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Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 20-F

(Mark One)o

REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934ORý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2012.ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                        to                
        .ORo

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934


Date of event requiring this shell company report.

Commission file number: 001-34598

IFM Investments Limited(Exact name of Registrant as specified in its charter)

N/A(Translation of Registrant's name into English)

Cayman Islands(Jurisdiction of incorporation or organization)

26/A, East Wing
Hanwei Plaza No. 7, Guanghua Road, Chaoyang District
Beijing 100004, People's Republic of China(Address of principal executive offices)

Donald Zhang
26/A, East Wing
Hanwei Plaza No. 7, Guanghua Road, Chaoyang District
Beijing 100004, People's Republic of China
Phone: (86 10) 6561-7788
Facsimile: (86 10) 6561-3321(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

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

Title of Each Class

Name of each exchange on which registeredAmerican Depositary Shares, each representing forty-five
Class A ordinary shares, par value US$0.001 per share.

New York Stock Exchange


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

None(Title of Class)

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

None(Title of Class)

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.

As
of December 31, 2012, we had 667,671,676 ordinary shares, par value US$0.001 per share. As of April 19, 2013, the latest practicable date, we had 668,108,210 ordinary
shares, par value US$0.001 per share.

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

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. Yes o    No ý

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. Yes ý    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 for such shorter period that the
registrant was required to submit and post such files). Yes ý    No o

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):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer ýIndicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:U.S. GAAP ý

International Financial Reporting Standards as issued
by the International Accounting Standards Board

Other o


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.

Item 17 o    Item 18 o

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). Yes o    No ý

(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. Yes o    No o





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Table of Contents



TABLE OF CONTENTS



PageIntroduction


1Item 1.

Identity of Directors, Senior Management and Advisors


3Item 2.

Offer Statistics and Expected Timetable


3Item 3.

Key Information


3Item 4.

Information on the Company


30Item 4A.

Unresolved Staff Comments


52Item 5.

Operating and Financial Review and Prospects


52Item 6.

Directors, Senior Management and Employees


77Item 7.

Major Shareholders and Related Party Transactions


84Item 8.

Financial Information


88Item 9.

The Offer and Listing


89Item 10.

Additional Information


90Item 11.

Quantitative and Qualitative Disclosures About Market Risk


97Item 12.

Description of Securities Other Than Equity Securities


98Item 13.

Defaults, Dividend Arrearages and Delinquencies


100Item 14.

Material Modifications to the Rights of Security Holders and Use of Proceeds


100Item 15.

Controls and Procedures


100Item 16A.

Audit Committee Financial Expert


101Item 16B.

Code of Ethics


101Item 16C.

Principal Accountant Fees and Services


101Item 16D.

Exemptions From the Listing Standards for Audit Committees


102Item 16E.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers


102Item 16F.

Change in Registrant's Certifying Accountant


102Item 16G.

Corporate Governance


103Item 16H.

Mine Safety Disclosure


104Item 17.

Financial Statements


104Item 18.

Financial Statements


104Item 19.

Exhibits


104


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Table of Contents

Introduction

CONVENTIONS WHICH APPLY TO THIS FORM

Unless otherwise indicated, references in this annual report on Form 20-F
to:



Unless
otherwise indicated, references to our principal subsidiaries in this annual report on Form 20-F are specified as
follows:



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This
annual report contains translations of certain Renminbi amounts into U.S. dollars at specified rates. Unless otherwise stated, the translation of Renminbi into U.S. dollars has been
made at the rate in effect on December 31, 2012, which was RMB6.2301 to US$1.00, the noon buying rate in New York City for cable transfers of Renminbi per U.S. dollar as set forth in the
H.10 weekly statistical release of the Federal Reserve Board of the United States on December 31, 2012. We make no representation that the Renminbi or U.S. dollar amounts referred to in
this annual report could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all.

This
annual report contains references to compound annual growth rate, which represents the rate of return on an annualized basis over the relevant time period.

CENTURY
21® is a registered trademark owned by a subsidiary of Realogy Corporation, or Realogy.

FORWARD-LOOKING STATEMENTS

This annual report on Form 20-F contains forward-looking statements that relate to future events, including our
future operating results and conditions, our prospects and our future financial performance and condition. These statements involve known and unknown risks, uncertainties and other factors, including
those listed under "Item 3. Key InformationD. Risk Factors," which may cause our actual results, performance or achievements to be materially different from any future results,
performances or achievements expressed or implied by the forward-looking statements.

Forward-looking
statements typically are identified by words or phrases such as "may," "will," "expect," "anticipate," "aim," "estimate," "intend," "plan," "believe," "potential,"
"continue," "is/are likely to" or other similar expressions or the negative of these words or 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, among other things, statements relating to:



The
forward-looking statements made in this annual report on Form 20-F relate only to events or information as of the date on which the statements are made in this
annual report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise,
after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read 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.

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Table of Contents

PART I

Item 1.    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not Applicable.

Item 2.    OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable.

Item 3.    KEY INFORMATION

A.    SELECTED FINANCIAL DATA

The following selected consolidated financial information and operating data for the periods and as of the dates indicated should be read in conjunction with our
audited consolidated financial statements and related notes and "Item 5. Operating and Financial Review and Prospects" included elsewhere in this annual report. Our selected consolidated
statements of operations data for the years ended December 31, 2010, 2011 and 2012 and selected consolidated balance sheet data as of December 31, 2011 and 2012 have been derived from
our audited consolidated financial statements, which are included elsewhere in this annual report. Our selected consolidated statements of operations data for the years ended December 31, 2008
and 2009 and selected consolidated balance sheet data as of December 31, 2008, 2009 and 2010 have been derived from our financial statements not included in this annual report. Our audited
consolidated financial statements have been prepared and presented in accordance with accounting principles generally accepted in the United States of America, or

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U.S. GAAP.
The historical results are not necessarily indicative of results to be expected in any future period.

