in a subsidiary will be reinvested in our business and that the benefits of such proceeds will accrue to holders of our ordinary shares and our ADSs to the extent of the benefits generated by the sold shares or at all.

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.

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. 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, which could have a material adverse effect on our business, financial condition and results of operations.

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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.

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. The transition period ended on February 29, 2016, and those PRC subsidiaries are taking steps to decrease the number of seconded employees. If the relevant PRC subsidairies 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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Risks Related to Our Corporate Structure

If the PRC government finds that the agreements that establish the structure for operating our advertising services and internet information services 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.

E-House (China) 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 industry and the uncertainty over the administrative practice regarding advertising industries, we conduct part of our business through contractual arrangements with our affiliated PRC entities. We rely on Beijing Leju and its subsidiaries to operate our real estate online business and real estate advertising service business. We use Shanghai Yi Xin to operate our real estate e-commerce platform, Beijing Jiajujiu and its subsidiaries to operate our online home furnishing websites, Shanghai Kushuo and its subsidiaries to operate our real estate offline advertising business, real estate financial services and community value-added services, and Shanghai Fangjia to operate our real estate home price rating services. These VIEs and their relevant subsidiaries hold the licenses and approvals that are essential for our business operations. In addition, we plan to migrate the operation of community value-added services from Shanghai Kushuo to Shanghai Weihui, which will be required to hold the relevant licenses and approvals.

We have entered into, through our majority-owned subsidiaries, Shanghai SINA Leju Information Technology Co., Ltd., or Shanghai SINA Leju, Shanghai Yi Yue Information Technology Co., Ltd., or Shanghai Yi Yue, Beijing Maiteng Fengshun Science and Technology Co., Ltd., or Beijing Maiteng, Shanghai Yifang Software Co., Ltd., or Shanghai Yifang, and Shanghai Weidian Information Technology Co., Ltd., or Shanghai Weidian, a series of contractual arrangements with the VIEs operating in the internet and/or advertising industries and their respective shareholders. These contractual arrangements enable us to (1) have power to direct the activities that most significantly affect the economic performance of the VIEs and their subsidiaries; (2) receive substantially all of the economic benefits from the VIEs and their subsidiaries in consideration for the services provided by our PRC subsidiaries; and (3) have an exclusive option to purchase all or part of the equity interests in the VIEs, when and to the extent permitted by PRC law, or request any existing shareholder of the VIEs to transfer all or part of the equity interest in the 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 “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Contractual Agreements with Our VIEs.”

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, any of the relevant VIEs, or any of their subsidiaries 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 Ministry of Industry and Information Technology, which regulates internet information service companies, would have broad discretion in dealing with such violations, including:

·                   revoking the business and operating licenses of our PRC subsidiaries and affiliates;

·                   discontinuing or restricting our PRC subsidiaries’ and affiliates’ operations;

·                   imposing fines or confiscating the income of our PRC subsidiaries or affiliates;

·                   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; or

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

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The imposition of any of these penalties could have a material and adverse effect on our ability to conduct our business and adversely affect our financial condition and results of operations. If any of these penalties results in our inability to direct the activities of any of the relevant VIEs that most significantly impact its economic performance, and/or our failure to receive the economic benefits from any of the VIEs, 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 our VIEs 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 our VIEs and their respective shareholders for a portion of our business operations. For descriptions of these contractual arrangements, see “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Contractual Agreements with Our VIEs.” These contractual arrangements may not be as effective as direct ownership in providing us with control over the VIEs. These contractual arrangements are governed by PRC law and provide for the resolution of disputes through either arbitration or litigation 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 the VIEs, and our ability to conduct our business may be negatively affected.

In 2013, 2014 and 2015, our VIEs and their respective subsidiaries contributed in aggregate approximately 44%, 54% and 55% 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 the VIEs and their respective subsidiaries, and our ability to conduct our business may be negatively affected, and we may not be able to consolidate the financial results of our VIEs and their respective subsidiaries 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, namely Beijing Leju, Shanghai Yi Xin, Beijing Jiajujiu, Shanghai Kushuo, Shanghai Fangjia and Shanghai Weihui. These individuals may have conflicts of interest with us. For example, Beijing Leju is 80% owned by Mr. Xudong Zhu, the head of our offline advertising operations, and 20% owned by Mr. Zuyu Ding, our co-president. Neither Mr. Zhu nor Mr. Ding have a significant equity stake in our company. Conflicts of interests between their dual roles as shareholders of Beijing Leju and as officers of our company may arise. 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 Beijing Leju and its subsidiaries to breach or refuse to renew the existing contractual arrangements that allow us to effectively control Beijing Leju and its subsidiaries and receive economic benefits from them. Currently, we do not have arrangements to address potential conflicts of interest between Mr. Zhu or Mr. Ding 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. In addition, each of Shanghai Yi Xin and Beijing Jiajujiu is 70% owned by Mr. Zuyu Ding and 30% owned by Mr. Weijie Ma, an employee of our company, Shanghai Kushuo is 50% owned Mr. Zuyu Ding and 50% owned by Mr. Weijie Ma, Shanghai Fangjia is 50% owned by Mr. Zuyu Ding and 50% owned by Ms. Yan Zhang, an employee of our company, and Shanghai Weihui is 80% owned by Mr. Xudong Zhu and 20% owned by Mr. Xi Yang, an employee of our company. These individual shareholders do not have a significant equity stake in our company, and they may potentially have similar conflicts of interests as described above. If we cannot resolve any conflicts of interest or disputes between us and the individual shareholders of our consolidated VIEs, we would have to rely on legal proceedings, which could result in disruption of our business and as to the outcome of which there is substantial uncertainty.

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Our ability to enforce the equity pledge agreements between us and the shareholders of any of our VIEs may be subject to limitations based on PRC laws and regulations.

Pursuant to the equity pledge agreements relating to our consolidated VIEs, the shareholders of the VIEs pledge their equity interest in the VIEs to our subsidiaries to secure their and the relevant 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 VIE in an auction or private sale and remit the proceeds to our PRC subsidiaries, 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 VIE. We consider it very unlikely that the public auction process would be undertaken since, in an event of default, our preferred approach is to ask our PRC subsidiary that is a party to the exclusive call option agreement with the VIE’s shareholder, to designate another PRC person or entity to acquire the equity interest in the 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 VIE. The equity pledge agreements with the shareholders of the 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 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 as 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 VIEs and their subsidiaries for the benefit of us or our PRC subsidiaries, although the VIEs grant our PRC subsidiaries options to purchase the assets of the VIEs and their equity interests in their subsidiaries under the exclusive call option agreement.

Contractual arrangements we have entered into with our VIEs may be subject to scrutiny by the PRC tax authorities and a finding that we or any of our VIEs 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 our VIEs do not represent an arm’s-length price and adjust the taxable income of the VIEs or their subsidiaries 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 the VIEs or their subsidiaries, 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 VIEs for underpayment of taxes. Our consolidated net income may be materially and adversely affected if our VIEs’ tax liabilities increase or if they are found to be subject to late payment fees or other penalties.

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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 operations 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. 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 the borrowing cost for buyers who rely on mortgage loans to finance their real estate purchase. These could negatively affect the total demand for real estate purchase 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.

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

We conduct our business primarily through our subsidiaries and 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. Since 1979, PRC legislation and regulations have significantly 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.

Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of draft PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.

The Ministry of Commerce published a discussion draft of the proposed Foreign Investment Law in January 2015 aiming to, upon its enactment, replace the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations. The draft Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. The Ministry of Commerce is currently soliciting comments on this draft and substantial uncertainties exist with respect to its enactment timetable, interpretation and implementation. The draft Foreign Investment Law, if enacted as proposed, may materially impact the viability of our current corporate structure, corporate governance and business operations in many aspects.

Among other things, the draft Foreign Investment Law expands the definition of foreign investment and introduces the principle of “actual control” in determining whether a company is considered a foreign-invested enterprise, or an FIE. The draft Foreign Investment Law specifically provides that entities established in China but “controlled” by foreign investors will be treated as FIEs, whereas an entity set up in a foreign jurisdiction would nonetheless be, upon market entry clearance by the Ministry of Commerce, treated as a PRC domestic investor provided that the entity is “controlled” by PRC entities and/or citizens. In this connection, “control” is broadly defined in the draft law to cover the following summarized categories: (i) holding 50% or more of the voting rights or similar equity interest of the subject entity; (ii) holding less than 50% of the voting rights or similar equity interest of the subject entity but having the power to secure at least 50% of the seats on the board or other equivalent decision making bodies, or having the voting power to exert material influence on the board, the shareholders’ meeting or other equivalent decision making bodies; or (iii) having the power to exert decisive influence, via contractual or trust arrangements, over the subject entity’s operations, financial matters or other key aspects of business operations. Once an entity is determined to be an FIE, and its investment amount exceeds certain thresholds or its business operation falls within a “negative list,” to be separately issued by the State Council in the future, market entry clearance by the MOC or its local counterparts will be required. Otherwise, all foreign investors may make investments on the same terms as domestic investors without being subject to additional approval from the government authorities as mandated by the existing foreign investment legal regime.

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The “variable interest entity” structure has been adopted by many PRC-based companies, including us, to obtain necessary licenses and permits in the industries that are currently subject to foreign investment restrictions in China. See “ Risks Related to Our Corporate Structure. ” Under the draft Foreign Investment Law, variable interest entities that are controlled via contractual arrangement would also be deemed as FIEs, if they are ultimately “controlled” by foreign investors. Therefore, for any companies with a “variable interest entity” structure in an industry category that is on the “negative list,” the “variable interest entity” structure may be deemed legitimate only if the ultimate controlling person(s) is/are of PRC nationality (either PRC state-owned enterprises or agencies or PRC citizens). Conversely, if the actual controlling person(s) is/are of foreign nationalities, then the variable interest entities will be treated as FIEs and any operation in the industry category on the “negative list” without market entry clearance may be considered as illegal.

It is likely that we would not be considered as ultimately controlled by Chinese parties, as our record shareholders in the U.S. held approximately 55% of our total voting power as of March 31, 2016. The draft Foreign Investment Law has not taken a position on what actions will be taken with respect to the existing companies with a “variable interest entity” structure, whether or not these companies are controlled by Chinese parties, while it is soliciting comments from the public on this point. Moreover, it is uncertain whether the real estate service industry, in which our VIEs operate, will be subject to the foreign investment restrictions or prohibitions set forth in the “negative list” to be issued. If the enacted version of the Foreign Investment Law and the final “negative list” mandate further actions, such as a market entry clearance or certain restructuring of our corporate structure and operations, to be completed by companies with existing “variable interest entity” structure like us, we face substantial uncertainties as to whether these actions can be timely completed, or at all, and our business and financial condition may be materially and adversely affected.

The draft Foreign Investment Law, if enacted as proposed, may also materially impact our corporate governance practice and increase our compliance costs. For instance, the draft Foreign Investment Law imposes stringent ad hoc and periodic information reporting requirements on foreign investors and the applicable FIEs. Aside from investment implementation report and investment amendment report that are required at each investment and alteration of investment specifics, an annual report is mandatory, and large foreign investors meeting certain criteria are required to report on a quarterly basis. Any company found to be non-compliant with these information reporting obligations may potentially be subject to fines and/or administrative or criminal liabilities, and the persons directly responsible may be subject to criminal liabilities.

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

The PRC government imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency out of China. Restrictions on currency exchanges between RMB 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 RMB. 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 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, RMB 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 RMB 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.

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Conversion of RMB into foreign currencies and of foreign currencies into RMB, for payments relating to “capital account transactions,” which principally include investments and loans, 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 RMB 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.

Fluctuation in the value of the RMB may have a material and adverse effect on your investment.

The value of the RMB against the U.S. dollar and other currencies is affected by changes in China’s political and economic conditions and by China’s foreign exchange policies, among other things. In July 2005, the PRC government changed its decades-old policy of pegging the value of the RMB to the U.S. dollar, and the RMB appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the RMB and the U.S. dollar remained within a narrow band. Since June 2010, the RMB has fluctuated against the U.S. dollar, at times significantly and unpredictably. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future.

As our costs and expenses are mostly denominated in RMB, the appreciation of the RMB against the U.S. dollar would increase our costs in U.S. dollar terms. In addition, as our operating subsidiaries and VIEs in China receive revenues in RMB, any significant depreciation of the RMB 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 RMB for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we receive from the conversion. Conversely, if we decide to convert our RMB 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 RMB 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 RMB against the U.S. dollar could have a material and adverse effect on the market price of our ADSs and your investment. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Foreign Exchange Risk.”

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.

The Notice on Issues Relating to the Administration of Foreign Exchange in Fund-Raising and Round-Trip Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or SAFE Circular 75, requires PRC residents to register with the relevant local branch of SAFE before establishing or controlling any company outside of China, referred to as an offshore special purpose company, for the purpose of raising funds from overseas to acquire or exchange the assets of, or acquiring equity interests in, PRC entities held by such PRC residents and to update such registration in the event of any significant changes with respect to that offshore company. SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced the SAFE Circular 75. SAFE Circular 37 requires PRC residents to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle”. The term “control” under SAFE Circular 37 is broadly defined as the operation rights, beneficiary rights or decision-making rights acquired by the PRC residents in the offshore special purpose vehicles by such means as acquisition, trust, proxy, voting rights, repurchase, convertible bonds or other arrangements. SAFE Circular 37 further requires amendment to the registration in the event of any changes with respect to the basic information of the special purpose vehicle, such as changes in a PRC resident individual shareholder, name or operation period; or any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. If the shareholders of the offshore holding company who are PRC residents do not complete their registration with the local SAFE branches, the PRC subsidiaries may be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to the offshore company, and the offshore company may be restricted in its ability to contribute additional capital to its PRC subsidiaries. Moreover, failure to comply with SAFE registration and amendment requirements described above could result in liability under PRC law for evasion of applicable foreign exchange restrictions.

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We have requested our beneficial owners who are PRC residents to make the necessary applications, filings and amendments required by SAFE. However, 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.

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 Stock Incentive Plan of Overseas Publicly-Listed Company, or the Stock Option Rules, which terminated the Application Procedures of Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Ownership Plan or Stock Option Plan of Overseas Publicly-Listed Company 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 and managed by the PRC agent before distribution to such participants. We and our PRC employees who have been granted stock options are subject to this rule and we have registered our existing employee stock ownership plan and stock option plan with SAFE Shanghai Branch. However, if there is any change to our existing employee stock ownership plan or stock option plan, we cannot assure you that we and our PRC optionees will be able to amend such registration in a timely manner, or at all. If we or our PRC optionees fail to comply with these regulations, we or our PRC optionees may be subject to fines and legal sanctions. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations on Employee Share Options.”

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PRC regulations relating to acquisitions in China require us to obtain certain approvals from the Ministry of Commerce and the failure to obtain such approval 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 Regulation, 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 Regulation 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.

In 2008, for the purpose of a series of our acquisitions of advertising services and future businesses that may otherwise be restricted for foreign investments, we, through Shanghai CRIC, entered into contractual arrangements with Tian Zhuo, our then variable interest entity, and its shareholder, which provide us with substantial ability to control Tian Zhuo. After the transfer of 10% equity interests in Tian Zhuo from Mr. Xin Zhou to Mr. Xudong Zhu in July 2009, we entered into a series of new or amended contractual arrangements with Tian Zhuo and its shareholders which continue to provide us with substantial ability to control Tian Zhuo. In October 2012, the shareholders of Tian Zhuo transferred all of their equity interests in Tian Zhuo to Shanghai Lerong Information Technology Co., Ltd., a subsidiary of Beijing Leju, so that Tian Zhuo became a wholly owned subsidiary of Beijing Leju, and the contractual arrangement with Tian Zhuo was accordingly terminated. In December 2013, Shanghai Lerong Information Technology Co., Ltd. transferred all of its equity interests in Tian Zhuo to Shanghai Kushuo, so that Tian Zhuo has become a wholly owned subsidiary of Shanghai Kushuo. We have also entered into contractual arrangements with each of Beijing Leju, Shanghai Yi Xin, Beijing Jiajujiu, Shanghai Kushuo, Shanghai Fangjia and Shanghai Weihui and their respective shareholders, which provide us with substantial ability to control each of these VIEs. See “Item 7. Major Shareholders and Related Party Transactions—B. 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 Chinese 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 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 believe that our business is not in an industry related to national security but 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.

