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Who Wants To Speculate On The Chinese Real Estate Bubble?

It's been years since I found myself staring agape at an IPO.

The IPO for SouFun Holdings opened at $67 this morning, after pricing 2,933,238 shares at $42.50. That was already thought to be the high end of the expected $40.50-$42.50 range. But SouFun blew right through those numbers.

So the first thing we know is that Deutsche Bank Securities and Goldman Sachs (Asia) L.L.C , who led this IPO, seemed to have screwed over the owners of SouFun by mispricing the deal. Banks used to do this a lot back in the dot com era, in part to deliver an immediate gain to the clients who were able to buy in at the IPO price. There was also the theory among bankers that the open and leap IPOs helped boost investor appetite for other deals, even if they screwed over the individual client.

SouFun is allegedly the second most popular real estate Internet portal in China. Which is to say, it is a derivative play on Chinese real estate.

If you have any doubts about the sustainability of the growth of Chinese real estate prices, you have to wonder whether a website for checking out home prices and details of homes for sale is worth what the market is pricing today. Remember that over the past year, China's home prices have increased 12%, according to the China's National Bureau of Statistics. This despite the fact that, according to former Morgan Stanley economist Andy Xie, between 25% to 30% of private commercial and housing stock in China remains vacant. People are bidding up empty homes.

No doubt, there will be some short term trades to be made with SouFun.

But when the Chinese real estate bubble bursts, checking out real estate on line won't be "So Fun" anymore. And SouFun will likely be dead.

Apparently, SouFun isn't that upset that they gave up so much of the upside on their IPO.

"As China No.1 real estate portal and also the world’s most visited real estate website company, SouFun shall enjoy premium when it goes to the market. I think the banks have done a good job at being able to mobilize global investors. Fundamentally, it is SouFun’s strong leadership in the market, track record performance in the past, and its future potential which attracts global investors," Vincent Mo, the company's founder, chairman and CEO, stated in an email to NetNet.

Deutsche Bank and Goldman Sachs were contacted and did not immediately return requests for comments, and if they do, we'll update you.

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