For the Years Ended December 31,2008

2009

2010

2011

2012RMB

RMB

RMB

RMB

RMB

(US$)(1)(in thousands, except per share and per ADS data)Statements of Operations Data:Net revenue


273,359


651,656


530,829


604,559


748,133


120,084Costs and ExpensesCommissions and other agent-related costs


(151,550
)

(289,146
)

(318,872
)

(428,920
)

(455,282
)

(73,078
)Operating costs


(146,457
)

(119,605
)

(199,670
)

(296,652
)

(175,330
)

(28,142
)Selling, general and administrative expenses


(102,952
)

(101,421
)

(176,271
)

(218,110
)

(177,475
)

(28,487
)Goodwill impairment losses











(30,614
)

(10,755
)

(1,726
)Net change in fair value











25,716


11,989


1,924Total costs and expenses


(400,959
)

(510,172
)

(694,813
)

(948,580
)

(806,853
)

(129,509
)(Loss) income from operations


(127,600
)

141,484


(163,984
)

(344,021
)

(58,720
)

(9,425
)Interest income


4,441


2,244


6,685


5,845


2,324


373Other income








9,350


2,086


6,497


1,043Foreign currency exchange loss


(5,526
)

(496
)

(12,161
)

(5,713
)

(19
)

(3
)(Loss) income before income tax and share of associates' losses


(128,685
)

143,232


(160,110
)

(341,803
)

(49,918
)

(8,012
)Income tax


(2,076
)

(8,275
)

(2,985
)

(1,103
)

(2,713
)

(435
)Share of associates' (losses)/income


(1,126
)

(162
)

(605
)

2,496


2,547


409Net (loss) income


(131,887
)

134,795


(163,700
)

(340,410
)

(50,084
)

(8,038
)Net (income) loss attributable to non-controlling interests


(431
)

246


1,462


3,895


(3,427
)

(550
)Net (loss) income attributable to IFM Investments Limited


(132,318
)

135,041


(162,238
)

(336,515
)

(53,511
)

(8,588
)Net (loss) income per share:Basic


(0.57
)

0.21


(0.25
)

(0.50
)

(0.08
)

(0.01
)Diluted


(0.57
)

0.20


(0.25
)

(0.50
)

(0.08
)

(0.01
)Net (loss) income per ADS:(2)Basic


(25.62
)

9.34


(11.24
)

(22.66
)

(3.61
)

(0.58
)Diluted


(25.62
)

9.19


(11.24
)

(22.66
)

(3.61
)

(0.58
)Weighted average number of ordinary shares used in per share calculations:Basic


260,000


260,000


654,637


668,291


667,672


667,672Diluted


260,000


264,396


654,637


668,291


667,672


667,672


(1)Unless
otherwise noted, all translations from Renminbi to U.S. dollars have been made at a rate of RMB6.2301 to US$1.00, the noon buying rate as set forth
in the H.10 weekly statistical release of the Federal Reserve Board of the United States on December 31, 2012.(2)All
net (loss) income per ADS have been adjusted to reflect the change of the ratio of our ADS to ordinary share from 1:15 to 1:45, effective on
April 16, 2012.


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As of December 31,2008

2009

2010

2011

2012RMB

RMB

RMB

RMB

RMB

(US$)(1)(In thousands)Balance Sheet Data:Cash and cash equivalents


176,977


334,589


520,647


235,450


191,048


30,665Time deposits








120,000








Restricted cash


17,213


28,784


32,498


10,997


18,036


2,895Accounts receivable, net


13,633


61,938


50,599


97,090


176,287


28,296Loans receivable, net








12,732


37,511


35,229


5,655Amount due from related parties


38,110


386


1,710


71


110


18Property and equipment, net


42,954


41,181


78,330


62,513


40,832


6,554Intangible assets, net


29,796


27,825


34,888


95,827


90,253


14,487Total assets


360,895


543,834


958,542


725,062


734,668


117,922Accrued expenses and other current liabilities


53,597


130,668


163,036


150,502


217,694


34,942Total liabilities


111,356


157,340


204,845


243,711


301,640


48,417Convertible redeemable preferred shares


501,892


518,318











Class A ordinary shares


2,152


2,152


4,533


4,939


4,939


793Class B ordinary shares








550








Total shareholders' (deficit) equity


(252,353
)

(131,824
)

753,697


415,170


363,598


58,361


(1)Unless
otherwise noted, all translations from Renminbi to U.S. dollars have been made at a rate of RMB6.2301 to US$1.00, the noon buying rate as set forth
in the H.10 weekly statistical release of the Federal Reserve Board of the United States on December 31, 2012.


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For the Years Ended or as of
December 31,2010

2011

2012Other Financial and Operating Data:Company-owned brokerage servicesNet revenues (in thousands of RMB)


482,371


513,375


623,927Average number of operating sales offices(1)


451


517


326Average monthly net revenues per operating sales office (in thousands of RMB)


89.1


82.7


159.5Primary and Commercial Services(2)Net revenues (in thousands of RMB)


7,066


44,735


85,115Aggregate gross floor area of properties sold (in thousand square meters)


45


224


444Mortgage management servicesNet revenues (in thousands of RMB)


24,381


22,903


25,686Amount of referred mortgages and home equity loans (in thousands of RMB)


4,425,031


2,842,539


2,860,512Average entrusted and mortgage credit loan balance outstanding (in thousands of RMB)


10,422


39,950


41,490Franchise servicesNet revenues (in thousands of RMB)


17,011


23,546


13,405Number of regional sub-franchisors as of year-end


28


28


25


(1)Equals
the sum of the number of sales offices in operation that existed at the end of each month in the applicable year, divided by the number of months in
such year.(2)Our
primary and commercial services accounted for 1.3%, 7.4% and 11.4% of net revenues for the years ended December 31, 2010, 2011 and 2012,
respectively. We began to create teams dedicated to the primary and commercial real estate markets in 2009 and began managing our primary and commercial services as a separate segment in 2010.


EXCHANGE RATE INFORMATION

Our business is primarily conducted in China, and all of our revenues and expenses are denominated in Renminbi. Unless otherwise noted,
all translations from Renminbi to U.S. dollars have been made at a rate of RMB6.2301 to US$1.00, the noon buying rate in New York City for cable transfers of Renminbi per U.S. dollar as set forth in
the H.10 weekly statistical release of the Federal Reserve Board of the United States on December 31, 2012. We do not represent that Renminbi or U.S. dollar amounts could be converted
into U.S. dollars or Renminbi, as the case may be, at any particular rate, the rates below or at all.

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The following table sets forth information concerning exchange rates between the Renminbi and the U.S. dollar for the periods indicated. These rates are provided
solely for your convenience and will not be used in the preparation of our periodic reports or any other information to be provided to you.