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Our holding company relies principally on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements it may have, and any limitation on the ability of our PRC subsidiaries to make payments to our holding company could have a material and adverse effect on its ability to fund our operations, make investments or acquisitions, or pay dividends.

E-House is a holding company, and it relies principally on dividends from its PRC subsidiaries to fund any cash and financing requirements it may have, including the funds necessary to pay dividends and other cash distributions to the shareholders and service any debt it may incur. Current PRC regulations permit our PRC subsidiaries to pay dividends 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 a certain amount of its after-tax profits each year, if any, to fund certain statutory reserves. These reserves are not distributable as cash dividends. Furthermore, if our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to E-House. In addition, the PRC tax authorities may require us to adjust our taxable income under the contractual arrangements we currently have in place in a manner that would materially and adversely affect our PRC subsidiaries’ ability to pay dividends and other distributions to E-House. Any limitation on the ability of our PRC subsidiaries to distribute dividends or other payments to E-House could materially and adversely limit its ability to fund our business operations, make investments or acquisitions that could be beneficial to our businesses or pay dividends.

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. Any loans to our PRC subsidiaries are subject to registrations with relevant governmental authorities in China. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations on Loans to and Direct Investment in PRC Entities by Offshore Holding Companies.”

We may also decide to finance our subsidiaries by means of capital contributions. According to the relevant PRC regulations on foreign-invested enterprises in China, depending on the amount of total investment, capital contributions to foreign-invested enterprises in China are subject to approval by the PRC Ministry of Commerce or its local branches. We may not obtain these government approvals on a timely basis, if at all, with respect to future capital contributions by us to our subsidiaries. If we fail to receive such approvals, our ability to capitalize our PRC operations may be negatively affected, which could 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, 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. Shanghai CRIC was also recognized as a qualified software enterprise in September 2008 and was further approved by the local tax authority in May 2010 and, thus, it is likewise eligible to be exempted from income tax for 2009, followed by a 50% reduction in income tax from 2010 through 2012. Another majority-owned subsidiary Shanghai Fangxin Information Technology Co. Ltd., or Shanghai Fangxin, was recognized as a qualified software enterprise in February 2012 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. Furthermore, the PRC Enterprise Income Tax Law and its implementation rules permit certain “high and new technology enterprises strongly supported by the State” which hold independent ownership of core intellectual property and simultaneously meet a list of other criteria, financial or nonfinancial, as stipulated in the implementation rules, to enjoy a reduced 15% enterprise income tax rate. The State Administration of Taxation, the Ministry of Science and Technology and the Ministry of Finance jointly issued the Administrative Rules for the Certification of High and New Technology Enterprises delineating the specific criteria and procedures for the “high and new technology enterprises” certification in April 2008. Each of Shanghai CRIC and Shanghai SINA Leju was approved as a “high and new technology enterprise” and is therefore subject to a 15% preferential income tax rate for the years from 2013 through 2014. In March, 2014, Shanghai CRIC was approved as a key software enterprise and is therefore subject to a 10% preferential income tax rate for the years from 2013 through 2014. In March 2015, Shanghai CRIC was approved as a “high and new technology enterprise” and is therefore subject to a 15% preferential income tax rate for the years from 2015 through 2016. Shanghai SINA Leju renewed its qualification of “high and new technology enterprise” in 2015 and is entitled to enjoy a favorable statutory tax rate of 15% from 2015 through 2017. However, qualified software enterprise status and “high and new technology enterprise” status is subject to annual review. Shanghai SINA Leju, Shanghai CRIC and Shanghai Fangxin are in the process of completing the annual review for 2015. If Shanghai SINA Leju, Shanghai CRIC or Shanghai Fangxin fails to maintain software enterprise status in any annual review, or Shanghai CRIC and Shanghai SINA Leju fails to maintain its high and new 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.

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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.

Our business benefits from tax-related government incentives and discretionary policies. Expiration of, or changes to, these incentives or policies could have a material and adverse effect on our results of operations.

Since 2009, Shanghai CRIC has been granted certain governmental financial subsidies by the Zhabei District government in Shanghai. Local governments may decide to reduce or eliminate subsidies at any time. In addition, we cannot assure you of the continued availability of the government incentives and subsidies currently enjoyed by some of our PRC subsidiaries and consolidated VIEs. Furthermore, 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. We are required under U.S. GAAP to accrue taxes for these contingencies. Any change in accounting requirements for reporting tax contingencies, any reduction or elimination of subsidies or any retroactive imposition of higher taxes could have an adverse effect on our results of operations.

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 and interest distributed to our investors may be subject to PRC withholding taxes under the PRC Enterprise Income Tax Law and our investors may be subject to PRC withholding tax on the transfer of our ordinary shares or ADSs.

Under the PRC Enterprise Income Tax 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. In 2015, our PRC subsidiary Shanghai CRIC distributed RMB600 milion ($92.4 million) to us, and RMB60 million ($9.2 million) of withholding tax was paid as a result. We also intended to have some another PRC subsdiaries distribute their earnings and $26.8 million of withholding tax was accrued.

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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 PRC Enterprise Income Tax 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 PRC Enterprise Income Tax 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 PRC Enterprise Income Tax 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 PRC Enterprise Income Tax 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 PRC Enterprise Income Tax Law to a PRC resident recipient. However, as there is still uncertainty as to how the PRC Enterprise Income Tax 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 interest payable to non-resident enterprise holders of the notes and 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 PRC Enterprise Income Tax Law. Additionally, we would incur an incremental PRC 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.

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Foreign ownership of the real estate agency and brokerage business in China is restricted under PRC regulations. This may limit our ability to establish new PRC operating entities or to increase registered capital of existing entities in the future.

We are a Cayman Islands company and a foreign person under PRC law. We currently mainly use E-House City Rehouse Real Estate Broker (Shanghai) Co., Ltd., or City Rehouse, and its subsidiaries to provide support for our real estate 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 previous Foreign Investment Industrial Guidance Catalogue issued in 2011, foreign ownership of the real estate agency and brokerage business in China was subject to government approval. City Rehouse had not obtained approval from the competent local branch of the Ministry of Commerce in connection with the establishment of, or investment in, its subsidiaries with a registered business scope of real estate brokerage business, although 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.

The latest Foreign Investment Industrial Guidance Catalogue, which became effective on April 10, 2015, has loosened the restrictions on foreign ownership of the real estate agency and brokerage business in China by removing it from the restricted category for foreign investment. Under the new catalogue, City Rehouse no longer needs the approval of the Ministry of Commerce or its relevant local counterparts for the establishment of, or investment in any new PRC subsidiary with a registered business scope of real estate agency and brokerage services. However, we cannot assure you that the historical non-compliance of City Rehouse not obtaining the requisite government approval would not be found as a violation by relevant PRC government authorities, in which case the relevant subsidiaries would be subject to warnings, fines or even revocation of their licenses.

We face uncertainty with respect to indirect transfer of equity interests in PRC resident enterprises or other assets attributed to a PRC establishment of a non-PRC company, or immovable properties located in China owned 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.

In February 2015, the State Administration of Taxation, or the SAT, issued the Notice on Several Issues Concerning Enterprise Income Tax for Indirect Share Transfer by Non-PRC Resident Enterprises, or SAT Bulletin 7, which replaced previous rules under the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises, or SAT Circular 698, issued by the SAT in 2009. Pursuant to SAT Bulletin 7, an “indirect transfer” of assets of a PRC resident enterprise, including equity interests in a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized and treated as a direct transfer of PRC taxable assets, if such transaction arrangement lacks a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax. According to SAT Bulletin 7, “PRC taxable assets” include assets attributed to an establishment in China, immovable properties located in China, and equity interests in PRC resident enterprises, in respect of which gains from their transfer by a direct holder, being a non-PRC resident enterprise, would be subject to PRC enterprise income taxes. In respect of an indirect transfer of assets of a PRC establishment, the resulting gain is to be included with the enterprise income tax filing of the PRC establishment or place of business being transferred, and would consequently be subject to PRC enterprise income tax at a rate of 25%. If the underlying transfer relates to immovable properties located in China or to equity interests in a PRC resident enterprise, which is not related to a PRC establishment or place of business of a non-resident enterprise, a PRC enterprise income tax at 10% would apply, subject to preferential tax treatment under applicable tax treaties or similar arrangements, if any, and the party who is obligated to make payments for the transfer has a withholding obligation. Although SAT Bulletin 7 does not apply to share transfers of publicly traded companies, there is uncertainty as to the application of SAT Bulletin 7 or previous rules under SAT Circular 698. We and our non-PRC resident investors may be at risk of being subject to tax filing or withholding obligations under SAT Bulletin 7 and we may be required to expend valuable resources to comply with SAT Bulletin 7 or to establish that we should not be taxed under SAT Bulletin 7.

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We cannot assure you that the PRC tax authorities will not, at their discretion, adjust any capital gains and impose tax return filing and withholding or tax payment obligations on the transferors and transferees, while our PRC subsidiaries may be requested to assist in the filing. 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.

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 our annual reports 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 the PCAOB, is required by the laws of the United States to undergo regular inspections by the 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 the 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 the PCAOB.

Inspections of other firms that the 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 the 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 the 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 certain 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 Exchange Act.

Starting in 2011 the PRC affiliates of the ‘‘big four’’ accounting firms (including our independent registered public accounting firm) were affected by a conflict between U.S. and PRC law.  Specifically, for certain U.S.-listed companies operating and audited in mainland China, the SEC and the PCAOB sought to obtain from the PRC firms access to their audit work papers and related documents.  The firms were, however, advised and directed that under PRC law they could not respond directly to the U.S. regulators on those requests, and that requests by foreign regulators for access to such papers in China had to be channeled through the China Securities Regulatory Commission, or the CSRC.

In late 2012, this impasse led the SEC to commence administrative proceedings under Rule 102(e) of its Rules of Practice and also under the Sarbanes-Oxley Act of 2002 against the PRC-based accounting firms (including our independent registered public accounting firm).  A first instance trial of the proceedings in July 2013 in the SEC’s internal administrative court resulted in an adverse judgment against the firms.  The administrative law judge proposed penalties on the firms including a temporary suspension of their right to practice before the SEC, although that proposed penalty did not take effect pending review by the SEC.  On February 6, 2015, before SEC’s review had taken place, the firms reached a settlement with the SEC.  The settlement requires the firms to follow detailed procedures to seek to provide the SEC with access to PRC-based accounting firms’ audit documents via the CSRC. If they fail to meet specified criteria, the SEC retains the authority to impose a variety of additional remedial measures on the firms depending on the nature of the failure.  Remedies for any future noncompliance could include, as appropriate, an automatic six-month bar on a single firm’s performance of certain audit work, commencement of a new proceeding against a firm, or in extreme cases the resumption of the current proceeding against all four firms.

In the event that the SEC restarts the administrative proceedings, 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 Exchange Act, including possible delisting. Moreover, any negative news about any such future proceedings against these audit firms may cause investor uncertainty regarding PRC-based, U.S.-listed companies and the market price of our ADSs may be adversely affected.

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If our independent registered public accounting firm were denied, even temporarily, the ability to practice before the SEC and we were unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determined not to be in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to the delisting of our ordinary shares from the NYSE or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the United States.

Risks Related to Our ADSs

Potential uncertainty involving the going private transaction may adversely affect our business and the market price of our ADSs.

On April 15, 2016, we entered into a merger agreement with E-House Holdings Ltd., or the Parent, and E-House Merger Sub Ltd., or the Merger Sub, a wholly-owned subsidiary of the Parent. Subject to satisfaction of the terms and conditions under the merger agreement, at the effective time of the merger, the Merger Sub will merge with and into our company, with our company continuing as the surviving corporation and a wholly-owned subsidiary of the Parent. Each of our ordinary shares (including ordinary shares represented by ADSs) issued and outstanding immediately prior to the effective time of the merger will be cancelled and cease to exist in exchange for the right to receive US$6.85 per share or ADS in cash, without interest and net of any applicable withholding taxes, except for (i) ordinary shares or ADSs beneficially owned by the buyer group, (ii) ordinary shares or ADSs owned by us or any of our subsidiaries, (iii) ordinary shares or ADSs held by our ADS depositary and reserved for issuance and allocation pursuant to our share incentive plan, and (iv) ordinary shares owned by holders who have validly exercised and not effectively withdrawn or lost their rights to dissent from the merger.

The merger is subject to customary closing conditions including the approval of the merger agreement by an affirmative vote of holders of shares representing at least two-thirds of the voting power of the shares present and voting in person or by proxy at a meeting of our shareholders which will be convened to consider the approval of the merger agreement and the merger. As of the date of the merger agreement, the buyer group beneficially owned, in the aggregate, approximately 44.9% of the issued and outstanding ordinary shares (including ordinary shares represented by ADSs). Pursuant to a voting agreement entered into between the buyer group and the Parent, the members of the buyer group have agreed to vote all the ordinary shares and ADSs beneficially owned by them in favor of the authorization and approval of the merger agreement and the merger. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—‘Going Private’ Transaction.”

The merger, whether or not consummated, presents a risk of diverting management focus, employee attention and resources from other strategic opportunities and from operational matters. In addition, we are subject to various restrictions under the merger agreement on the conduct of our business prior to the completion of the merger, which may delay or prevent us from undertaking business opportunities that may arise pending completion of the merger. Also, the development of the merger, such as completion of the merger or termination of the merger agreement, may increase volatility of the trading price of our ADSs.

The market price for our ADSs has been and may continue to be highly volatile.

In 2015, the closing price of our ADSs on the New York Stock Exchange, or the NYSE, varied from a high of $8.48 to a low of $4.86. The market price for our ADSs has been and may continue to be highly volatile and subject to wide fluctuations in response to factors including the following:

·                   actual or anticipated fluctuations in our quarterly results of operations;

·                   changes in financial estimates by securities research analysts;

·                   changes in government real estate policies or conditions in the real estate industry in China;

·                   changes in the economic performance or market valuations of other real estate services companies;

·                   announcements by us or our competitors of new products, acquisitions, strategic investments or partnerships, joint ventures, or capital commitments or capital markets transactions;

·                   addition or departure of key personnel;

·                   fluctuations of exchange rates between the RMB and U.S. dollar or other foreign currencies;

·                   sales or repurchases of our ADSs or ordinary shares; and

·                   general economic or political conditions in China

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The securities markets in the United States, China and elsewhere have experienced significant price and volume fluctuations that are not related to the operating performance of particular companies, particularly in recent years. The securities of some China-based companies that have listed their securities in the United States 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 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. Since 2011, some China-based companies became targets of short sellers. Any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure or other matters of other Chinese companies may also negatively affect the attitudes of investors towards Chinese companies in general, including us, regardless of whether we have conducted any inappropriate activities. Although we have confidence in our corporate governance practice and internal control over financial reporting, we cannot assure you that we will not be subject to such attack. Any negative news or perceptions about our corporate governance or accounting practice in the future, regardless of its merits, will negatively affect the trading performance of our ADSs. In addition, the global financial crisis and the ensuing economic recessions in many countries have contributed and may continue to contribute to extreme volatility in the global stock markets. These broad market and industry fluctuations may adversely affect the market price of our ADSs.

Substantial future sales of our ADSs in the public market, or the perception that these sales could occur, could cause the price of our ADSs to decline.

Additional sales of our ADSs in the public market, or the perception that these sales could occur, could cause the market price of our ADSs to decline. As of March 31, 2016, we had 148,834,830 ordinary shares issued, including the 4,843,362 ordinary shares that had been issued to our depositary and reserved for future grants under our share incentive plan, and 29,333,740 ordinary shares were held by SINA. Pursuant to an Investor Rights Agreement we entered into with SINA in August 2012, we agreed to provide SINA with certain registration rights in respect of our ordinary shares and ADSs owned by SINA, subject to certain limitations.  See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Agreements with SINA—Investor Rights Agreement with SINA.” In addition, a total of 31,500,000 ordinary shares held by certain shareholders affiliated with our management are currently subject to a share charge for the benefit of a third-party lender which has entered into a margin loan facility with one of these shareholders. To our knowledge, the shareholder fully repaid the principal amount and accrued interest under the margin loan facility in April 2016, and is coordinating with the lender to have the related share charge released. See “Item 6. Directors, Senior Management and Employees—E. Share Ownership.” We have agreed to register part or all of the shares subject to the share charge on a shelf registration statement under certain conditions and upon occurrence of certain circumstances, if ever. Registration of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration. If part or all of the shares subject to the share charge are sold in the public market or if any existing shareholder or shareholders sell a substantial amount of ADSs, the prevailing market price for our ADSs could be adversely affected. Such sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. In addition, if we pay for our future acquisitions in whole or in part with additionally issued ordinary shares, your ownership interests in our company would be diluted and this, in turn, could have an adverse effect on the price of our ADSs.

You may not have the same voting rights as the holders of our ordinary shares and may not receive voting materials in time to be able to exercise your right to vote.

Except as described in this annual report and in the deposit agreement, holders of our ADSs cannot exercise voting rights attaching to the shares evidenced by our ADSs on an individual basis. Holders of our ADSs have appointed the depositary or its nominee as their representative to exercise the voting rights attaching to the shares represented by the ADSs. You may not receive voting materials in time to instruct the depositary to vote, and it is possible that you, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote.

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

We may from time to time distribute rights to our shareholders, including rights to acquire our securities. Under the deposit agreement for the ADSs, the depositary will not offer those rights to ADS holders unless both the rights and the underlying securities to be distributed to ADS holders are either registered under the Securities Act of 1933, as amended, or the Securities Act, or exempt from registration under the Securities Act with respect to all holders of ADSs. We are under no obligation to file a registration statement with respect to any such rights or underlying securities or to endeavor to cause such a registration statement to be declared effective. In addition, we may not be able to take advantage of any exemptions from registration under the Securities Act. Accordingly, holders of our ADSs may be unable to participate in our rights offerings and may experience dilution in 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 transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deem it 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.

You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited, because our holding company is incorporated under Cayman Islands law, conduct substantially all of our operations in China and the vast majority of our officers reside outside the United States.

Our holding company is incorporated in the Cayman Islands. We conduct substantially all of our operations through our PRC subsidiaries. The vast majority of our directors and officers reside outside the United States and some or all of the assets of those persons are located outside of the United States. As a result, it may be difficult for you to effect service of process within the United States upon us or these persons. It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, most of whom are not residents in the United States and the substantial majority of whose assets are located outside of the United States. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state and it is uncertain whether such Cayman Islands or PRC courts would impose liabilities in original actions brought in the Cayman Islands or the PRC against us or such persons predicated upon the securities laws of the United States or any state.

Our corporate affairs are governed by our memorandum and articles of association, as amended and restated from time to time, and by the Companies Law (2013 Revision) and common law of the Cayman Islands. The rights of shareholders to take legal action against our directors and us, actions by minority shareholders and the fiduciary duties 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 English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents in the United States. In particular, the Cayman Islands has a less developed body of securities laws as compared to the United States, and provides significantly less protection to investors. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action before the federal courts of the United States.

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As a result of all of the above, our public shareholders may have more difficulty in protecting their interests through actions against our management, directors or controlling shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.

We may be classified as a passive foreign investment company, or PFIC, which could result in adverse U.S. federal income tax consequences to U.S. Holders.

We will be classified as a “passive foreign investment company,” or “PFIC” for U.S. federal income tax purposes for any taxable year, if either (a) 75% or more of our gross income for such year consists of certain types of “passive” income or (b) 50% or more of the value of our assets (as determined on the basis of a quarterly average) during such year produce or are held for the production of passive income. Although the law in this regard is unclear, we treat our VIEs 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.

While we believe we were not a PFIC for U.S. federal income tax purposes for the taxable year ending December 31, 2015 and do not expect to be a PFIC for the current taxable year and the foreseeable future, no assurance can be given in this regard because the determination of whether we will be or become a PFIC is a factual determination made annually that will depend, in part, upon the composition of our income and assets. Fluctuations in the market price of our ADSs and ordinary shares may cause us to become a PFIC for the current taxable year or future taxable years because the value of our assets for purposes of the asset test, including the value of our goodwill and other unbooked intangibles, may be determined by reference to the market price of our ADSs and the value of our assets from time to time, including, in particular the value of our goodwill and other unbooked intangibles (which may depend upon the market value of our ADSs or ordinary shares from time-to-time, (which may be volatile). Furthermore, the determination of whether we will be or become a PFIC will also be affected by how, and how quickly, we use our liquid assets. Under circumstances where our revenue from activities that produce passive income significantly increase relative to our revenue from activities that produce non-passive income, or where we determine not to deploy significant amounts of cash for active purposes our risk of being classified as a PFIC may substantially increase. It is also possible that the Internal Revenue Service may challenge our classification or valuation of our goodwill and other unbooked intangibles, which may result in our company being or, becoming classified as, a PFIC for any taxable years. In addition, there can be no assurance our business plans will not change in a manner that will affect our PFIC status.

If we are classified as a PFIC in any taxable year, a U.S. Holder (as defined in “Taxation—U.S. Federal Income Tax Considerations”) may incur significantly increased U.S. federal 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. 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. Each U.S. Holder is urged to consult its tax advisor concerning the U.S. federal income tax consequences of an investment in our ADSs or ordinary shares if we are treated as a PFIC for our current taxable year or any future taxable year, including the possibility of making a “mark-to-market” election.

See the discussion under “Item 10. Additional Information—E. Taxation—U.S. Federal Income Taxation—Passive Foreign Investment Company Rules” concerning the U.S. federal income tax consequences of an investment in the ADSs or ordinary shares if we are or become classified as a PFIC, including the possibility of making a “mark-to-market” election.

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In April 2006, we issued and sold an aggregate of 22,727,272 Series A preferred shares to a group of private equity investors. Each Series A preferred share was automatically converted to 0.58 ordinary shares upon our initial public offering in August 2007. On August 8, 2007, our ADSs began trading on the NYSE under the ticker symbol “EJ.” Including the exercise of an over-allotment option, we issued and sold a total of 13,167,500 ADSs, representing 13,167,500 ordinary shares, and the selling shareholders sold an additional 3,622,500 ADSs, representing 3,622,500 ordinary shares, in each case at an initial public offering price of $13.80 per ADS. On February 1, 2008, we completed our second public offering, in which we issued and sold a total of 6,000,000 ADSs, representing 6,000,000 ordinary shares, and a selling shareholder sold an additional 900,000 ADSs, representing 900,000 ordinary shares, in each case at a public offering price of $17.00 per ADS.

On October 16, 2009, our subsidiary CRIC listed its ADSs, each representing one ordinary share of CRIC, on the NASDAQ Global Select Market in connection with an initial public offering. CRIC issued a total of 20,700,000 ADSs at a public offering price of $12.00 per ADS in connection with its initial public offering. Concurrent with completion of the initial public offering, CRIC also acquired SINA’s real estate and home furnishing online business. Following these transactions, we remained the majority shareholder of CRIC, holding 50.04% of CRIC’s total outstanding shares at the time, and SINA became CRIC’s second largest shareholder holding 33.35% of CRIC’s total outstanding shares at the time.

On December 28, 2011, we entered into a merger agreement with CRIC and a wholly-owned subsidiary we established in the Cayman Islands, or the merger sub. The merger sub subsequently merged with and into CRIC, with CRIC continuing as the surviving corporation and a wholly-owned subsidiary of ours, on April 20, 2012, or the effective time. As a result, CRIC ADSs are no longer listed on NASDAQ. Pursuant to the merger agreement, at the effective time, each of CRIC ordinary shares (not including CRIC ordinary shares represented by CRIC ADSs) issued and outstanding immediately prior to the effective time was cancelled in exchange for the right to receive 0.6 of our ordinary shares and $1.75 in cash without interest, and each of CRIC ordinary shares represented by CRIC ADSs issued and outstanding immediately prior to the effective time was cancelled in exchange for the right to receive 0.6 of our ADSs and $1.75 in cash without interest (less a $0.05 per CRIC ADS cancellation fee payable by the holders of CRIC ADSs pursuant to the depositary agreement in respect of the CRIC ADSs). Immediately following the completion of the merger, SINA became our largest shareholder holding approximately 24.9% of our outstanding shares at the time. We paid approximately $113.1 million in cash and issued 38,785,588 ordinary shares as consideration for the merger.

In December 2013 we issued $135,000,000 principal amount of 2.75% convertible senior notes due 2018. The notes bear interest at a rate of 2.75% per year, payable semiannually in arrears on June 15 and December 15 of each year, beginning on June 15, 2014. The notes will mature on December 15, 2018. The notes are convertible into ADSs, at the option of the holders, in integral multiples of $1,000 principal amount and at any time prior to the close of business on the second business day immediately preceding the maturity date.

In March 2014, we entered into a share purchase and subscription agreement with Leju and Tencent, pursuant to which Tencent acquired from us 19,201,800 of Leju’s ordinary shares, or 15% of its total outstanding shares on a fully diluted basis, including all options and restricted shares and any other rights to acquire Leju’s shares that were granted and outstanding at the time for $180 million in cash. On April 17, 2014, Leju listed its American depositary shares, each representing one ordinary share of Leju, or the Leju ADSs, on the NYSE in connection with an initial public offering. Leju issued a total of 11,500,000 ordinary shares, represented by 11,500,000 Leju ADSs, at $10.00 per Leju ADS in connection with its initial public offering, and an additional 2,029,420 Leju ordinary shares to Tencent in a private placement concurrent with Leju’s initial public offering at $10.00 per Leju share. Following these transactions, we remained the majority shareholder of Leju, holding 75.5% of Leju’s total outstanding shares, and Tencent became Leju’s second largest shareholder holding 15.9% of Leju’s total outstanding shares, in each case as of April 30, 2014.

We were approved by our board of directors in December 2014 and completed on January 15, 2015 a partial spin-off of Leju by distributing to E-House shareholders or ADS holders in the form of a dividend of 0.05 ordinary shares, par value $0.001, of Leju, for each of our ordinary shares outstanding as of December 3, 2014, or 0.05 ADSs of Leju, for each of our ADSs outstanding as of December 3, 2014. We distributed a total of 7,103,280 ordinary shares of Leju to holders of our ordinary shares in this manner, which include a total of 3,877,658 ordinary shares of Leju in the form of 3,877,658 ADSs of Leju to our ADS holders through our depositary bank. Following the completion of the partial spin-off, we owned 93,694,920 ordinary shares of Leju, representing approximately 70% of Leju’s total outstanding ordinary shares.

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In April 2015, we reached an agreement with Jupai, a third-party wealth management service provider in China, to transfer to Jupai all equity interests in Scepter, our 51% owned subsidiary operating our real estate investment fund management business unit, in exchange for Jupai’s ordinary shares. The transaction was closed upon the completion of Jupai’s initial public offering in July 2015. As of December 31, 2015, we held approximately 30.8% of the total outstanding shares of Jupai. As a result of the transaction, Jupai acquired Scepter, which continues to conduct its business in China through Shanghai E-Cheng Asset Management Co., Ltd., or Shanghai E-Cheng, and its subsidiaries. Shanghai E-Cheng is a variable interest entity of Scepter through the contractual arrangements between Baoyi Investment Consulting (Shanghai) Co., Ltd., a wholly-owned PRC subsidiary of Scepter, and Shanghai E-Cheng and its shareholders.

On April 15, 2016, we entered into a merger agreement with the Parent and the Merger Sub. Subject to satisfaction of the terms and conditions under the merger agreement, at the effective time of the merger, the Merger Sub will merge with and into our company, with our company continuing as the surviving corporation and a wholly-owned subsidiary of the Parent. Each of our ordinary shares (including ordinary shares represented by ADSs) issued and outstanding immediately prior to the effective time of the merger will be cancelled and cease to exist in exchange for the right to receive US$6.85 per share or ADS in cash, without interest and net of any applicable withholding taxes, except for (i) ordinary shares or ADSs beneficially owned by the buyer group, (ii) ordinary shares or ADSs owned by us or any of our subsidiaries, (iii) ordinary shares or ADSs held by our ADS depositary and reserved for issuance and allocation pursuant to the our share incentive plan, and (iv) ordinary shares owned by holders who have validly exercised and not effectively withdrawn or lost their rights to dissent from the merger. The merger is subject to customary closing conditions including the approval of the merger agreement by an affirmative vote of holders of shares representing at least two-thirds of the voting power of the shares present and voting in person or by proxy at a meeting of our shareholders which will be convened to consider the approval of the merger agreement and the merger. As of the date of the merger agreement, the buyer group beneficially owned, in the aggregate, approximately 44.9% of the issued and outstanding ordinary shares (including ordinary shares represented by ADSs). Pursuant to a voting agreement entered between the buyer group and the Parent, the members of the buyer group have agreed to vote all the ordinary shares and ADSs beneficially owned by them in favor of the authorization and approval of the merger agreement and the merger. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—‘Going Private’ Transaction.”

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Our principal executive offices are located at Qiushi Building, 11/F, 383 Guangyan Road, Zhabei District, Shanghai 200072, People’s Republic of China. Our telephone number at this address is +86 21 6133-0808. 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 60 branch offices in mainland China, and a branch office in each of Hong Kong and Macau. 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.

B.                                     Business Overview

Overview

We are a leading real estate services company in China based on scope of services, brand recognition and geographic presence. We provide real estate online services (including e-commerce, online advertising and listing services), real estate brokerage services (including primary real estate agency services and secondary real estate brokerage services), real estate information and consulting services, community value-added services and other services (including real estate advertising services, real estate promotional event services and real estate financial services). In July 2015, we transferred our real estate investment fund management business unit to Jupai in exchange for Jupai’s ordinary shares. Our clients mainly include leading domestic and international real estate developers, as well as individual consumers. The geographic network of our services covers 263 cities across China.

Our revenues increased 13% to $1,023.7 million for the year ended December 31, 2015 from $904.5 million for the year ended December 31, 2014. Starting in 2010, the PRC government adopted a series of restrictive policies for the real estate industry in China, which has had a material and adverse effect on the overall real estate market in China and hence our business operations. We had net loss attributable to E-House shareholders of $270.4 million and $57.0 million in 2011 and 2012, respectively. In 2013 and 2014, we had net income attributable to E-House shareholders of $52.0 million and $40.0 million, respectively, and in 2015, we had net loss attributable to E-House shareholders of $39.9 million. We derive substantially all of our revenues from our operations in China.

Our Services

We provide the following types of services:

·                   real estate online services (including e-commerce, online advertising and listing services),

·                   real estate brokerage services (including primary real estate agency services and secondary real estate brokerage services),

·                   real estate information and consulting services,

·                   community value-added services, and

·                   other services, which include real estate advertising services, real estate promotional event services, real estate investment fund management (for part of 2015) and real estate financial services.

We may continue to offer new complementary real estate services to capture market trends and to serve the evolving needs of our clients.

Real Estate Online Services

We provide online-to-offline, or “O2O”, real estate services through our majority-owned subsidiary, Leju, in China. We offer real estate e-commerce, online advertising and online listing services through our online platform, which comprises local websites covering over 260 cities and various mobile apps. We integrate our online platform with complementary offline services to facilitate residential property transactions. In addition to our own websites, we currently also operate various real estate and home furnishing websites of SINA. We also operated the real estate and home furnishing websites of Baidu until December 31, 2015. Real estate online services accounted for 46%, 55% and 56% of our total revenues in 2013, 2014 and 2015, respectively.

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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, marketing events and pre-sale customer support. We earn revenue primarily from the sale of discount coupons used for property purchases. The following table sets forth certain operating metrics with respect to our sales of discount coupons for the periods specified.

Note:

(1)                                   The number of discount coupons issued to prospective purchasers that were used by the purchaser to obtain a discount in connection with a property purchase during the period. We recognize revenue from the sale of discount coupons when they are redeemed. See ‘‘Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies.’’