Exchange Rate(1)Period

End

Average(2)

Low

High(RMB per US$1.00)2008


6.8225


6.9193


7.2946


6.78002009


6.8259


6.8295


6.8470


6.81762010


6.6000


6.7603


6.8330


6.60002011


6.2939


6.4475


6.6364


6.29392012


6.2301


6.3088


6.3879


6.2221October


6.2396


6.2627


6.2877


6.2372November


6.2372


6.2338


6.2454


6.2221December


6.2301


6.2328


6.2502


6.22512013January


6.2186


6.2211


6.2303


6.2134February


6.2213


6.2322


6.2438


6.2213March


6.2108


6.2154


6.2246


6.2105April (through April 19)


6.1772


6.1927


6.2078


6.1720


(1)For
all periods prior to January 1, 2009, the exchange rate refers to the noon buying rate in New York City for cable transfers of Renminbi per U.S.
dollar as certified for customs purposes and reported by the Federal Reserve Bank of New York. For periods beginning on or after January 1, 2009, the exchange rate refers to the rate as set
forth in the H.10 weekly statistical release of the Federal Reserve Board of the United States.(2)Annual
averages are calculated by using the average of the exchange rates on the last day of each month during the relevant year. Monthly averages are
calculated by using the average of the daily rates during the relevant month.


B.    CAPITALIZATION AND INDEBTEDNESS

Not applicable.

C.    REASONS FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

D.    RISK FACTORS

Risks Relating to Our Business

Our business is susceptible to fluctuations in the real estate market in China, and the property market in China is volatile and at an early stage of development, which
could have a material and adverse effect on our business, financial condition and results of operations.

We conduct our real estate services business primarily in China, and our business depends substantially on the conditions of the real
estate market in China. The real estate market in China remains at an early stage of development, and social, political, economic, legal and other factors may affect its development. For example, the
lack of a mature and active secondary market for private properties and the limited amount of mortgage loans available to individuals in China may result in fluctuations in residential real estate
markets. Although demand for private residential property in China has grown rapidly in recent years, this growth has often been coupled with volatile market

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conditions
and fluctuations in property prices. For example, the rapid expansion of the property market in major provinces and cities, such as Beijing, Shanghai and Shenzhen, in the early 1990s, led
to an oversupply in the mid-1990s and a corresponding fall in property values and rentals in the second half of the decade. We believe our business has been affected by fluctuations in the
real estate market in China. For instance, our average monthly net revenues per operating sales office decreased by 24% during the year ended December 31, 2012 compared to the same period in
2009, mainly resulted from the decline of market transactions. Thus, we believe this decrease was mainly due to the general weakness of the real estate market in China during 2010, 2011 and 2012
resulting from the real estate tightening policies adopted by the central government, which were aimed at cooling down the overheating property market and to curb excessive lending in the real estate
industry. In addition, the PRC government promulgated austerity measures regarding controlling the real estate market in February 2013. See "Our business, revenue growth, profitability
and future prospects could be materially and adversely affected by any government policies and regulatory measures influencing China's real estate industry" for details. Such government policies have
negatively affected the real estate market and 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 potential home buyers from making purchases, reduce transaction volume and cause a decline in average selling prices. See "Item 5. Operating and Financial Review and
ProspectsA. Operating ResultsResults of Operations." In addition, the PRC property market may experience, and transaction volume may be impacted by, undersupply or oversupply
and property price fluctuations caused by economic, social, political and other factors. Any future overdevelopment in the
property sector or other adverse changes in the economic, political or social environment in China may result in an oversupply of properties and a decrease in property prices and overall transaction
activities, which could materially and adversely affect our business, financial condition and results of operations.

In
addition, as all of our company-owned sales offices are strategically located in large metropolitan areas in Beijing, Shanghai, Shenzhen and Chengdu, any decrease in demand or any
other adverse developments in these regions may materially and adversely affect our business, financial condition and results of operations.

Adverse developments in general business and economic conditions could have a material and adverse effect on our business, financial condition and results of operations.

Our business and operations are sensitive to general business and economic conditions globally and in China. These include
short-term and long-term interest rates, inflation or deflation, fluctuations in debt and equity capital markets, consumer confidence and the general condition of the PRC and
world economies. Certain recent adverse developments in the global financial markets could continue to impact the global economy. These developments include, among others, a general slowdown of
economic growth in China, the U.S. and elsewhere globally, the current European sovereign debt crisis and concerns about the viability of the European Union and the Euro, and substantial volatility
and tightening of liquidity in financial and real estate markets. Numerous general business and economic factors could contribute to a real estate market downturn and adversely affect our business,
including: (1) any systemic weakness in the banking and financial sectors; (2) any substantial declines in the stock markets or continued stock market volatility; (3) any increase
in levels of unemployment; (4) a lack of available credit and lack of confidence in the financial sector; and (5) any general economic downturn in China or the global economy. Adverse
developments in these general business and economic conditions could have a material and adverse effect on our business, financial condition and results of operations.

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We experienced net losses for the years ended December 31, 2010, 2011 and 2012, and there is no assurance that we will be profitable in the future.

During the years ended December 31, 2010, 2011 and 2012 we had a net loss of RMB163.7 million, RMB340.4 million and
RMB53.5 million (US$8.6 million), respectively. These net losses were primarily due to a series of restrictive government policies for the real estate industry in China implemented in
2010, 2011 and 2012, which negatively impacted our net revenues per sales
office, and the expenses arising from the addition of a significant number of company-owned sales offices in 2010 and 2011. Consequently, our accumulated deficit was RMB301.9 million, RMB638.4 million
and RMB691.9 million (US$111.1 million) as of December 31, 2010, 2011 and 2012, respectively. We expect to continue to reduce costs and streamline our operations as we implement
initiatives to deal with the current regulatory environment relating to our business, particularly our company-owned brokerage services business. If our net revenues do not sufficiently increase to
offset the expected increases in costs and operating expenses, we will not be profitable. You should not consider our revenue growth in recent periods as indicative of our future performance. Net
revenues in future periods could decline or grow more slowly than we expect and we cannot assure you that we will be profitable in the coming year, or that we will be able to maintain profitability in
the future.

We do not own the CENTURY 21® brand and our right to use the CENTURY 21® brand is subject to risks and limitations.

Realogy owns the CENTURY 21® brand and system. Through our wholly owned subsidiary IFM Company Limited, or IFM Co.,
we hold the exclusive right to franchise, manage and operate the CENTURY 21® franchise network in China. Our interests and business strategies could be different from those of Realogy. See
"Item 4. Information on the CompanyB. Business OverviewOur Relationship with Realogy." Any adverse development in our relationship with Realogy could have a material
and adverse effect on our business, financial condition and results of operations.