We also offer e-commerce services in connection with home furnishing. In particular, we launched qianggongzhang.com in July 2014. The website, which is now address at 7gz.com , is an online platform for independent contractors who serve home purchasers in the home renovation and decoration process, by working with city-level operators who aggregate the contractors. Home purchasers in each city can use the website to choose and compare up to three free quotes from individual contractors before selecting a contractor and can rely on third-party inspection companies engaged by us to ensure quality control during and after the renovation and decoration process.

Online Advertising . We currently sell advertising primarily on the SINA new residential properties and home furnishing websites, which are operated by us. We also had similar arrangement with Baidu until December 31, 2015. 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 had the exclusive right to sell Baidu’s Brand-Link product for real estate related advertising until December 31, 2015.

Listing . We offer fee-based online property listing services to real estate agents and free services to individual property sellers. We currently operate the SINA real estate websites for listings of existing residential properties for sale or lease. We also operated the Baidu real estate websites for such listings until December 31, 2015.

In March 2014, we entered into a strategic cooperation agreement with an affiliate of Tencent Holding Limited, or 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.  We had opened 73,834 project-related official accounts on Weixin  by December 31, 2015.

Real Estate Brokerage Services

Our real estate brokerage services consist of mostly primary real estate agency services, supplemented by secondary real estate brokerage services in a few cities.

Primary Real Estate Agency Services. Our principal business has traditionally been providing primary real estate agency services to real estate developers. Primary real estate agency services accounted for 37%, 30% and 35% of our total revenues in 2013, 2014 and 2015, respectively. The following table sets forth the total GFA and value of properties sold for the periods indicated:

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Once we are engaged by a developer, we formulate a marketing and sales plan for the project. Our contracts typically specify the sales period, the minimum average sales price and the sales commissions. Typically, we receive a fixed or progressive percentage as a commission based on the total sales. Some contracts also provide for bonus commissions for sales achieved above the pre-determined levels.

In 2015, we provided primary real estate agency services for 1,015 projects in 127 cities in China. We have significantly expanded our primary real estate agency services by forming strategic alliances with leading real estate developers such as Evergrande. These strategic alliances provide us with a substantial increase in both GFA immediately available for sale as well as a project pipeline for future sales. They also help us expand into new cities and regions. We plan to continue to form strategic alliances with leading real estate developers. In the fourth quarter of 2014, we incorporated internet tools and mobile apps to our traditional brokerage services to improve our capabilities in customer origination.

Secondary Real Estate Brokerage Services. We provide secondary real estate brokerage services in 4 cities, including brokerage services for both sales and rentals. Secondary real estate brokerage services accounted for 2%, 1% and 1% of our total revenues in 2013, 2014 and 2015, respectively. As of December 31, 2015, we had a total of 39 stores, including 13 in Shanghai, 22 in Hangzhou, 3 in Hong Kong and 1 in Macau. We closed a total of 2 stores in 2015 in order to reduce costs and optimize our store network.

Our secondary real estate brokerage services include offering advisory services on choices of properties, accompanying potential buyers on property viewing trips, drafting purchase contracts, negotiating price and other terms, providing preliminary proof of title, and coordinating with the notary, the bank and the title transfer agency.

In addition to marketing and selling properties in the secondary real estate market, our secondary brokerage storefronts also support our sales effort in the primary real estate agency services market primarily by promoting and selling any remaining unsold units of primary real estate projects. This not only generates additional transactions and revenues for our secondary real estate brokerage business, but also enhances our services to our clients in the primary real estate market.

We provide our secondary real estate brokerage services using a lease-and-operate model. We directly lease properties for our brokerage storefronts, manage and train the sales staff and maintain all the applicable licenses.

Real Estate Information and Consulting Services

Our real estate information and consulting services are tailored to meet the needs of developer clients at various stages of the project development and sales process and other clients with particular requests and needs. Leveraging our strength in real estate data, we also started offering home price index service in 2013 and online home price estimates and rating services in 2014. Real estate information and consulting services accounted for 11%, 9% and 6% of our total revenues in 2013, 2014 and 2015, respectively.

Real Estate Information Services . We provide two levels of real estate information services relying upon our CRIC system: (1) data subscription services, in which we market and sell, on a subscription basis, the use of our CRIC system; and (2) data integration services, which provide periodic research reports and analysis that suit the specific needs and requirements of individual clients in addition to access to the CRIC system. The data subscription services allow clients to subscribe for a single or a combination of our CRIC database products, including information on various real estate markets, residential and/or commercial projects, land transactions, project construction materials, and information on companies within the real estate industry.

In 2013, we initiated CRIC Home Price series, also referred to as our China Real Estate Price System, or CRPS. The CRIC Home Price series includes a primary home price index for 288 cities in China and a secondary home price index for 60 cities, which estimate home prices for existing homes and recommend pricings for newly built homes.

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In July 2014, we officially launched the CRIC home price ratings website www.fangjiadp.com and its related mobile app (together, “Fangjiadp”). The website and app covered more than 9,500 new residential developments in 26 cities, as well as more than 17,500 existing residential compounds in 13 cities in China as of March 31, 2016. Fangjiadp provides independent home price estimates, qualitative reviews, and ratings for primary and secondary market residential compounds. By entering an address (down to each individual apartment unit level) or compound name, consumers can instantly obtain the estimated market value of both new and previously-owned properties, as well as CRIC’s expert opinions on other aspects of the properties. Properties are rated as “strongly recommended buy,” “recommended buy,” “buy with caution” or “recommend waiting.” Once a consumer locates a property of interest, Fangjiadp will also list four similar properties in the area that are in the same price range so that consumers can compare estimated values and other aspects of the properties. Fangjiadp’s unique user interface allows consumers to conduct one-on-one conversations with CRIC’s home price analysts.

Real Estate Consulting Services . Our consulting services are tailored to meet the needs of real estate developer clients at various stages of the project development and sales process and include services designed to help real estate developer clients formulate solutions to meet their specific needs and services designed to facilitate large-scale land or development project purchase and sale transactions. Major types of our consulting services include (1) land acquisition consulting, where we are retained by real estate developers as consultant or intermediary to advise on and facilitate the transfer of land development rights; (2) project consulting, where we offer a variety of services to developers who have obtained land development rights, including project feasibility studies, analysis of the real estate transaction history of nearby development projects, marketing and advertising consulting, and development of comprehensive plans for their development projects.

Community Value-added Services

We started our mobile community value-added services, through the launch of “Shi Hui” app, in July 2014. Shi Hui, which translates to “value,” is jointly established by us, SINA, Focus Media Holding Limited, the operator of China’s largest lifestyle targeted interactive digital media network, and Shentong Express Co., Ltd, a logistics company whose network covers major cities and towns in China. As of December 31, 2015, we owned 55% of Shanghai Weidian which owns and operates Shi Hui.

Users download Shi Hui and select their residential compounds, office buildings and/or schools and can win promotional products and free services from a variety of merchants and service providers on a daily basis, find nearby restaurants, stores and other service providers, and participate in chat groups with people in the same communities.

Shi Hui was initially launched in Shanghai and Beijing. In 2015, Shi Hui was expanded to a total of 40 cities in China. As of March 31, 2016, the Shi Hui app had more than 11.3 million registered users. In addition, retailers and service providers provided to Shi Hui users free offers and discounts worth a total value of approximately RMB25.2 billion (US$3.9 billion).

Other Services

Our other services include real estate advertising services, real estate promotional event services, real estate investment fund management (for part of 2015) and real estate financial services.

Real Estate Advertising Services . We began providing real estate advertising services in 2009 by making wholesale purchases of advertising space in print and other media and reselling them to our developer clients.

Real Estate Promotional Event Services . We began offering promotional event services to our various clients in 2010. Our promotional event services include securing venues, hiring caterers and various other service providers, formulating event themes and inviting speakers and guests for real estate promotional events.

Real Estate Investment Fund Management . In July 2015, we transferred to Jupai all equity interests in Scepter, which operated our real estate investment fund management business unit, in exchange for Jupai’s ordinary shares. As a result, we no longer offer real estate investment fund management services. Before we transferred our investment fund management business unit to Jupai, certain of our 51% owned subsidiaries acted as the general partner for some investment funds focusing on China’s real estate sector. As the general partner, we received annual management fees, and were entitled to carried interest from the fund in the event that the investors in the fund achieve cumulative investment returns in excess of a specified amount at the end of the contract year. See “Item 7. Major Shareholders and Related Party Transactions—B. Related party Transactions—Real Estate Investment Fund Management.”

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Real Estate Financial Services . We launched our real estate financial services P2P platform, “Fang Jin Suo”, and its associated website, www.fangjs.com , in July 2014. Fang Jin Suo, which translates to “Source of Real Estate Funds” and was jointly founded by us, SINA and Sequoia Capital, is a platform that links qualified home buyers with borrowing needs to potential investors. Since its launch, Fang Jin Suo has matched the needs of investors who seek a variety of real estate-related investment products with attractive returns and qualified home buyers who need additional liquidity to facilitate real estate transactions. As of March 31, 2016, a total of RMB1,451 million (US$224 million) in financing has been facilitated through Fang Jin Suo. We held a 56% ownership in Fang Jin Suo as of December 31, 2015.

Marketing and Brand Promotion

We employ a variety of marketing and brand promotion methods to enhance our brand recognition and attract developer clients and real estate buyers, including the following:

Advertisements . We have advertising arrangements with many Chinese national and regional consumer media outlets, including television stations, newspapers, industry publications and internet websites. We also advertise and distribute informational brochures, posters and flyers at various real estate conferences, exhibitions and trade shows. In addition, we conduct advertising activities in cities where we directly operate local websites through promotional events for developers and other industry participants, including industry award ceremonies, panel discussions and similar events.

Social Media . We have official E-House, CRIC and Leju social media accounts through Tencent’s Weixin and Weibo.

E-House and Leju Membership Clubs . We created the E-House Membership Club and Leju Membership Club to attract real estate buyers. As of December 31, 2015, we had approximately 138 million members located in 345 cities from both our online and offline services. We provide value-added services, such as newsletters containing information on the housing market and priority on sought-after properties without charge to our members. We frequently promote new properties to members who have indicated their preferences for new properties. We also conduct activities designed to increase our members’ loyalty, such as birthday greetings and invitations to entertainment events.

Seasonality

Our operating income and earnings have historically been substantially lower during the first quarter than other quarters. This results from the relatively low level of real estate activities during the winter and the Chinese New Year holiday period, which falls within the first quarter each year.

Competition

The real estate services industry in China is rapidly evolving, highly fragmented and competitive. Compared to real estate development, real estate services require a smaller commitment of capital resources. This relatively lower barrier to entry permits new competitors to enter our markets quickly and compete with us. While we face competition in each geographic market in which we operate, we believe none of our competitors offers as broad a range of services and geographic coverage as we provide in the real estate services market.

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·                   In the real estate online business market, our largest competitor at the national level is fang.com , formerly soufun.com , with which we compete on all of our business lines. We also compete with providers for online property listings, including 58.com , which acquired anjuke.com in 2015. In addition, we have faced and may continue to face competition from regionally focused websites providing regional real estate listings together with localized services, such as house365.com in the Nanjing market.

·                   In the primary real estate agency services market, our main competitors include World Union Real Estate Consultancy (China) Ltd., Hopefluent Group Holdings Limited, Centaline Group, SYSWIN Inc., Fangdd and B.A. Consulting Company, all of which operate in multiple cities in China. In addition, we compete with local primary real estate agency services providers in each geographic market where we have a presence.

·                   In the secondary real estate brokerage services market, we compete with established international and domestic real estate brokerage firms, including Beijing Lianjia Real Estate Brokerage Ltd., Centaline Group, Coldwell Banker, Shanghai House Exchange Co., Ltd., and 5i5j Real Estate Co. Ltd.

·                   In the real estate information and consulting service market, we compete with other leading international and domestic real estate services companies which provide real estate consulting services, including DTZ International, Jones Lang LaSalle, CB Richard Ellis, Savills PLC and World Union Real Estate Consultancy (China) Ltd.

Competition in the real estate services industry is primarily based on the ability to attract consumers to our websites and mobile apps, brand recognition, quality and breadth of services and overall client experience. We believe that among both real estate developers and individual real estate buyers in China our well-known “E-House” brand is associated with a leading integrated real estate services company that provides consistent high-quality services and our ‘‘Leju’’ brand is associated with a leading real estate O2O platform in China. In addition, through our strategic partnerships with Tencent and SINA, we are uniquely positioned to reach millions of consumers through our Weixin and Weibo public accounts. While some of our competitors may have more financial and other resources than we do, we believe that the CRIC system, our research capability, our knowledge and experience, our execution capability and our integration of online to offline services distinguish us from our competitors and allow us to respond more promptly to market changes.

Employees and Training

We had 18,927 and 23,129 employees as of December 31, 2013 and 2014 respectively. As of December 31, 2015, we had 24,020 employees, including 3,293 in our corporate offices, 6,095 research staff and 14,632 sales staff. We pay our sales staff a combination of salaries and sales commissions and pay salaries to all other employees. We consider our relations with our employees to be good.

We have established policies and procedures for the recruitment, training and evaluation of our employees. We place special emphasis on the training of our employees, whom we consider to be our most valuable assets. All newly hired employees must undergo intensive training during their three-month probation period. We also invite outside experts, including experts from the E-House Research and Training Institute, to provide ongoing classroom training to our employees. Each department must prepare detailed annual training plans for its staff based on the particular needs of such department. The human resources department is responsible for implementing the training plans, including engaging trainers, preparing training materials, selecting training venues and collecting feedbacks. We conduct annual performance evaluations for all employees and use both performance-based bonuses and job promotions as incentives to encourage good performance.

Facilities

Our headquarters are located in Shanghai, China, where we lease approximately 34,152 square meters of corporate office space. As of December 31, 2015, our offices in 68 cities occupy an aggregate of 143,930 square meters of leased space. We consider our corporate office space adequate for our current and future operations.

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Regulation

We are subject to a number of laws and regulations in China relating to real estate service companies. This section summarizes the principal PRC laws and regulations that are currently applicable to our business and operations.

Regulation of Real Estate Services Industry

The principal regulation governing the real estate services industry in China is the Law on Administration of Urban Real Estate issued by the Standing Committee of the National People’s Congress in July 1994, as amended. Under this law, real estate services providers include real estate consulting services providers, real estate appraisal services providers and real estate brokerage services providers.

Regulation on the Establishment and Operation of Real Estate Services Companies

Under PRC law, a company is required to obtain a business license from the State Administration for Industry and Commerce or its delegated local counterpart before it can commence any business. To qualify as a real estate services company, a company must register with the local office of the State Administration for Industry and Commerce in each locality where it does business. Penalties for non-compliance include the imposition of a fine, confiscation of illegal income and injunction against illegal services. To continue its existence as a real estate service company, it must meet certain organizational, financial and operational criteria, such as possessing sufficient funding and employing qualified personnel. It must keep proper records and comply with prescribed procedures in delivering its services. All of our subsidiaries have obtained their respective business licenses before engaging in real estate services.

Furthermore, the Measures for Administration on Real Estate Brokerage requires a real estate brokerage company to file with the real estate regulatory authority at the county level or above within 30 days after its business registration with the relevant local counterpart of State Administration for Industry and Commerce. Among our PRC operating entities with the registered business scope of real estate brokerage business, we have completed such filings with the relevant local real estate administrative authorities for some entities, and are in the process of filings or preparing the relevant application documents for the filings with respect to the remaining entities which intend to make such filings.

Regulation of Real Estate Agency Companies and Agents

Pursuant to the Regulatory Measures on the Sale of Commercial Houses promulgated by the Ministry of Construction, a real estate developer may entrust a real estate service organization as a broker to pre-sell or sell primary residential housing. The regulatory measures provide that the real estate broker must not make any false statements regarding a property to clients and must present clients with relevant title certificates or sale permits of the properties and the related letter of authorization. Thus, according to these regulatory measures, we are not permitted to (i) act as agents to sell primary residential housing for which requisite certificates, permits or authorization letters have not been obtained, (ii) provide false statements on the conditions of any property in any advertisement, or (iii) violate any PRC advertisement law.