Our
rights to use the CENTURY 21® brand are set forth in our master sub-franchise agreement with Realogy. The master sub-franchise agreement has a
term of 25 years starting from March 2000, extendable at our election for additional terms of 25 years upon payment of renewal fees. As contractual rights, our rights to use the CENTURY
21® brand remain subject to the risks and limitations customarily associated with contractual relationships, including, but not limited to, a party's right to terminate the agreement in
the event the other party materially breaches the agreement, a party's right to terminate in certain specified circumstances, and the risk that the contract may be voided if either party were to enter
bankruptcy or a similar restructuring process. An agreement could be rejected in connection with a bankruptcy of another party thereto if, in the business judgment of a trustee of a party, as
debtor-in-possession, rejection of the contract would benefit a party's estate. A bankruptcy by our licensor or any owner of the CENTURY 21® trademarks or system
know-how could impede our right to use the CENTURY 21® brand and system. Any such adverse development could result in, among other things, an inability to use the CENTURY
21® brand and system, incurrence of material expenses in connection with building our brand or acquiring another brand to support our company-owned brokerage services business and
franchise services business, payment of fees or compensation relating to settlements with the regional sub-franchisors or franchisees that terminate their franchise relationships with us,
or diminished market recognition, any or all of which could have a material and adverse effect on our business, financial condition and results of operations.

If the value of the CENTURY 21® brand or image diminishes, it could have a material and adverse effect on our business, financial condition and results of
operations.

We believe the CENTURY 21® brand is associated with leadership in integrated and high quality real estate services among
real estate market participants in China. The CENTURY 21® brand is important to our operations. Our continued success in maintaining and enhancing the CENTURY

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21® brand
and our image depends on our ability to satisfy customer needs by further developing and maintaining the quality of our services across our operations, as well as our
ability to respond to competitive pressures. If we were unable to satisfy customer needs or if our public image or reputation were otherwise diminished, our business transactions with our customers or
the commission or franchise fees that we charge could decline, and we could face difficulties in attracting and retaining regional sub-franchisors, franchisees or sales professionals. If
the value of the CENTURY 21® brand diminishes globally or in China, our business, financial condition and results of operations may be materially and adversely affected.

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

We believe the CENTURY 21® brand owned by Realogy and the trade secrets, copyrights and other intellectual property rights
owned by us are important to our success. Any unauthorized use of these intellectual properties could harm our competitive advantages and business. Historically, China has not protected intellectual
property rights to the same extent as the United States 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 and enforcement of laws governing intellectual
property rights in China and abroad is uncertain and evolving, and could involve substantial risks. If we are unable to adequately protect the intellectual property rights that we own or use, we may
lose these rights and our business, financial condition and results of operations may be materially and adversely affected.

Our
continuing reliance on our information systems, which include our proprietary Sales Information System, or SIS, and our Human Resource and Commission Information System, or HCIS,
each of which is copyright protected, depends in large part on retaining our proprietary rights to these information systems. We have also imposed contractual obligations on employees and consultants
and
taken other precautionary measures to maintain the confidentiality of our proprietary information, and have restricted the use of that proprietary information other than for our company's benefit. If
the copyrights for our information system are infringed, or our sales professionals, staff and consultants otherwise do not honor their contractual obligations and misappropriate our information
systems, databases or other proprietary information, our business, financial condition and results of operations may be materially and adversely affected.

Competition in the real estate brokerage services business in China is intense and may adversely affect our business, financial condition and results of operations.

Competition in the real estate brokerage services business in China is intense, especially in the densely populated areas. We compete
with Centaline (China) Property Consultants Limited, Homelink Real Estate Agency Co., Ltd., and 5i5j Real Estate Co. Ltd for secondary real estate brokerage services
business, and to a lesser extent, with E-house (China) Holdings Limited, World Union Properties Consulting Co., Limited and Syswin Inc. for primary real estate brokerage
services business. We also compete with regional competitors in each of the regions where we own and operate sales offices. Some of these companies may have greater financial resources than we do,
including greater marketing budgets and technological advantages. In addition, the secondary real estate brokerage services industry has low capital commitment requirements for small operations,
lowering the barriers to entry for new participants, especially participants pursuing alternative methods of marketing real estate, such as internet-based listing services. Real estate brokers compete
for sales and marketing business primarily on the basis of the services offered, reputation, brand recognition, personal contacts, local expertise and brokerage commission rates. Any decrease in the
market average brokerage commission rate may adversely affect our net revenues and profits. We also compete for the services of qualified sales

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professionals.
Such competition could reduce commissions retained by our company after giving effect to the split with sales professionals and could increase the amounts that we spend on recruiting
and retaining sales professionals.

We face competition in the primary and commercial services business.

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., Shanghai T&D Real Estate Co. Ltd., B.A. Consulting Company, and E-house (China)
Holdings Limited, all of which operate in multiple cities in China.
Some of these competitors may have greater resources than we do, including better client relationships in certain local areas and financial and informational resources. The limited capital resources
required to enter the primary real estate sales agency and consultancy services industry in any given region also means there are low entry barriers for our competitors to enter into our major
markets. New and existing competitors may offer lower commission rates with a wider range of services which could attract our existing developer clients away from us. Increased competition among
primary real estate sales agency and consultancy companies could result in decreases in commission rates within the industry, increased operating costs relating to the provision of a wider range of
services in order to compete effectively and higher administrative costs to attract or retain talented employees. We may not be able to continue to compete effectively and to maintain our current
commission or margin levels. If we fail to compete effectively, our revenues, profitability and growth prospects will be negatively affected. In order to expand our presence in the primary and
commercial market segments, in June 2011, we acquired 55% of the equity interest of Shanggu, an established local primary real estate agency service provider based in Beijing focusing on consulting
and sales for commercial real estate projects, with a plan to acquire another 35% of its equity interest between 2014 and 2019. For detailed discussion of risks relating to our business expansions in
the primary and commercial services business, see "We may not be successful in our business expansions through future acquisitions."

We face competition in the mortgage management services business.

We face competition in the mortgage management services business from in-house mortgage management teams of our competitors
in the brokerage services business, commercial banks and specialized mortgage management services providers. In the second half of 2009, certain commercial banks in Shanghai and Beijing agreed to
collectively reduce mortgage referral commissions in connection with secondary real estate transactions. This adversely affected our revenues derived from referral commissions in both Shanghai and
Beijing. Any increase in the level of competition or any negative development such as described above could materially and adversely affect our business, financial condition and results of operations.

We face competition in the franchise services business.

For our franchise services business, our products consist of our brand name and the support services we provide to our regional
sub-franchisors and franchisees. We compete with regional and local real estate brokerage brand franchisors. In addition, other international real estate services brand franchisors, such
as Coldwell Banker, have entered or plan to enter into the China market. Upon the expiration of a franchise agreement, a franchisee may choose to obtain a franchise from one of our competitors or
operate as an independent broker. Competitors may offer our regional sub-franchisors and franchisees whose franchise agreements are expiring similar or better products and services at
rates lower than what we or our regional sub-franchisors charge. To remain competitive in the sale of franchises and to retain our existing regional sub-franchisors and
franchisees, we may have to reduce the fees we charge our regional sub-franchisors or franchisees.