The Circular Concerning Strengthening the Management of Real Estate Services and Regulating the Trade Settlement Capital Account provide a number of specific directives to regulate the real estate services industry. Under this circular, we are not permitted to receive cash purchase payments on behalf of our clients in secondary real estate transactions and we are required to establish separate security deposit accounts for our clients in these transactions.

Pursuant to the Measures on Management of Brokers, “brokers” are defined as include individuals, legal persons and other entities that act as intermediary broker or agent in transactions for the purpose of obtaining commissions. The local offices of the State Administration for Industry and Commerce are the administrative bodies for brokers, responsible for handling registrations of brokers and supervising their activities. Different types of brokerages are required to obtain corresponding qualification licenses applicable to their respective businesses. Within 20 days after a brokerage company employs or dismisses any broker, it must file the broker’s information and the related contracts with the local offices of the State Administration for Industry and Commerce. Thus, according to these measures, before we or our individual brokers are allowed to engage in any brokerage services, we or our individual brokers, respectively, are required to obtain the required qualification licenses from the State Administration for Industry and Commerce. In addition, no brokerage company or broker can engage in any activities beyond the permitted business scope or against clients’ interests. In cases of noncompliance, the local offices of the State Administration for Industry and Commerce can issue warnings or impose fines up to RMB30,000 (US$4,631).

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The Measures for Administration on Real Estate Brokerage govern the activities of real estate brokerages and real estate brokerage personnel in providing intermediary, agency and related services and charging commissions thereon. A real estate brokerage company and its branches must have sufficient qualified real estate brokers who have obtained real estate broker licenses.

A real estate brokerage company must enter into written agreements with its clients in respect of its brokerage services whereby the commission fee rate must be expressly specified. If a real estate brokerage company provides other services, such as loan agency and real estate registration agency, to a client, a separate written agreement must be entered into with the client. If a real estate brokerage company is entrusted to receive or pay the transaction price on behalf of any of its clients, the funds received or to be paid must be deposited in a special account established by the real estate brokerage company. If a real estate brokerage company is in violation of the Measures for Administration on Real Estate Brokerage, it may be subject to an order of rectification, an order to cease provision of services, and/or an order confiscating illegal income generated therefrom, and a fine up to RMB30,000 (US$4,631).

Pursuant to the Interim Regulation on Professional Qualification for Real Estate Brokers and the Implementing Measures on the Examinations of Professional Qualification for Real Estate Brokers, to practice as a qualified real estate broker, an individual must first obtain a qualification certificate for real estate brokers, and then the real estate broker license. An individual broker who fails to obtain the required qualification certificate or license will not be permitted to engage in secondary real estate agency services for us.

Pursuant to the Circular Concerning Strengthening the Administration on Real Estate Brokerage and Further Regulating the Order of Real Estate Transaction, a real estate brokerage service contract must be affixed with the seal of the real estate brokerage company and be signed by a qualified real estate broker. For a real estate transaction made through a brokerage company, the real estate brokerage service contract signed by the real estate broker is required to be submitted when applying to transfer the title of the concerned real estate. The real estate developers and real estate brokerage companies, when selling housing units, must strictly comply with the pre-sale plan and the price reported to the government. The real estate brokerage companies are prohibited from making false advertisement, providing fraudulent information on house for lease, inappropriately dividing the house for leasing, concealing the true leasing information and providing real estate brokerage service for premises not meeting the compulsory safety standards or illegally constructed.

Local governments in different municipalities or cities may have detailed regulations governing the qualification and establishment of real estate brokerage companies and real estate brokerage activities. For example, in Shanghai, a real estate brokerage company must have a registered capital of at least RMB100,000 (US$15,437) and employ at least five licensed real estate brokers. Real estate brokerage companies or their branches must file with the real estate authorities and obtain a certificate of record which is valid for two years. Given the large size and scope of real estate sale transactions, both the difficulty of ensuring compliance with the multiple levels of licensing regimes and the possible loss resulting from non-compliance are significant. If we fail to properly obtain or maintain the licenses and permits or complete the filing and registrations required to conduct our business, our affected subsidiaries and branch offices in China may be warned, fined, have their licenses or permits revoked, or ordered to suspend or cease providing certain services, or subjected to other penalties, sanctions or liabilities. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—If we fail to obtain or keep licenses, permits or approvals applicable to the various real estate services provided by us, we may incur significant financial penalties and other government sanctions.”

Foreign Investments in the Real Estate Consulting Business and Real Estate Brokerage Business

The previous Foreign Investment Industrial Guidance Catalogue issued in 2011 classified the real estate agency and brokerage services within the restricted category for foreign investment. Accordingly, a wholly foreign-owned enterprise in China was required to obtain approval from the Ministry of Commerce or its local counterpart in order to establish or invest in any subsidiary to engage real estate agency and brokerage services. The National Development and Reform Commission and the Ministry of Commerce issued a new Foreign Investment Industrial Guidance Catalogue, which became effective on April 10, 2015. The new Foreign Investment Industrial Guidance Catalogue removed the real estate agency and brokerage services from the restricted category. Accordingly, the establishment of or the investment in a subsidiary to engage in real estate agency and brokerage services is no longer subject to the approval of the Ministry of Commerce or its local counterparts.

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We currently mainly use City Rehouse and its subsidiaries to provide support for our real estate e-commerce business. City Rehouse had not obtained approval from the competent local branch of the Ministry of Commerce in connection with the establishment of, or investment in, its subsidiaries with a registered business scope of real estate brokerage business, although 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. Even though the new catalogue became effective in April 2015, the historical non-compliance of City Rehouse not obtaining the requisite government approval could still be found as a violation by relevant PRC government authorities, and the relevant subsidiaries could be subject to warnings, fines or even revocation of their licenses.

Regulations on Internet Information Services

The provision of content on internet websites is subject to PRC laws and regulations relating to the telecommunications industry and the internet, and regulated by various government authorities, including the Ministry of Industry and Information Technology and the State Administration for Industry and Commerce.

Pursuant to the PRC Regulations on Telecommunication and the Administrative Measures on Operation Licenses for Telecommunication Businesses, telecommunication services are divided into two categories, namely basic telecommunication services and value-added telecommunication services. Internet information services are classified as value-added telecommunication services and a commercial operator of such services must obtain a value-added telecommunication business operating license from the relevant governmental authorities in order to conduct any commercial internet content provision operations in China.

Internet information services are regulated by the Administrative Measures on Internet Information Services, which define “internet information services” as services that provide information to online users through the internet. Internet information services are divided into commercial services and non-commercial services. Internet information service providers that provide commercial services are required to obtain an operating license, or ICP license, from the Ministry of Industry and Information Technology or its relevant provincial counterparts. The Administrative Measures on Internet Information Services also provide that anyone who intends to provide internet information services relating to news, publication, education, medical and health care, pharmaceuticals or medical equipment and certain other matters must first obtain approval from or make a filing with the relevant governmental authorities of the relevant industry as required by relevant laws and regulations.

Pursuant to the Circular on Strengthening the Administration of Foreign Investment in Value-added Telecommunication Services issued by the predecessor of the Ministry of Industry and Information Technology, a PRC entity engaged in internet information services, or its shareholders, must be the owner of the domain names and trademarks it uses for its internet information services.

Most of our consolidated VIEs operating business segments involving internet information services has obtained and maintains an ICP license, and Shanghai Fangjia is in the process of applying for ICP license.

Currently we provide access to our CRIC database through the internet. If the relevant PRC governmental authorities deem this to be a provision of internet information services under applicable PRC laws and regulations, they may require us to obtain an ICP license to continue to providing access to our CRIC database through the internet. We believe, based in part on communications with relevant Shanghai governmental authorities, that our current real estate information services business does not require an ICP license because access to the CRIC database is not offered to the general public. However, if the relevant PRC governmental authorities require us to obtain an ICP license for this business as currently conducted, we could be subject to fines and penalties for operating this business without the proper license. Moreover, because wholly foreign-owned enterprises like Shanghai CRIC are not permitted to hold an ICP license, we would need to restructure our operations to carry out our real estate information services business through the same type of contractual arrangements as we operate our advertising services business. Our real estate information services business would then be subject to the risks associated with this contractual arrangement structure.

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Limitations on Foreign Ownership in Internet Information Services Industry

Pursuant to the Rules for the Administration of Foreign Investment in Telecommunication Enterprises and the Foreign Investment Industrial Guidance Catalogue, foreign investors may not provide more than 50% of the capital of a foreign-invested enterprise that provides value-added telecommunications services. In addition, for a foreign investor to hold any equity interest in a value-added telecommunication business in China, it must satisfy a number of stringent requirements on performance and operational experience, including demonstrating a track record and experience in operating value-added telecommunication business overseas. Foreign investors that meet these requirements must obtain approval to hold any equity interest in a value-added telecommunication company in China from the Ministry of Industry and Information Technology and the Ministry of Commerce or their authorized local counterparts, which have considerable discretion in granting approvals.

Pursuant to a Circular on Strengthening the Administration of Foreign Investment in Value-added Telecommunication Services, if any foreign investor intends to invest in a PRC telecommunications business, a foreign-invested telecommunications enterprise must be established and such enterprise must apply for the relevant telecommunications business licenses. Under the circular, domestic telecommunications enterprises are prohibited from renting, transferring or selling a telecommunications license to foreign investors in any form, and from providing any assistance, including providing resources, sites or facilities, to foreign investors to conduct telecommunications business illegally in China. Our PRC subsidiaries, which are foreign-invested enterprises under PRC law, may not carry out commercial operation of internet information services in China.

We maintain contractual arrangements between our majority-owned subsidiaries and our VIEs which operate business segments involving internet information services by themselves or through their subsidiaries. Shanghai SINA Leju has entered into a series of contractual arrangements with Beijing Leju and its shareholders, Shanghai Yi Yue with Shanghai Yi Xin and its shareholders, Beijing Maiteng with Beijing Jiajujiu and its shareholders, Shanghai Yifang with each of Shanghai Kushuo and its shareholders and Shanghai Fangjia and its shareholders, and Shanghai Weidian with Shanghai Weihui and its shareholders. Under these contractual arrangements:

·                   we are able to direct the activities that most significantly affect the economic performance of the VIEs and their subsidiaries;

·                   a substantial portion of the economic benefits of the VIEs and their subsidiaries are transferred to us; and

·                   we, through our majority-owned subsidiaries, have an exclusive option to purchase all of the equity interests in these VIEs to the extent permitted by PRC law, or request any existing shareholder of them to transfer all or part of its equity interest in the relevant VIE to another PRC person or entity designated by us at any time in our discretion.

See “Item 4. Information on the Company—C. Organizational Structure,”“Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Contractual Agreements with Our VIEs.”

In the opinion of Fangda Partners, our PRC legal counsel, each of the agreements relating to the relevant VIEs that establish the structure for operating our business segments involving internet information services, in each case governed by PRC law, is valid, binding and enforceable in accordance with their respective terms based on currently effective PRC laws and regulations, and do not violate PRC laws or regulations currently in effect.

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However, we have been advised by our PRC legal counsel that there are substantial uncertainties regarding the interpretation and application of the current or future PRC laws and regulations. Accordingly, there can be no assurance that the PRC regulatory authorities, in particular the Ministry of Industry and Information Technology, which regulates internet information services companies, will not in the future take a view that is contrary to the opinion of our PRC legal counsel. We have been further advised by our PRC counsel that if the PRC government determines that the agreements establishing the structure for operating our PRC business segments involving internet information services do not comply with PRC government restrictions on foreign investment in the internet information services industry, we could be subject to severe penalties. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the PRC government finds that the agreements that establish the structure for operating our advertising services and internet information services in China do not comply with PRC governmental restrictions on foreign investment in the advertising industry or the internet information services industry, we could be subject to severe penalties.” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business In China—Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of draft PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.”

Pursuant to applicable PRC laws and regulations, the pledges of the equity interests in the VIEs by their shareholders under their respective equity pledge agreements must be registered with the relevant government authorities before such equity pledges can be enforceable under PRC law. The registration of the pledge of the equity interest in the VIEs has been completed.

Information Security and Confidentiality of User Information

Internet activities in China are also regulated and restricted from a state security standpoint. Pursuant to the Decision Regarding the Protection of Internet Security, activities conducted through the internet are subject to the PRC Criminal Law.

The Ministry of Public Security has promulgated measures that prohibit use of the internet in ways that, among other things, result in leaks of government secrets or the spread of socially destabilizing content. The Ministry of Public Security and its local counterparts have authority to supervise and inspect domestic websites in this regard. If an internet information service provider violates these measures, the PRC government may revoke its license and shut down its website.

The security and confidentiality of internet users’ information are also regulated in China. The Administrative Measures on Internet Information Service require internet information service providers to maintain an adequate system that protects the security of users’ information. The Regulations on Technical Measures of Internet Security Protection require internet information service providers to utilize certain technical measures for internet security protection. Moreover, the Rules for Regulating the Order in the Market for Internet Information Service enhance the protection of internet users’ personal information, by prohibiting internet information service providers from unauthorized collection, disclosure or use of personal information of the their users, and requiring internet information service providers to take measures to safeguard their users’ personal information. In December 2012, the Standing Committee of the National People’s Congress passed the Decision on Strengthening Internet Information Protection, which provides that all internet service providers in China, including internet information service providers, to require their users to provide real identity information when entering into service agreements or providing services to the users. On July 16, 2013, the Ministry of Industry and Information Technology issued the Provisions on Protecting Personal Information of Telecommunication and Internet Users, under which internet information service providers are subject to strict requirements to protect personal information of internet users. Internet information service providers are prohibited from collecting personal information of internet users without obtaining consent from the users. Personal information collected must be used only in connection with the services to be provided by internet information service providers to such users and must be kept in strict confidence.

Certain Licenses and Approvals Required for Internet-Based Businesses

Internet-based businesses in China are highly regulated by the PRC government. Various PRC regulatory authorities, such as the State Council, the Ministry of Industry and Information Technology, the State Administration for Industry and Commerce, the General Administration of Press, Publication, Radio, Film and Television, or GAPPRFT, and the Ministry of Public Security, are empowered to issue and implement regulations governing various aspects of the internet-based businesses.

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Internet Publishing

The Provisional Rules for the Administration of Internet Publishing define “internet publications” as works that are either selected or edited to be published on the internet or transmitted to end-users through the internet for the purposes of browsing, reading, using or downloading by the general public. Such works mainly include (i) content or articles formally published by press media such as books, newspapers, periodicals, audio-visual products and electronic publications; and (ii) literature, art and articles on natural science, social science, engineering and other topics that have been edited. Under these rules, web portals operators are required to apply to and register with GAPPRFT before distributing internet publications.

Online Transmission of Audio-Visual Programs

The Measures for the Administration of Transmission of Audio-Visual Programs through Internet or Other Information Network apply to the opening, broadcasting, integration, transmission or download of audio-visual programs through the internet. An applicant who is engaged in the business of transmitting audio-visual programs through the internet must apply for a license from the State Administration of Radio, Film and Television, the predecessor of GAPPRFT. Foreign-invested enterprises are not allowed to engage in the above business.

Pursuant to the Administrative Provisions on Internet Audio-Visual Program Service, which went effective in January 2008, any entity engaged in internet audio-visual program services must obtain a license from GAPPRFT or register with GAPPRFT. An applicant for engaging in internet audio-visual program services must be a state-owned entity or a state-controlled entity with full corporate capacity, and the business to be carried out by the applicant must satisfy the overall planning and guidance catalogue for internet audio-visual program service determined by GAPPRFT.

The State Administration of Radio, Film and Television and the Ministry of Industry and Information Technology later clarified in a press conference in February 2008 that privately owned website operators are eligible to apply for internet audio-visual program service licenses from GAPPRFT, if they have been engaged in internet audio-visual program services since before December 20, 2007, and they had before that date either obtained an operating license for commercial internet information services or filed for non-commercial internet information services. The Notice on Relevant Issues Concerning Application and Approval of License for Online Transmission of Audio-visual Programs issued in May 2008 further sets forth detailed provisions concerning the application and approval process regarding the internet audio-visual program service licenses.