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If our company-owned or franchised sales offices fail to obtain or maintain licenses or permits necessary to engage in the real estate brokerage business, our business,
financial condition and results of operations could be materially and adversely affected.

Our company-owned sales offices and franchised sales offices are required to obtain and maintain certain licenses and permits to engage
in the real estate brokerage business. We and our regional sub-franchisors also need licenses and permits to operate our CENTURY 21® franchise network in China. These licenses
and permits are typically required to be renewed every one or two years. We are also subject to numerous national, provincial and local laws and regulations specific to the services we provide. If we
or our regional sub-franchisors or franchisees fail to obtain or maintain the licenses and permits for conducting our company-owned brokerage or franchise services businesses required by
law, the relevant governmental authorities may order us to suspend relevant operations or impose fines or other penalties. There is no assurance that we, our company-owned sales offices or our
franchised sales offices will be able to obtain or renew these licenses in a timely manner, or at all.

Regional sub-franchisors and franchisees could take actions that could harm our business.

We do not own or control the majority of our regional sub-franchisors and franchisees. These regional
sub-franchisors and franchisees may not operate their business in a manner consistent with our standards, or may not hire and train qualified sales professionals and other employees. If
these regional sub-franchisors or franchisees were to provide a diminished quality of service to their customers, our brand, reputation and goodwill may suffer. Additionally, our regional
sub-franchisors and franchisees may engage in or be accused of engaging in unlawful or tortious conduct. Such conduct, or the accusation of such conduct, could harm our brand image,
reputation or goodwill. Any of these incidents could in turn materially and adversely affect our business, financial condition and results of operations.

Our
regional sub-franchisors and franchisees owned by independent business operators may from time to time disagree with our interpretation of our respective rights and
obligations under the franchise agreements or fail to make timely service fees payments thereunder. This has led to disputes among the regional sub-franchisors, the franchisees and us in
the past. We expect such disputes to occur from time to time in the future as we continue to offer franchise rights to third parties. To the extent we have such disputes, the attention of our
management and our regional
sub-franchisors or the franchisees will be diverted and our reputation may suffer as a result. Any of the aforementioned situations could have a material and adverse effect on our
business, financial condition and results of operations.

The loss of any members of our senior management or other key sales professionals and staff could adversely affect our financial performance.

Our success depends on the continued service of our key executive officers, particularly Mr. Donald Zhang and Mr. Harry
Lu. We do not carry key man life insurance on any of our personnel. The loss of the services of one or more members of our senior management team could hinder our ability to effectively manage our
business and implement our growth strategies. If we lose the services of any of our key executive officers, we cannot assure you that we will be able to appoint or integrate adequate replacement
personnel into our operations in a timely manner. Our failure to do so could in turn disrupt our operations and the growth of our business.

Our
success largely depends on the efforts and abilities of our senior management team and the management teams of regional sub-franchisors and sales offices owned and
operated by us. Our ability to retain our management teams is generally subject to numerous factors, including the compensation packages we offer and our ability to maintain a cohesive company culture
and other factors. Any prolonged downturn in the real estate market and any cost-cutting measures we implement could result in significant attrition among our current managers. If any
member of our senior management team or

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other
key sales professionals and staff joins a competitor or forms a competing company, we may lose customers, key sales professionals and staff, and we may not be able to promptly fill their
positions with comparably qualified individuals without a significant increase in costs. Any of the foregoing adverse developments could materially and adversely affect our business, financial
condition and results of operations.

We are subject to risks related to litigation filed by or against us, and adverse litigation results may harm our business and financial condition.

We have been, and may in the future be, a party to litigation and other proceedings filed by or against us, including actions relating
to intellectual property, franchise or
sub-franchise arrangements with our regional franchisors or franchisees, or vicarious liability based upon the conduct of our individual sales professionals and staff or agents. For
example, we have occasionally resorted to litigation against certain of our regional sub-franchisors with whom we have terminated our relevant sub-franchise relationship for
the sub-franchisor's material breach of the regional sub-franchise agreement. In addition, we have litigated against third parties who have infringed the CENTURY
21® trademark. Although we have historically been successful in such litigation, we cannot predict the cost of such proceedings or their ultimate outcome, including any remedies or damages
that may be awarded, and adverse results in such litigation and other proceedings may harm our business, financial condition and results of operations.

We are exposed to business and legal risks related to our entrusted and mortgage credit loan services or if our entrusted and mortgage credit loan services are found to have
violated the relevant regulations in the future, we will incur significant losses, which may materially and adversely affect our financial condition.

In July 2010, we began to offer entrusted and mortgage credit loans services as part of our mortgage management services. Under our
entrusted loan arrangements with commercial banks, we provide consumer financing to borrowers with funds being released by the commercial banks from our trust accounts at the banks. Commercial banks
collect interest and principal payments from the borrowers on our behalf and receive service fees. The entrusted and mortgage credit loans, whose terms range from two to twelve months, are secured
with the borrowers' mortgage properties. In general, we limit loan amounts to approximately 50% to 65% of the pledged properties' most recently assessed market value and usually charge services fees
and interest rates which are above the prime mortgage lending rate. In addition, we will obtain enforceable pledges which, in case of default by the borrowers, allow us to dispose of the pledged
properties in foreclosure sales. As of December 31, 2012, our total outstanding entrusted and mortgage credit loans balance was RMB35.2 million (US$5.7 million). As the lender, we
bear the risks related to the entrusted loans and mortgage credit loans. Although we conduct background checks and internal reviews on potential borrowers, we cannot assure you that our borrowers will
repay part or all of the interest and principal amounts of the loans. Furthermore, because we are not a financial institution and lack experience in providing loans, our internal review and approval
procedures may not function as well as we expect. If the borrowers default on their repayment obligations and the market values of the pledged properties decline below the amounts of our entrusted
loans and mortgage credit loans, or if our entrusted and mortgage credit loan services or our operation are found to have violated the relevant regulations or exceeded the permitted business scope in
the future, we will incur significant losses, which may materially and adversely affect our financial condition.

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The PRC Government may determine that the contractual arrangements with the variable interest entities ("VIEs") relating to our mortgage credit business are not in
compliance with applicable PRC laws and regulations.

The mortgage credit business currently engaged by our company is regulated by, among others, the Measures for the Administration of
Mortgage Credit (the "Mortgage Credit Measures"). According to Article 71 of the Mortgage Credit Measures, regulations governing the investment by foreign invested companies in mortgage credit
business in the PRC shall be separately promulgated by the Ministry of Commerce (the "MOFCOM") and other relevant authorities. As of the date of this annual report, no relevant regulations have been
promulgated by the MOFCOM.

There
are risks involved with our mortgage credit business operated under the contractual arrangements with the VIEs. In case the contractual arrangements with the VIEs are considered to
be in breach of any existing or future PRC laws or regulations or governmental policy, the relevant regulatory authorities would have broad discretion in taking actions to deal with such breach,
including but not limited to:



Any
of these actions could have a material adverse impact on our business, financial condition and results of operations.

We rely on our information systems to operate our business and maintain our competitiveness, and any disruption to it could harm our business.

Our business depends upon the use of information systems, including systems providing real-time and in-depth
management and sales information and support to our network of sales offices and marketing efforts. We rely significantly on our in-house information technology team with support from
third-party outsourcing firms, to develop, maintain and regularly upgrade our information systems. In addition, some operations of these information systems depend upon third party technologies,
systems and services. We
cannot assure you that we will continue to have access to the products or services provided by our third party providers on commercially reasonable terms, or at all. We also cannot assure you that we
will be able to continue to effectively operate and maintain our information systems, or to effectively retain our key personnel for the maintenance and management of our information systems.

In
addition, we expect to refine and enhance our information systems on an ongoing basis, and we expect that advanced new technologies and systems will continue to be introduced. We may
not be able to replace our existing information systems or introduce new information systems as quickly as our competitors or in a cost-effective manner.

In
addition, our information systems are vulnerable to damage or interruption from various causes, including (1) natural disasters, war and acts of terrorism, (2) power
losses, computer system failures, internet and telecommunications or data network failures, operator error, losses and corruption of data, and similar events and (3) computer viruses,
penetration by individuals seeking to disrupt operations or

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misappropriate
information and other physical or electronic breaches of security. While we maintain certain disaster recovery capabilities for critical functions in most of our businesses, these
capabilities may not successfully prevent a disruption to, or have a material and adverse effect on, our businesses or operations in the event of a disaster or other business interruption. Any
extended interruption in our information systems could significantly reduce our ability to conduct our business and generate revenues. Additionally, we do not carry business interruption insurance for
any losses that may occur.

If we cannot manage our growth, our operating results or profitability could be materially and adversely affected.

We have experienced substantial growth since we began operations in 2000. Our net revenues amounted to RMB530.8 million in 2010,
and then increased to RMB604.6 million in 2011 and RMB748.1 million (US$120.1 million) in 2012. We expanded our operating sales offices in 2010 and first half year of 2011, which
resulted in an average of 451 and 517 operating sales offices for 2010 and 2011, respectively. We incurred significant losses in 2010 and 2011 mainly due to overall real estate market decline in
China. As a result of our cost reduction strategy since the second half year of 2011, we reduced our operating sales offices to an average of 326 in 2012. Although we currently do not have a plan to
significantly expand our company-owned brokerage services in 2013, our expansion, if any in the future years, could place significant demands on us to ensure that our brand does not suffer as a result
of any decreases, 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 sales professionals as well as other administrative and sales and marketing personnel, particularly as we expand into new markets. We may
not be able to effectively and efficiently manage the growth of our operations, recruit and retain qualified personnel and integrate new expansion into our operations. During our expansion, we may
also face other difficulties as a result of a number of factors, many of which are beyond our control, such as any general unfavorable conditions in the real estate market, labor cost increases due to
higher sales staff headcount or delays or denials of required approvals by relevant government authorities. As a result, our operating results or profitability could be materially and adversely
affected.

We may not be successful in our business expansions through future acquisitions.

We have established our company-owned brokerage services business in Shanghai, Shenzhen and Chengdu through acquisitions. In
territories where we do not have company-owned sales offices, one of our expansion strategies is to establish our own brokerage services business by acquiring existing chains of sales stores or
regional sub-franchisors when their operations become mature and profitable. However, our experience in Shanghai, Shenzhen and Chengdu may not be replicable in other areas of China. In
order to expand our presence in the primary and commercial market segments, in June 2011, we acquired 55% of the equity interest of Shanggu, an established local primary real estate agency service
provider based in Beijing focusing on consulting and sales for commercial real estate projects, with a plan to acquire another 35% of its equity interest between 2014 and 2019. The success of our
future acquisition strategies will depend upon our ability to negotiate with acquisition targets on favorable terms, and to finance and complete these transactions. We also need to effectively
integrate newly acquired brokerage businesses into our existing operations, which may involve complex operational and personnel-related challenges, including rectifying possible inconsistencies in
standards, controls, procedures and policies, maintaining important business relationships, overcoming local cultural differences, and controlling unanticipated expenses related to such integration.
We may also incur material costs relating to such integration. A prolonged diversion of management's attention and any delays or difficulties we encounter in connection with the integration of any
business that we have acquired or may acquire in the future could prevent us from realizing the anticipated cost savings and revenue growth from our acquisitions.

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We may be unable to obtain adequate financing to fund our capital requirements.

We expect that over the next several years, a substantial portion of our cash flow will be used to finance the expansion of our
company-owned brokerage services business to
increase our market share in existing markets and to expand our geographical presence. Although we anticipate that our available funds and expected cash flows from operations will be sufficient to
meet our cash needs for at least the next twelve months, this assumption is based on management's ability to successfully execute its business plan, which includes increasing sales, generating
positive operating cash flows and obtaining additional funding to support longer term capital requirements. We cannot assure you that we will obtain such financing at a reasonable cost or at all. Our
inability to finance our planned capital expenditures or future acquisitions could materially and adversely affect our business, financial condition and results of operations.

We may not be able to successfully execute our business development strategy, which could have a material and adverse effect on our business, financial condition and results
of operations.

We plan to continue to expand our business into new geographical areas in China and to enter into new businesses to diversify our
portfolio of products and services. Because China is a large and diverse market, home buying 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 or to enter into businesses with respect
to new products or services. In order to expand our presence in the primary and commercial market segments, in June 2011, we acquired 55% of the equity interest of Shanggu, an established local
primary real estate agency service provider based in Beijing focusing on consulting and sales for commercial real estate projects, with a plan to acquire another 35% of its equity interest between
2014 and 2019. Our goodwill impairment losses in 2012 were RMB10.8 million (US$1.7 million), as a result of the shortfall in the results of operations of Shanggu. When we enter new
markets, we may face intense competition from companies with greater experience or an established presence in the targeted areas or from other companies with similar expansion targets. In addition,
our business model may not be successful in new and untested markets. Therefore, we may not be able to successfully execute our business development strategy, which could have a material and adverse
effect on our business, financial condition and results of operations.