The relevant VIEs or their relevant subsidiaries do not have internet publication licenses or internet and network transmission video and audio program licenses. For content which we believe is subject to the requirements of these licenses, such content is hosted by SINA through our contractual arrangement with SINA. In the case that SINA does not possess the necessary licenses and permits, our content hosted by SINA is subject to the risk of being suspended by government authorities. Moreover, we cannot assure you that the government would not require us to obtain these licenses separately for operation of our business even if the underlying hosting of the relevant content is provided by a qualified third party. “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—If we fail to obtain or keep licenses, permits or approvals applicable to the various real estate services provided by us, we may incur significant financial penalties and other government sanctions.”

Regulations on Advertising Services

Limitations on Foreign Ownership in the Advertising Industry

Pursuant to the Provisions on the Administration of Foreign-Invested Advertising Enterprises, foreign investors were required to have certain track record of operating advertising business outside of China before they can own and/or operate advertising business in China. These Provisions had been abolished as of June 26, 2015.

We maintain contractual arrangements with our VIEs which operate our real estate advertising business and real estate online advertising services by themselves or through their wholly owned subsidiaries. Shanghai SINA Leju, our majority-owned subsidiary, has entered into a series of contractual arrangements with Beijing Leju and its shareholders. Shanghai Yifang, our PRC subsidiary, has entered into a series of contractual arrangements with Shanghai Kushuo and its shareholders. Under these contractual arrangements:

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·                   we are able to direct the activities that most significantly affect the economic performance of the VIEs and their subsidiaries;

·                   a substantial portion of the economic benefits of the VIEs and their subsidiaries are transferred to us; and

·                   we, through our PRC subsidiaries, have an exclusive option to purchase all of the equity interests in the VIEs to the extent permitted by PRC law, or request any existing shareholder of them to transfer all or part of its equity interest in the relevant VIE to another PRC person or entity designated by us at any time in our discretion

See “Item 4. Information on the Company—C. Organizational Structure” and “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Contractual Agreements with Our VIEs.”

In the opinion of Fangda Partners, our PRC legal counsel, each of the agreements relating to the relevant VIEs establishing the structure for operating our PRC advertising business, in each case governed by PRC law, is valid, binding and enforceable in accordance with their terms based on currently effective PRC laws and regulations, and will not result in any violation of PRC laws or regulations currently in effect. We have been advised by our PRC legal counsel, however, that there are substantial uncertainties regarding the interpretation and application of the current or future applicable PRC laws and regulations. Accordingly, there can be no assurance that the PRC regulatory authorities, in particular the State Administration for Industry and Commerce (which regulates advertising companies), will not in the future take a view that is contrary to the opinion of our PRC legal counsel. We have been further advised by our PRC counsel that if the PRC government determines that the agreements establishing the structure for operating our PRC advertising business do not comply with PRC government restrictions on foreign investment in the advertising industry, we could be subject to severe penalties. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the PRC government finds that the agreements that establish the structure for operating our advertising services and internet information services in China do not comply with PRC governmental restrictions on foreign investment in the advertising industry or the internet information services industry, we could be subject to severe penalties.” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business In China—Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of draft PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.”

Pursuant to applicable PRC laws and regulations, the pledges of the equity interests in the VIEs by its shareholders under their equity pledge agreement must be registered with the relevant government authorities before such equity pledges can be enforceable under PRC law. The registration of the pledges of the equity interests in the VIEs has been completed.

Advertising Activities

The State Administration for Industry and Commerce is responsible for regulating advertising activities in China. The applicable regulations stipulate that companies that engage in advertising activities must obtain from State Administration for Industry and Commerce or its local branches a business license which specifically includes operating an advertising business within its business scope. As to placing advertisements on the internet, certain local administrations for industry and commerce may require such companies to apply for a license which includes within its business scope placing online advertisements on the internet. Companies conducting advertising activities without such a license may be subject to penalties, including fines, confiscation of illegal revenues and orders to cease advertising operations. The business license of an advertising company is valid for the duration of its existence, unless the license is suspended or revoked due to a violation of any relevant law or regulation. Each of the VIEs and its subsidiaries that operate advertising business has obtained and maintains a business license with advertising business in its business scope to provide its current advertising services.

Advertising Content

PRC advertising laws, rules and regulations set forth certain content requirements for advertisements in China including, among other things, prohibitions on false or misleading content, superlative wording, socially destabilizing content or content involving obscenities, superstition, violence, discrimination or infringement of the public interest. Advertisers, advertising agencies, and advertising distributors are required by PRC advertising laws and regulations to ensure that the content of the advertisements they prepare or distribute is true and in full compliance with applicable law. In providing advertising services, advertising operators and advertising distributors must review the supporting documents provided by advertisers for advertisements and verify that the content of the advertisements complies with applicable PRC laws, rules and regulations. Prior to distributing advertisements that are subject to government censorship and approval, advertising distributors are obligated to verify that such censorship has been performed and approval has been obtained. Violation of these regulations may result in penalties, including fines, confiscation of advertising income, orders to cease dissemination of the advertisements and orders to publish an advertisement correcting the misleading information. In circumstances involving serious violations, the State Administration for Industry and Commerce or its local branches may revoke violators’ licenses or permits for their advertising business operations. Furthermore, advertisers, advertising agencies or advertising distributors may be subject to civil liability if they infringe on the legal rights and interests of third parties in the course of their advertising business.

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Operational Matters of the Advertising Business

Under the PRC Advertising Law, entities engaged in the advertising business must establish and maintain registration, review and filing systems. Under the Implementation Rules for the Administrative Regulations for Advertising, promulgated by the State Administration for Industry and Commerce, as amended, the advertising agent fee may not be more than 15% of the advertising fees. The advertising customer must provide relevant documents, including certificates rendered by relevant supervisory administrations before an advertising service provider can deliver or place its advertisements. Based on our communications with the relevant local counterpart of the PRC Commodity Price Administration and the State Administration for Industry and Commerce, the relevant local government authorities have not yet established a filing procedure to review the advertising fees. If the relevant local government authorities begin to accept filings by companies engaging in an advertising business in the future, the VIEs and its subsidiaries that operate advertising business will make the necessary filings with the relevant authorities.

Regulations on the Internet Finance Industry

The internet finance industry in China has historically been largely unregulated. New guidelines were promulgated in July 2015 with the CBRC being appointed as the PRC regulatory body to oversee the internet finance industry in China. In July 2015, ten PRC central government authorities, including the PBOC, the CBRC, the Ministry of Finance, the Ministry of Public Security and the Cyberspace Administration of China, together released guidelines to set out regulatory principles for internet finance businesses, including those in the peer-to-peer lending, or P2P, industry. The guidelines have identified the CBRC as the regulator for the online lending industry. According to the guidelines, P2P companies should only serve as intermediaries to provide information services to borrowers and investors, and must not provide credit enhancement services or illegally conduct fund-raising. The guidelines also outline certain regulatory propositions, which would require Internet finance companies, including P2P companies, to (i) complete website filing procedures with the administrative departments overseeing telecommunications; (ii) use custody accounts set up with PBOC-approved banks to hold lending capital, and engage an independent auditor to audit such accounts and publish audit results to customers; (iii) improve the disclosure of operational and financial information, provide sufficient risk disclosure, and set up thresholds for qualified investors to provide better protections to investors; (iv) enhance online security management to protect customers’ personal and transactional information; and (v) take measures against money laundering and other financial crimes. Relevant authorities are in the process of implementing detailed rules for the P2P industry, but the content and timing of such new rules, which may impose licensing, reporting or capital adequacy ratio requirements or provide for other requirements for market participants, are uncertain.

Regulations on Intellectual Property Rights

Trademarks

The PRC Trademark Law and its Implementation Regulation give protection to the holders of registered trademarks. The Trademark Office, under the authority of the State Administration for Industry and Commerce, handles trademark registrations and grants rights for a term of ten years for registered trademarks, which may be renewed by the Trademark Office. In addition, trademark license agreements must be filed with the PRC Trademark Office. The PRC Trademark Law has adopted a “first-to-file” principle with respect to trademark registration. Where a trademark for which a registration has been made is identical or similar to another trademark which has already been registered or been subject to a preliminary examination and approval for use on the same kind of or similar commodities or services, the application for registration of such trademark may be rejected. Any person applying for the registration of a trademark may not prejudice the existing right first obtained by others, nor may any person register in advance a trademark that has already been used by another party and has already gained a “sufficient degree of reputation” through such party’s use. Trademark license agreements must be filed with the Trademark Office or its regional offices.

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We have successfully registered certain trademarks, including but not limited to “ ”,” ”,” ”,”CRIC”, “  “,”Leju”, and “ ” in China. We are currently waiting for registration results from the Trademark Office with respect to certain other trademarks we have applied to register. There is no assurance that we will be able to register such trademarks, or register them with the scope we seek.

Copyrights

The PRC Copyright Law extends copyright protection to cover internet activities and products disseminated over the internet. Copyrighted software is protected under the Copyright Law and other regulations. In addition, there is a voluntary registration system administered by the China Copyright Protection Center. Pursuant to the Regulations on the Protection of Computer Software, anyone who publishes, revises or translates computer software without the owner’s approval is subject to civil liability. For the software copyrights of legal persons or other organizations, the term of protection for the software copyright is 50 years, ending on December 31 of the fiftieth year after the first publication of the software. The software copyright owner may follow registration procedures with the software registration institution authorized by the State Bureau of Copyright and obtain a Registration Certificate of Software Copyright, which is prima facie proof of registered copyright ownership.

Trade Secrets

Under the PRC Anti-Unfair Competition Law, trade secrets refer to technical and business information which are not known to the public, capable of bringing economic benefits to the information proprietor, of utility to the information proprietor, and under confidentiality measures taken by the information proprietor. It will be an infringement on trade secrets if a person: (i) obtains trade secrets by theft, inducement by benefits, duress or other improper means; (ii) discloses, uses or permits others to use trade secrets obtained by the means listed in (i); (iii) discloses, uses or permits others to use trade secrets in his possession in breach of the agreement with, or the requirements of, the information proprietor for protecting the trade secrets; or (iv) obtains, uses or discloses trade secrets if he knows or ought to know such trade secrets were obtained through the illegal activities described above.

Regulations on Foreign Currency Exchange

The RMB is convertible into other currencies for the purpose of current account items, such as trade-related receipts and payments, interest and dividend. The conversion of RMB into other currencies and remittance of the converted foreign currency outside China for the purpose of capital account items, such as direct equity investments, loans and repatriation of investment, requires the prior approval from SAFE or its local office. Unless otherwise approved, PRC companies must repatriate foreign currency payments received from abroad. Foreign-invested enterprises may retain foreign exchange in accounts with designated foreign exchange banks subject to a cap set by SAFE or its local office. Unless otherwise approved, domestic enterprises must convert all of their foreign currency proceeds into RMB as required by law.

Pursuant to the PRC Foreign Exchange Administration Regulations, foreign exchange earnings of domestic institutions and individuals may be repatriated into the PRC or deposited overseas. The conditions and time limitations for repatriation into the PRC or deposit overseas shall be specified by the State Council foreign exchange management departments in accordance with the international balance payments situations and the needs of foreign exchange management. Furthermore, foreign exchange earnings under current account items may be retained or sold to financial institutions that conduct the business of settlement, sale and payment of foreign exchange.

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Enterprises in China, including foreign-invested enterprises, that require foreign exchange for transactions relating to current account items, may, without the approval of SAFE, effect payment from their foreign exchange account or convert and pay at the designated foreign exchange banks, upon presentation of valid receipts and proof. Foreign-invested enterprises that need foreign currencies for the distribution of profits to their shareholders, and Chinese enterprises that, in accordance with regulations, are required to pay dividends to shareholders in foreign currencies, may, with the approval of board resolutions on the distribution of profits, effect payment from their foreign exchange account or convert and pay at the designated foreign exchange banks.

Convertibility of foreign exchange in respect of capital account items, like direct investment and capital contribution, is still subject to restrictions, including requirements to obtain prior approval from or to complete registration with, SAFE or its relevant local branch. Restrictions on the convertibility of the RMB 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.

Our PRC subsidiaries have obtained requisite approvals or performed requisite formalities when processing conversion of foreign exchange under the above regulations.

Regulations on Foreign Exchange Registration of Offshore Investments by PRC Residents

The Notice on Issues Relating to the Administration of Foreign Exchange in Fund-Raising and Round-Trip Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or SAFE Circular 75, requires PRC residents to register with the relevant local branch of SAFE before establishing or controlling any company outside of China, referred to as an offshore special purpose company, for the purpose of raising funds from overseas to acquire or exchange the assets of, or acquiring equity interests in, PRC entities held by such PRC residents and to update such registration in the event of any significant changes with respect to that offshore company. SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced the SAFE Circular 75. SAFE Circular 37 requires PRC residents to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.” The term “control” under SAFE Circular 37 is broadly defined as the operation rights, beneficiary rights or decision-making rights acquired by the PRC residents in the offshore special purpose vehicles by such means as acquisition, trust, proxy, voting rights, repurchase, convertible bonds or other arrangements. SAFE Circular 37 further requires amendment to the registration in the event of any changes with respect to the basic information of the special purpose vehicle, such as changes in a PRC resident individual shareholder, name or operation period; or any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. If the shareholders of the offshore holding company who are PRC residents do not complete their registration with the local SAFE branches, the PRC subsidiaries may be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to the offshore company, and the offshore company may be restricted in its ability to contribute additional capital to its PRC subsidiaries. Moreover, failure to comply with SAFE registration and amendment requirements described above could result in liability under PRC law for evasion of applicable foreign exchange restrictions.

We have requested our beneficial owners who are PRC residents to make the necessary applications, filings and amendments required by SAFE. However, we cannot provide any assurance that all of our beneficial owners who are PRC residents will make or obtain any applicable registrations or approvals required by these SAFE regulations. The failure or inability of our PRC resident beneficial owners to comply with SAFE rules and the registration procedures set forth therein may subject these beneficial owners or our PRC subsidiaries to fines and legal sanctions, restrict our cross-border cash flows, limit the ability of our PRC subsidiaries’ to distribute dividends, repay foreign loans or make other outbound payments, limit our ability to make capital contributions or foreign exchange-denominated loans to our PRC subsidiaries or other inbound payments, or otherwise adversely affect our business. Moreover, failure to comply with SAFE registration requirements could result in liabilities under PRC laws for evasion of foreign exchange restrictions.

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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, such as 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 such company or the owners of such company 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.

Regulations on Loans to and Direct Investment in PRC Entities by Offshore Holding Companies

Pursuant to applicable PRC regulations on foreign debts, loans by foreign companies to their subsidiaries in China, which accordingly are foreign-invested enterprises, are considered foreign debt, and such loans must be registered with the local branches of SAFE. In addition, the total amount of the accumulated mid-term and long-term foreign debt and the balance of short-term debt borrowed by a foreign-invested enterprise is not allowed to exceed the difference between the total investment and the registered capital of the foreign-invested enterprise. Total investment of a foreign-invested enterprise is the total amount of capital that can be used for the operation of the foreign-invested enterprise, as approved by the Ministry of Commerce or its local counterpart, and may be increased or decreased upon approval by the Ministry of Commerce or its local counterpart. Registered capital of a foreign-invested enterprise is the total amount of capital contributions made to the foreign-invested enterprise by its foreign shareholders, as approved by the Ministry of Commerce or its local counterpart and registered at the State Administration for Industry and Commerce or its local counterpart.

Pursuant to applicable PRC regulations on foreign-invested enterprises, capital contributions from a foreign holding company to its PRC subsidiaries, which are considered foreign-invested enterprises, may only be made when the approval by the Ministry of Commerce or its local counterpart is obtained. In approving such capital contributions, the Ministry of Commerce or its local counterpart examines the business scope of each foreign-invested enterprise under review to ensure it complies with the Foreign Investment Industrial Guidance Catalogue.