We may need to record a significant charge to earnings if our goodwill or intangible assets arising from acquisitions become impaired, which would materially adversely
affect our net income.

In accordance with U.S. GAAP, we account for our acquisitions using the purchase method of accounting, and such acquisitions
have resulted in significant goodwill and intangible assets being recognized in our consolidated financial statements. These assets may become impaired in the future, which could have a material
adverse effect on our results of operations following such acquisitions. We are required under U.S. GAAP to review our amortizable intangible assets for impairment when events or changes in
circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment annually, or more frequently, if facts and circumstances warrant a review. Factors
that may be considered a change in circumstances indicating that the carrying value of our amortizable intangible assets may not be recoverable include a decline in stock price and market
capitalization and slower or declining growth rates in our industry. We may be required to record a significant charge to earnings in our financial statements during the period in
which any impairment of our goodwill or amortizable intangible assets occurs, which could have a material adverse effect on our results of operations. For the year ended December 31, 2012, we
incurred an impairment loss of RMB10.8 million (US$1.7 million), as a result of the shortfall in the results of operations of Shanggu.

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We may not maintain sufficient insurance coverage for the risks associated with our business operations.

Risks associated with our business operations include, but are not limited to, claims for wrongful acts committed by our sales
professionals, disputes with our regional sub-franchisors or franchisees that we do not own, the loss of intellectual property rights or the failure of information technology systems
crucial to our operations, the loss of key personnel and risks posed by natural disasters. Any of these risks may result in significant losses. We maintain insurance coverage we consider customary in
China for the industry in which we operate and in compliance with the insurance requirements imposed on us by our master sub-franchise agreement with Realogy. However, we cannot assure you
that our insurance coverage is sufficient to cover any losses that we may sustain, or that we will be able to successfully claim our losses under our existing insurance policy on a timely basis or at
all.

If
we incur any loss not covered by our insurance policies, or the compensated amount is significantly less than our actual loss or is not timely paid, our business, financial condition
and results of operations could be materially and adversely affected.

If we fail to maintain effective internal control over financial reporting, our ability to accurately report our financial results may be impaired, which could adversely
impact investor confidence and the market price of our ADSs.

We are subject to reporting obligations under the U.S. securities laws. The SEC, as required by Section 404 of the
Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include a management report on the company's internal control over financial reporting in its annual report, which contains
management's assessment of the effectiveness of our internal control over financial reporting. In addition, an independent registered public accounting firm must attest to and report on the
effectiveness of our internal control over financial reporting for accelerated filers or large accelerated filers. We have been subject to these requirements since the fiscal year ended
December 31, 2010.

Our
management has concluded that our internal control over financial reporting was effective as of December 31, 2012. See "Item 15. Controls and Procedures." Our
independent registered public accounting firm has issued an attestation report, which has concluded that our internal control over financial reporting was effective in all material aspects as of
December 31, 2012. 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. This could in turn result in 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 comply with Section 404 and other requirements of the Sarbanes-Oxley Act.

Seasonality in the real estate market could adversely affect our business.

The real estate brokerage business is subject to seasonal fluctuations. Historically, real estate brokerage revenues and transaction
volumes have generally been low during January and February as well as the late summer months in China. However, many of our expenses, such as those relating to leasing, administrative or sales and
marketing efforts, are fixed and cannot be reduced during a seasonal slowdown. As a result, our operating results have fluctuated from quarter to quarter. These fluctuations are likely to continue and
operating results for any period may not be indicative of our performance in any future period. If our operating results for any quarterly period fall below investor expectations or estimates by
securities research analysts, the trading price of our ADSs may decline.

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Our corporate actions are substantially controlled by Mr. Donald Zhang and Mr. Harry Lu. The transactions between our shareholders may result in a change of
control of our company.

As of April 19, 2013, the latest practicable date, Mr. Donald Zhang, our chairman and chief executive officer, and
Mr. Harry Lu, our vice chairman and president, beneficially owned approximately 40.2% of our outstanding shares. Accordingly, Messrs. Zhang and Lu have significant influence in
determining the outcome of any corporate transaction or other matters submitted to our shareholders for approval, including mergers, consolidations and the sale of all or substantially all of our
assets, the election of directors and other significant corporate actions. This concentration of ownership may also discourage, delay or prevent a change in control, which could deprive our
shareholders of an opportunity to receive a premium for their shares as part of a sale of
our company and might reduce the price of our ADSs. These actions may be taken even if they are opposed by our other shareholders.

Pursuant
to a secured exchangeable note issued by IFM Overseas Partners L.P. ("IFMOP"), a shareholder of our company and beneficially owned by Mr. Donald Zhang and
Mr. Harry Lu, to GL Asia Mauritius II Cayman Ltd. ("GLA") on October 19, 2007 and amended and restated on January 27, 2010 ("Original Note"), GLA may exchange the
Original Note for the ordinary shares of our company held by IFMOP at any time at least 55 days after our initial public offering. GLA, IFMOP, IFM Overseas Limited, the general partner of
IFMOP, Donald Zhang, Harry Lu and our company entered into a restructuring deed on April 27, 2012 and a supplemental deed to the restructuring deed on June 6, 2012 (collectively, the
"Restructuring Deed"). See "Item 7. Major Shareholders and Related Party TransactionsB. Related Party TransactionsRestructuring Deed." Pursuant to the Restructuring
Deed, the Original Note was amended and restated on the terms set out in a new secured note ("New Note") dated as of April 27, 2012 and IFMOP mortgaged all ordinary shares of our company held
by it to GLA to secure its obligations under the New Note. Under the New Note, GLA shall not be entitled to any right to exchange the New Note to our ordinary shares held by IFMOP. However, if any
events of default set forth in the New Note occurs and GLA claims ownership to the mortgaged shares held by IFMOP, there might be a change of control of our company.

As a foreign private issuer, we are permitted to, and we will, rely on exemptions from certain New York Stock Exchange corporate governance standards applicable to U.S.
issuers. This may afford less protection to our holders of ordinary shares and ADSs.

Section 303A of the Corporate Governance Rules of the New York Stock Exchange requires listed companies to have, among other
things, a majority of its board members be independent, a nominating and corporate governance committee consisting solely of independent directors, and an audit committee with a minimum of three
members. As a foreign private issuer, however, we are permitted to, and we will, follow home country practice in lieu of the above requirements. The corporate governance practice in our home country,
the Cayman Islands, does not require a majority of our board to consist of independent directors, the implementation of a nominating and corporate governance committee or the implementation of an
audit committee. Since a majority of our board of directors will not consist of independent directors as long as we rely on the foreign private issuer exemption, fewer board members will be exercising
independent judgment and the level of board oversight on our management may decrease as a result.