Our PRC subsidiaries which are foreign-invested enterprises, such as E-House Shanghai, Shanghai CRIC, Shanghai SINA Leju and Shanghai City Rehouse Real Estate Agency Co., Ltd., are subject to the regulations discussed above.

Regulations on Employee Share Options

Under the applicable regulations and SAFE rules, PRC residents 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 Stock Incentive Plan of Overseas Publicly-Listed Company, or the Stock Option Rules, which terminated the Application Procedures of Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Ownership Plan or Stock Option Plan of Overseas Publicly-Listed Company issued by SAFE in March 2007. Pursuant to the Stock Option Rules, if a PRC resident who has an employment or labor relationship with a Chinese entity and participates in any stock incentive plan of an overseas publicly-listed company, a qualified PRC domestic agent, which could be a PRC subsidiary of such overseas publicly-listed company, 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 sale of stocks. In addition, the PRC agent is required to amend the SAFE registration with respect to the stock incentive plan if there is any material change to the stock incentive plan, the PRC agent or the overseas entrusted institution or other material aspects. 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 and managed by the PRC agent before distribution to such participants. Our PRC citizen employees who have been granted share options, or PRC option holders, are subject to these rules. If we or our PRC citizen employees fail to comply with these regulations, we or our PRC option holders may be subject to fines and legal sanctions.

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In addition, the State Administration of Taxation has issued certain circulars concerning employee share options. Under these circulars, our employees working in the PRC who exercise share options will be subject to PRC individual income tax. Our PRC subsidiaries have obligations to file documents related to employee share options with relevant tax authorities and to withhold individual income taxes for those employees who exercise their share options. If our employees fail to pay or we fail to withhold their income taxes in compliance with relevant laws and regulations, we may face sanctions imposed by the tax authorities or other PRC government authorities.

Regulations on Dividend Distribution

Under applicable PRC regulations, wholly foreign-owned enterprises and Sino-foreign equity joint ventures in China may pay dividends only out of their retained earnings, if any, determined in accordance with PRC accounting standards and regulations. Additionally, a wholly foreign-owned enterprise is required, as other enterprises subject to PRC laws, to set aside at least 10% of its after-tax profits each year, if any, to fund statutory reserve funds until the cumulative amount of such funds reaches 50% of its registered capital. For each of our PRC subsidiaries that has achieved profit under the PRC accounting standards, it has set aside at least 10% of its after-tax profits to meet the statutory reserve requirements. A wholly foreign-owned enterprise may, at its discretion, allocate a portion of its after-tax profits calculated based on the PRC accounting standards to staff welfare and bonus funds. None of our PRC subsidiaries has set aside its after-tax profits, if any, to fund these discretionary staff welfare and bonus funds. We have not implemented any policy or plan for our PRC subsidiaries to maintain discretionary staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends except in the event of liquidation and cannot be used for working capital purposes. These requirements apply to each of our PRC subsidiaries that are wholly foreign-owned enterprises.

C.                                     Organizational Structure

The following diagram illustrates our corporate structure, including our principal subsidiaries and VIEs as of the date hereof.

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(1)          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. We effectively control Beijing Leju through contractual arrangements. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Contractual Agreements with Our VIEs.”

(2)          Shanghai Yi Xin 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 Shanghai Yi Xin through contractual arrangements. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Contractual Agreements with Our VIEs.”

(3)          Beijing Jiajujiu is a VIE established in China in 2012 and is 70% owned by Mr. Zuyu Ding and 30% owned by Mr. Weijie Ma. We effectively control Beijing Jiajujiu through contractual arrangements. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Contractual Agreements with Our VIEs.”

(4)          Shanghai Kushuo is a VIE established in China in 2013 and is 50% owned by Mr. Zuyu Ding and 50% owned by Mr. Weijie Ma. We effectively control Shanghai Kushuo through contractual arrangements. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Contractual Agreements with Our VIEs.”

(5)          Shanghai Fangjia is a VIE established in China in 2014 and is 50% owned by Mr. Zuyu Ding and 50% owned by Ms. Yan Zhang. We effectively control Shanghai Fangjia through contractual arrangements. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Contractual Agreements with Our VIEs.”

(6)          Shanghai Weihui is a VIE established in China in 2014 and is 80% owned by Mr. Xudong Zhu and 20% owned by Mr. Xi Yang. We effectively control Shanghai Weihui through contractual arrangements. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Contractual Agreements with Our VIEs.”

D.                                     Property, Plants and Equipment

Our headquarters are located in Shanghai, China, where we lease approximately 34,152 square meters of corporate office space. As of December 31, 2015, our offices in 68 cities occupy an aggregate of 143,930 square meters of leased space.

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Our revenues increased 13% to $1,023.7 million for the year ended December 31, 2015 from $904.5 million for the year ended December 31, 2014. Starting in 2010, the PRC government adopted a series of restrictive policies for the real estate industry in China, which has had a material and adverse effect on the overall real estate market in China and hence our business operations. Although the government loosened some of the restrictive measures in 2015 and 2016, all of these policies are subject to frequent changes. We had net loss attributable to E-House shareholders of $270.4 million and $57.0 million in 2011 and 2012, respectively. In 2013 and 2014, we had net income attributable to E-House shareholders of $52.0 million and $40.0 million, respectively, and in 2015, we had net loss attributable to E-House shareholders of $39.9 million. We derive substantially all of our revenues from our operations in China.

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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.

Real Estate Brokerage Services . Our real estate brokerage services consist of primary real estate agency services and secondary real estate brokerage services.

Revenues from our primary real estate agency services have constituted a significant portion of our total revenues. Our primary real estate agency services mainly consist of marketing and sale of new properties for developer clients. We earn sales commissions based on terms negotiated with our developer clients, which vary from project to project. Each of our agency contracts specifies commission rates that are expressed as percentages of transaction value. We define the transaction value of any project as the aggregate of the sales proceeds of all property units we have sold for the project. For certain projects, we are able to negotiate additional commissions payable upon our achieving specified sales targets in terms of GFA or average selling price of properties sold. The majority of our agency contracts stipulate that our developer clients are responsible for the cost of promotion and advertising, either by paying the costs directly or reimbursing us for promotion and advertising costs we incur. The other form of agency contracts provide for higher commission rates for us, in exchange for which we are required to bear all promotion and advertising costs.

We recognize revenues from our primary real estate agency services upon facilitating each “successful sale” of a property unit. “Successful sale” is defined in individual contracts with our developer clients to mean completion of various significant steps, which typically include the property purchaser’s execution of the sales contract and delivery of the down payment as well as the registration of the sales contract with relevant governmental authorities. We typically settle the payment of our commissions with our developer clients upon the completion of the entire project or a phase of a project based on successful sales achieved during the period, which typically lasts several months. The time lag between the time we actually make sales, bill our clients and collect the commissions owed to us, which we believe is typical of the real estate agency business in China, is reflected in our accounts receivable and has from time to time resulted in our operating with negative cash flows. As of December 31, 2015, our accounts receivable balance, net of allowance for doubtful accounts, totaled approximately $291.5 million. If a large portion of our accounts receivable becomes delinquent and must be written off, our results of operations may be materially and adversely affected.

We have in the past entered into, and expect to continue to enter into, contracts from time to time with developers requiring us to pay deposits, which has from time to time resulted in our operating with negative cash flows or, if we fail to recover such deposits, could have a material and adverse effect on our liquidity, financial condition and results of operations.

Revenues from our primary real estate agency services are significantly affected by the following operating measures that are widely used in the primary real estate agency services industry and appear throughout this annual report:

·                   total GFA of the properties we sell;

·                   total transaction value of the properties we sell; and

·                   commission rates

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In recent years, much of our revenue growth for our primary real estate agency services business has been driven by increased GFA and transaction value of the properties we sold. The total GFA of the properties whose sale we facilitate is largely affected by real estate market conditions in China in general, and local market conditions in particular, our ability to market and sell our services to real estate developers, our developer clients’ development and sales schedule and our ability to market and sell these properties. The total transaction value of the properties we sell is the aggregate sales proceeds of all the properties we have sold and, therefore, is affected by the total GFA and the average selling price of properties we sell. Our commission rates are based on individually negotiated contracts with our developer clients, which are typically affected by our ability to market and sell our services to developers, competitive pressure and developers’ perception of the level of difficulty of selling the properties. As our sales commissions are determined based on the transaction value of the properties we sell and our commission rates, any increase or decrease of the transaction value or our average commission rates may affect our revenues from primary real estate agency services.

Revenues from our secondary real estate brokerage services accounted for a small portion of our total revenues. Under applicable PRC law, we are permitted to represent both the seller and the purchaser and are entitled to receive 0.5% to 2.5% of the transaction value as the total sales commission from both sides in a secondary real estate sales transaction. In major cities, we typically represent both the seller and the purchaser in accordance with customary practice. For rental units, we are permitted under applicable PRC law to charge a one-time commission ranging from 50% to 100% of the contracted monthly rent for facilitating the rental transactions. For our secondary real estate brokerage services in Hong Kong and Macau, we normally charge a one-time commission based on negotiations. We recognize our commissions as revenue when the sales or rental contract is executed by all the parties to the contract, at which point we have fulfilled our obligations in connection with the sales or rental transaction.

Revenues from our secondary real estate brokerage services are significantly affected by real estate market conditions in China in general, and local market conditions in particular, the number of sales transactions we facilitate, the aggregate transaction value of the properties we facilitate and commission rates. The number of sales transactions we facilitate depends in large part on our network of storefronts, our brand recognition, our ability to attract a large number of potential sellers and purchasers, our ability to obtain information on potential sales leads and the quality of our services. Our commissions may be lower than the maximum rate permissible under PRC laws and regulations, as a result of negotiations with individual parties and in response to competition.

Real Estate Information and Consulting Services . Our real estate information services include primarily the sale of online subscriptions to our proprietary CRIC system and related customized real estate reports, which allow subscribers to search information in our CRIC system and generate analytical reports. Subscription fees vary depending on the number of terminals and number of cities covered. We receive subscription fees on an annual basis starting at the beginning of the subscription period and recognize revenues ratably over the subscription period. Revenues from our real estate information services depend primarily on the number of subscriptions to our CRIC system and customized reports, as well as unit subscription fees. The number of subscriptions we sell is in turn affected by the number of active real estate projects and developers at any given time as well as by our marketing and brand promotion efforts and the quality and usefulness of our database.

We provide real estate consulting services to customers in relation to land acquisition and property development. In certain instances, we agree to a consulting arrangement under which payment is contingent upon the delivery of a final product, such as closing a land acquisition transaction or providing a market study report. We recognize revenue under such arrangements upon delivery of the final product, assuming customer acceptance has occurred and the fee is no longer contingent. In other instances, we provide services periodically for a real estate project. The contractual period for such arrangements is usually between one and 12 months with revenue being recognized ratably over such period.

Revenues from our real estate consulting services are significantly affected by the number of major real estate developer clients we have and the scope and depth of consulting services they require from us. Generally, we maintain business relationships with national and regional real estate developers’ local subsidiaries or branches, and enter into individual contracts with each subsidiary or branch. However, in limited cases, such as our relationship with Evergrande, we maintain the business relationship with the headquarters of the real estate developer.

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Leveraging the strength of our real estate data, we officially launched the CRIC home price ratings website www.fangjiadp.com and its related mobile app (together, “Fangjiadp”) in July 2014. The website and app covered more than 9,500 new residential developments in 26 cities, as well as more than 17,500 existing residential compounds in 13 cities in China as of March 31, 2016. Fangjiadp provides independent home price estimates, qualitative reviews, and ratings for primary and secondary market residential compounds. By entering an address (down to each individual apartment unit level) or compound name, consumers can instantly obtain the estimated market value of both new and previously-owned properties, as well as CRIC’s expert opinions on other aspects of the properties. We have not started generating revenues from the CRIC home price ratings website and app.

Community value-added services . We started our community value-added services, through the launch of “Shi Hui” app, in July 2014. Users download Shi Hui and select their residential compounds, office buildings and/or schools and can win promotional products and free services provided by a variety of merchants and service providers on a daily basis. Users can also locate nearby restaurants, stores and other local service providers, and participate in chat groups with people in the same communities. Shi Hui can also be used by participating property management offices to facilitate the collection of property management fees. No material revenue was generated from community value-added services in 2015.

Other Services . Our other services include real estate advertising services, real estate promotional event services, real estate investment fund management (for part of 2015) and real estate financial services.

We started providing real estate advertising sales services in 2009 by making wholesale purchases of advertising space in print and other media and reselling them to our developer clients. Revenues from our advertising sales services are significantly affected by real estate market conditions, our willingness and ability to purchase and resell a large number of advertising spaces from print and other media and our relationship with our developer clients.

We started providing promotional event services in 2010. Our promotional event services include securing venues, hiring caterers and other various service providers, formulating event themes and inviting speakers and guests for real estate promotional events. Revenues from our promotional event services are significantly affected by real estate market conditions, clients’ promotional budgets and the perceived effectiveness of the promotional events and our services.

In July 2015, we transferred our real estate investment fund management business unit to Jupai in exchange for Jupai’s ordinary shares. Revenues from real estate fund management were based upon investment advisory and related agreements and were recognized as earned over the specified contract period. In addition to the fund management fees, we were entitled to performance-related carried interest, representing an allocation of profits in the event that investors in the fund achieve cumulative investment returns in excess of a specified amount. The carried interest was a component of our general partnership interests in the real estate funds. We recorded the carried interest as revenue at the end of the contract year.

We launched our real estate financial services P2P platform, “Fang Jin Suo”, and its associated website, www.fangjs.com , in July 2014. Fang Jin Suo serves to link qualified home buyers with borrowing needs to potential individual investors. We plan to charge a certain percentage of the borrowing amount as a platform fee. In 2015, no material revenue was generated from Fang Jin Suo.

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Cost of Revenues. Cost of revenue for each of our main business segments is as follows:

·                   Cost of revenue for our real estate online services segment 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 inventory on SINA’s non-real estate channels.

·                   Cost of revenue for the real estate brokerage services segment includes costs directly related to providing services, which include costs incurred for marketing and sale of primary real estate projects for which we act as the agent, and rental expenses incurred for properties leased by us as brokerage stores and sales commission.

·                   Cost of revenue of real estate information and consulting services segment primarily consists of sales commission, service fees incurred for purchasing certain consulting reports and data and costs incurred for developing, maintaining and updating the CRIC database system, which includes cost of data purchased or licensed from third-party sources, technical personnel related costs and associated equipment depreciation.

·                   Cost of revenue for real estate promotional event and advertising services consists of fees paid to third parties for services directly related to promotional event services and the cost incurred to acquire advertising space for resale, and salaries of sales and support staff.

·                   There was no material cost of revenues associated with our real estate financial services and community value-added services as these services were relatively new with immaterial revenues.

Selling, General and Administrative Expenses . Our selling, general and administrative expenses primarily consist of compensation and benefits for our employees, expenses incurred in promoting our brand and services, costs of third-party professional services, costs related to industry research and the development of our CRIC system, rental payments relating to office and administrative functions and depreciation and amortization of property and equipment used in our corporate offices. In addition, our selling, general and administrative expenses have also included amortization of intangible assets resulting from business acquisitions.

Share-based Compensation Expenses

E-House awards . Our selling, general and administrative expenses also include share-based compensation expenses. We have adopted share incentive plans and have granted to certain of our directors, executive officers and employees options and restricted shares. See “Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers—E-House Share Incentive Plan.” Share-based compensation expenses are recognized, generally over the vesting period of the award based on the fair value of the award on the grant date.

We determine share-based compensation expenses based on the fair value of the options as of the date of grant and amortize such expenses over the vesting period of the options. A change in the amount of share-based compensation expenses will primarily affect our net income, earnings per share and operating expenses.

We engaged an independent appraiser to assess the fair value of our options. Determining the fair value of options requires making complex and subjective judgments.

We recorded compensation expense of $18.5 million, $12.1 million and $9.7 million in 2013, 2014 and 2015, respectively, in connection with the options and restricted shares granted under our share incentive plan. As of December 31, 2015, there was $11.4 million of total unrecognized compensation expense related to unvested share options and restricted shares granted under our share incentive plan. That cost is expected to be recognized over a weighted-average period of 1.6 years.

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Leju awards . In November 2013, our subsidiary, Leju, adopted a share incentive plan, or the Leju Plan. The Leju 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 Leju Plan is 10,434,783 ordinary shares initially, 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 Leju Plan. Pursuant to the Leju Plan, Leju granted the following awards in the past three years:

·                   In December 2013, Leju granted options and restricted shares to certain of Leju’s employees and certain of our employees for the purchase of 7,192,000 ordinary shares at an exercise price or cost of $4.60 per share. The grant-date fair value of the options granted was $2.21 per share. Later in December 2013, Leju replaced 600,000 options granted to two of our employees with the same number of restricted shares, with all other substantive terms remaining unchanged. In January 2014, Leju replaced 60,000 options granted to one of our employees with the same number of restricted shares, with all other substantive terms remaining unchanged. There is no incremental compensation cost from the replacement.

·                   In March 2014, Leju granted 866,000 restricted shares to certain of its employees and directors, which vest ratably at each grant date anniversary over a period of three years. In August 2014, Leju granted 229,400 restricted shares to certain of its employees, which vest over a period of eight months.

·                   In April 2015, Leju granted options to certain of Leju’s employees for the purchase of 501,000 ordinary shares at an exercise price of $9.68 per share. In August 2015, Leju granted options to certain of Leju’s employees for the purchase of 30,000 ordinary shares at an exercise price of $7.00 per share. In December 2015, Leju granted options to certain of Leju’s employees and certain of our employees for the purchase of 1,986,000 ordinary shares at an exercise price of $5.54 per share.

The options expire ten years from the date of grant. The options and most of the restricted shares vest ratably at each grant date anniversary over a period of three years.

We recorded compensation expenses of $10.4 million for the options and restricted shares that were granted under the Leju Plan in 2015. As of December 31, 2015, there was $15.9 million of total unrecognized compensation expense related to unvested share options and restricted shares granted under the Leju Plan. That cost is expected to be recognized over a weighted-average period of 1.9 years.

Omnigold awards . In 2015, Omnigold Holdings Limited, or Omnigold, which is an indirect subsidiary of Leju, adopted a share incentive plan, or the Omnigold Plan, pursuant to which (i) the maximum number of shares of Omnigold available for issuance pursuant to all awards under the Omnigold Plan, or the Omnigold Award Pool, is initially 5,000,000 as of the date on which the Omnigold Plan was approved and adopted by the board of directors of Omnigold, or the Omnigold Plan Effective Date, and (ii) the Omnigold Award Pool is increased automatically by 5% of the then total issued and outstanding shares of Omnigold on an as-converted fully diluted basis on each of the third, sixth and ninth anniversary of the Omnigold Plan Effective Date.

In August 2015, Omnigold granted 2,400,000 options to purchase its ordinary shares to certain of Leju’s employees at an exercise price of $1.50 per share. The options expire ten years from the date of grant and vest ratably at each anniversary of the grant date over a period of three years.

We recorded compensation expenses of $80,577 for the options and restricted shares that were granted under the Omnigold Plan in 2015. As of December 31, 2015, there was $0.5 million of total unrecognized compensation expense related to unvested share options and restricted shares granted under the Omnigold Plan. That cost is expected to be recognized over a weighted-average period of 2.6 years.

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Scepter awards . Scepter, which was our 51% owned subsidiary prior to July 2015, adopted a share incentive plan, or the Scepter Plan, in August 2014. The Scepter Plan permits the grant of options or restricted shares to Scepter’s employees, officers, and directors, as well as our employees who render services to Scepter. The maximum number of shares that may be issued pursuant to all awards under the Scepter Plan is 750,000 ordinary shares. Pursuant to the Scepter Plan, Scepter granted the following awards in the past three years:

·                   In August 2014, Scepter granted options to certain of its employees and certain of our employees for the purchase of 455,000 ordinary shares at an exercise price of $3.30 per share. The grant-date fair value of the options was $1.12 per share.

·                   In June 2015, Scepter granted options to certain of its employees for the purchase of 85,000 ordinary shares at an exercise price of $5.50 per share.

The options expire ten years from the date of grant and vest ratably at each grant date anniversary over a period of three years. As part of our agreement with Jupai, all outstanding awards under the Scepter Plan were converted to awards under Jupai’s share incentive plan with the same conditions after Jupai’s initial public offering in July 2015.

We recorded compensation expenses of $84,452 for the options that were granted under the Scepter Plan in 2015. We have no unrecognized compensation expense related to unvested share options granted under the Scepter Plan.

Taxation

We are incorporated in the Cayman Islands. We are not subject to income or capital gains tax under the current laws of the Cayman Islands. Payments of dividends and capital in respect of our shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of our shares.

Our subsidiaries in the British Virgin Islands are not subject to income or capital gains tax under the current laws of the British Virgin Islands.

Our operation in Hong Kong is subject to a profit tax at the rate of 16.5% on assessable profit determined under relevant Hong Kong tax regulations.

Our operation in Macau is subject to the complementary tax at a progressive tax rate of 0% to 12% on Macau sourced profits.

The PRC Enterprise Income Tax Law applies a uniform 25% tax rate to both foreign-invested enterprises and domestic enterprises in the PRC. However, there are some tax incentives available for qualified enterprises under the PRC Enterprise Income Tax law. 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. Shanghai SINA Leju was also granted status as a “high and new technology enterprise” and is entitled to enjoy a favorable statutory tax rate of 15% from 2013 through 2014. Shanghai SINA Leju renewed its qualification of “high and new technology enterprise” in 2015 and is entitled to enjoy a favorable statutory tax rate of 15% from 2015 through 2017. Shanghai CRIC was also granted software enterprise status in September 2008 and was further approved by the local tax authority in May 2010 to become qualified to be exempted from income tax for 2009, followed by a 50% reduction in income tax from 2010 through 2012. Shanghai CRIC was approved as a “high and new technology enterprise” and is therefore subject to a 15% preferential income tax rate from 2013 through 2014. In March, 2014, Shanghai CRIC was approved as a key software enterprise and was therefore entitled to a 10% preferential income tax rate for the years from 2013 through 2014. In March 2015, Shanghai CRIC was approved as a “high and new technology enterprise” and was therefore entitled to a 15% preferential income tax rate for the years from 2015 through 2016. Shanghai Fangxin was recognized as a qualified software enterprise in February 2012 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. Qualified software enterprise status is subject to annual review. Shanghai SINA Leju, Shanghai CRIC and Shanghai Fangxin are in the process of completing the annual review for 2015.

Our wholly owned subsidiary, Chongqing E-House Western Real Estate Investment Consultant Co., Ltd., was established in the western region of China and was deemed to be engaged in an industry category encouraged by the government. In August 2012, Chongqing E-House Western Real Estate Investment Consultant Co., Ltd was approved to enjoy a preferential income tax rate of 15% from 2012 through 2014.

VAT has been phased in since January 1, 2012 to replace the business tax in China. Some of our entities in China are recognized as VAT general taxpayers at the rate of 6% and have stopped paying business tax. The subjection to VAT does not have a material impact on our consolidated financial statements.

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Under the PRC Enterprise Income Tax Law, dividends from our PRC subsidiaries to non-PRC entities that are attributable to profits earned on or after January 1, 2008, are subject to a withholding tax. This withholding tax may be as high as 20%, although under the detailed implementation rules promulgated by the PRC tax authorities, the effective withholding tax is currently 10%, unless otherwise reduced or exempted by treaties or applicable PRC law.

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. Our current holding structure does not allow us to receive any further relief from tax treaties or arrangements. Dividend payments are not subject to tax in Hong Kong, Macau, the British Virgin Islands or the Cayman Islands.

Under the PRC Enterprise Income Tax 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 PRC Enterprise Income Tax Law, “de facto management bodies” are defined as the bodies that have material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and treasury, and acquisition and disposition of properties and other assets of an enterprise. We cannot assure you that we will not be deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law and be subject to the PRC enterprise income tax at the rate of 25% on our worldwide income. “Item 3. Key Information—D. 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 PRC Enterprise Income Tax Law and our investors may be subject to PRC withholding tax on the transfer of our ordinary shares or ADSs.”

Critical Accounting Policies

We prepare our financial statements in conformity with U.S. GAAP, which require 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 those 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 periodically, 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 annual report.

Revenue Recognition

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

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Real estate online services

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

Our e-commerce services primarily include discount coupon advertising and online property auctions. We also provide property viewing and pre-sale customer support free of charge in connection with the sale of discount coupons and online property auctions. E-commerce revenues are principally generated from selling discount coupons to potential property buyers. Those discount coupons allow buyers to purchase specified properties from real estate developers at discounts greater than the face value of the fees charged by us. The discount coupons are refundable to the buyers at any time before they are used 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 are reasonably assured. Revenues are recognized based on the net proceeds received as we act as a marketing agent of the property developer in the transaction.

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 our websites, 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 hosted 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.

Real estate brokerage services

We provide marketing and sales agency services to primary real estate developers. We recognize the commission revenue when a successful sale of property has occurred and upon completing the services required to execute a successful sale without further contingency. A successful sale is defined in each agency contract and is usually achieved after the property buyer has executed the purchase contract, made the required down payment, and the purchase contract has been registered with the relevant government authorities. We may also be entitled to earn additional revenue on the agency services if certain sales and other performance targets are achieved, such as average sale price over a pre-determined period. These additional agency service revenues are recognized when we have accomplished the required targets.

We provide brokerage service for secondary real estate sale and rental transactions. For secondary real estate brokerage service, we recognize revenue upon execution of a transaction agreement between the buyer/lessee and the seller/lessor for which we act as the broker.

Real estate information and consulting services

We sell subscriptions to our proprietary CRIC system for which revenues are recognized ratably over the subscription period, which is usually six to 12 months. We also provide data integration services periodically, such as periodic market updates and research analysis that suit the specific needs and requirements of individual clients in addition to access to the CRIC system. The contractual period for such arrangements is usually between three to 12 months with revenue being recognized ratably over such period.

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We provide real estate consulting services to customers in relation to land acquisition and project consulting services. Land acquisition consulting services involve advising customers in relation to land acquisition and facilitating the transfer of land development rights. Payment is usually contingent upon the delivery of a final product, such as closing a land acquisition transaction. We recognize revenue under such arrangements upon delivery of the final product, assuming customer acceptance has occurred and the fee is no longer contingent. Project consulting services involve providing consulting services, including project feasibility studies, analysis of the real estate transaction history of nearby development projects, marketing and advertising consulting, and development of comprehensive plans for clients’ development projects. Such arrangements include periodic consulting services arrangements and delivery based consulting services arrangements. Periodic consulting services involve providing consulting services which are tailored to meet the needs of real estate developer clients at various stages of the project development and sales process for a specified period, such as monthly market studies. The contractual period for such arrangements is usually between one and 12 months with revenue being recognized ratably over such period. Delivery based consulting services involve providing consulting services which are tailored to meet the specific need of real estate developer. Payment is usually contingent upon the delivery of a final product, such as providing a market study report. We recognize revenue under such arrangements upon delivery of the final product, assuming customer acceptance has occurred and the fee is no longer contingent.

Community value-added services

In 2015, no material amount of revenue was generated from the relatively new community value-added services.

Other services

We provide promotional event services, and recognize revenue when such services are rendered, assuming all other revenue recognition criterion have been met. We also generate revenues from advertising sales services by acquiring advertising space and subsequently reselling such space. Revenues under such arrangements are recognized when the related advertisement is placed. We recognize advertising sales revenues on a gross basis because we act as a principal and are the primary obligator in the arrangement.

We also generate revenues from real estate fund management fees, performance fees and allocations. Real estate fund management fees are based upon investment advisory and related agreements and are recognized as earned over the specified contract period. Performance fees and allocations represent the preferential allocations of profits (“carried interest”) that are a component of our general partnership interests in the real estate funds. We are entitled to an additional return from the investment fund in the event investors in the fund achieve cumulative investment returns in excess of a specified amount. We record the additional return from these carried interests as revenue at the end of the contract year.

In 2015, no material amount of revenue was generated from the relatively new real estate financial services.

Multiple element arrangements

We have multiple element arrangements that may include provision of primary real estate services, online services, promotional event services, consulting services and/or information services. We have determined that each of the deliverables listed above is considered a separate unit of account as each has value to the customer on a stand-alone basis and has been sold separately on a stand-alone 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 control by us.

We allocate 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 (“VSOE”) if available; (ii) third-party evidence (“TPE”) if VSOE is not available; and (iii) best estimate of selling price (“BESP”) if neither VSOE nor TPE is available.

VSOE . We determine VSOE based on its historical pricing and discounting practices for the specific service when sold separately. In determining VSOE, we require that a substantial majority of the selling prices for the services fall within a reasonably narrow pricing range. We have historically priced our commission rate for the primary real estate services, periodic consulting services, subscription for the CRIC system and online services within a narrow range. As a result, we have used VSOE to allocate the selling price for these services when they were elements of a multiple element arrangement. We have not historically priced delivery based consulting service and promotional event services within a narrow range, therefore, we use TPE and BESP as discussed below.

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

BESP . When we are unable to establish selling price using VSOE or TPE, we use BESP in our allocation of arrangement consideration. The objective of BESP is to determine the price at which we would transact a sale if the service were sold on a stand-alone basis. We determine BESP for deliverables by considering multiple factors including, but not limited to, prices charged for similar offerings, market conditions, specification of the services rendered and pricing practices. We have used BESP to allocate the selling price of project-based consulting service and promotional event services under the multiple element arrangements. The process for determining BESP involves management judgment. Our 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 we consider change, or should subsequent facts and circumstances lead us to consider additional factors, our BESP could change in future periods. We regularly review the evidence of selling price for our services and maintain internal controls over the establishment and updates of these estimates. There were no material changes in estimated selling price for our services during the years ended December 31, 2013, 2014 and 2015, nor do we expect material changes in BESP in the foreseeable future.

The total amounts of revenue earned by us related to agreements that have been accounted for as multiple element arrangements were $71.9 million, $74.2 million and $77.3 million in 2013, 2014 and 2015, respectively.

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

Share-Based Compensation

We use a fair-value based method to account for share-based compensation. Accordingly, share-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as expense over the employees’ requisite service period. Total compensation expense in 2013, 2014 and 2015 was $18.9 million, $22.2 million and $22.4 million, respectively.

Determining the value of our share based compensation expense in future periods requires the input of highly subjective assumptions, including the expected life of the share-based awards, estimated forfeitures and the price volatility of the underlying shares. The assumptions used in calculating the fair value of share-based awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and we use different assumptions, our share-based compensation expense could be materially different in the future.

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Our Consolidated VIEs

We rely on Beijing Leju, Shanghai Yi Xin, Beijing Jiajujiu, Shanghai Kushuo, Shanghai Fangjia and Shanghai Weihui, and their respective shareholders for a portion of our operations. We have, through our PRC subsidiaries, entered into contractual arrangements with these entities and their shareholders such that they are considered variable interest entities 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 the power to control the shareholders of these 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 VIEs and their shareholders, each of the shareholders of the VIEs irrevocably grants any person designated by us the power to exercise all voting rights to which he is entitled to as a shareholder of the VIEs at the time. Therefore, we believe this gives us the power to direct the activities that most significantly impact the 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 VIEs in consideration for the services provided by our PRC subsidiaries. Accordingly, as the primary beneficiary of the VIEs and in accordance with U.S. GAAP, we consolidate their financial results and assets and liabilities in our consolidated financial statements.

In 2013, 2014 and 2015, entities apart from our consolidated VIEs contributed in aggregate 56%, 46% and 45%, respectively, of our total net revenues. Our operations not conducted through contractual arrangements with our consolidated VIEs primarily consist of real estate brokerage services, real estate information and consulting services, promotion events services, outsourcing arrangements business, support services for online advertising business and agency services included with our e-commerce business. The following tables set forth our revenues, cost of revenues and net income (loss) for the consolidated VIEs and other group entities which are not our consolidated VIEs for the years indicated:

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