An occurrence of a widespread health epidemic or other outbreaks could have a material and adverse effect on our business, financial condition and results of operations.

Our business could be adversely affected by the effects of Influenza A virus subtype H1N1, or A (H1N1), Severe Acute Respiratory
Syndrome, or SARS, avian influenza or other epidemics or outbreaks on the economic and business climate. A prolonged outbreak of A
(H1N1), any recurrence of SARS, avian influenza or other adverse public health developments in China or elsewhere in the

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world
could have a material and adverse effect on our business operations. Such outbreaks could significantly impact the real estate market and cause a temporary closure of our facilities. Such impact
or closures would severely disrupt our operations and adversely affect our business, financial condition and results of operations. Our operations could be disrupted if any of our sales professionals,
staff or customers were suspected of having A (H1N1), SARS or avian influenza, since this could require us to quarantine some or all of our sales professionals and staff or disinfect our facilities
and this may deter our customers or potential customers from visiting our sales offices. In addition, our business, financial condition and results of operations could be adversely affected to the
extent that A (H1N1), SARS, avian influenza or other outbreak harms the global or Chinese economy in general.

Risks Related to Doing Business in China

Adverse changes in economic and political policies of the PRC government could have a material adverse effect on overall economic growth in China, which could materially and
adversely affect our business.

We conduct substantially all of our business operations in China. As the real estate sector is highly sensitive to business and
personal discretionary spending levels, it tends to decline during general economic downturns. Accordingly, our business, financial condition, results of operations and prospects depend to a
significant degree on economic developments in China. China's economy differs from the economies of most other countries in many respects, including with respect to the amount of government
involvement in the economy, the general level of economic development, growth rates and government control of foreign exchange and the allocation of resources. While the PRC economy has experienced
significant growth in the past 30 years, this growth has remained uneven across different periods, regions and among various economic sectors. The PRC government has implemented various
measures to encourage economic development and guide the allocation of resources. The PRC government also exercises significant control over China's economic growth through the allocation of
resources, controlling the payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Since late 2003, the
PRC government has implemented a number of measures, such as increasing the People's Bank of China ("PBOC")'s statutory deposit reserve ratio and imposing
commercial bank-lending guidelines, which had the effect of slowing the growth of credit availability. For example, in 2010 and early 2011, the PBOC suspended loans to home buyers whose
family members already own two or more properties and to non-local residents who cannot provide evidence showing that they have paid taxes or social insurance for more than one year, and
raised the reserve ratio to cool lending and stabilize rising inflation. In accordance with the regulations from the central government, the local government of many cities issued regulations in early
2011 to forbid (1) any local family owning more than two properties and non-local family owning more than one property and (2) any non-local family that cannot
provide evidence for tax payment or social welfare payment for more than one year to buy any property in the city, other than in Beijing where the requirement is five consecutive years. Any future
actions and policies adopted by the PRC government could materially affect the Chinese economy and slow the growth of the real estate market in China, which could materially and adversely affect our
business.

We rely principally on dividends and other distributions on equity paid by our subsidiaries in China to fund our cash and financing requirements, and any limitation on the
ability of our subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.

We are an offshore holding company, and we rely principally on dividends from our subsidiaries in China for our cash requirements,
including for the service of any debt we may incur. Current PRC regulations permit our subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with
Chinese accounting standards and regulations. In addition, each of our subsidiaries in China is required to set aside a certain amount of its after-tax profits each year, if any,

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to
fund certain statutory reserves. These reserves are not distributable as cash dividends. Furthermore, if our subsidiaries in China 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 us. Any limitation on the ability of our subsidiaries to distribute dividends or other payments to us could
materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay dividends or otherwise fund and conduct our business.

PRC regulation of loans to and direct investments in PRC entities by offshore holding companies may delay or prevent us from using the proceeds of our initial public
offering to make loans or additional capital contributions to our PRC operating subsidiaries.

We may make loans to our PRC subsidiaries. Any loans to or investments in our PRC subsidiaries are subject to approval by or
registration with relevant governmental authorities in China. 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 total amount of investment, capital contributions to our PRC operating subsidiaries may be subject to the approval of the MOFCOM 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 use the proceeds of our initial public offering and to capitalize our PRC operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and
expand our business.

Fluctuations 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 may fluctuate and is affected by, among other things, changes in
political and economic conditions and the foreign exchange policy adopted by the PRC government. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to
the U.S. dollar. Under the new policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy has resulted in an
appreciation of over 20% in the RMB against the U.S. dollar over the following three years. Provisions on Administration of Foreign Exchange, as amended in August 2008, further changed China's
exchange regime to a managed floating exchange rate regime based on market supply and demand. While the international reaction to the RMB revaluation has generally been positive, there remains
significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in a further and more significant appreciation of the RMB against the U.S.
dollar. On June 19, 2010, the PBOC announced that it had decided to proceed further with the reform of the RMB exchange rate regime to enhance the flexibility of the RMB exchange rate and that
emphasis would be placed on reflecting market supply and demand with reference to a basket of currencies. While so indicating its intention to make the RMB's exchange rate more flexible, the PBOC
ruled out any sharp fluctuations in the currency or a one-off adjustment. On April 14, 2012, the PBOC announced that it would widen the daily trading band of the RMB and allow RMB
to fluctuate by as much as 1% on both sides of a central reference exchange rate against the U.S. dollar effective from April 16, 2012.

Our
revenues and costs are mostly denominated in the Renminbi, and a significant portion of our financial assets are also denominated in the Renminbi. Any significant fluctuations in the
exchange rate between the Renminbi and the U.S. dollar may materially and adversely affect our cash flows, revenues, earnings and financial position, and the amount of and any dividends we may pay on
our ADSs in U.S. dollars. Any fluctuations in the exchange rate between the RMB and the U.S. dollar could also result in foreign currency exchange losses for financial reporting purposes.

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Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment.

The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of
currency out of China. We receive substantially all of our revenues in RMB. Under our current corporate structure, our Cayman Islands holding company may rely on dividend payments from our PRC
subsidiaries to fund any cash and financing requirements we may have. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest
payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from State Administration of Foreign Exchange ("SAFE") by complying with
certain procedural requirements. Therefore, our PRC subsidiaries are able to pay dividends in foreign currencies to us without prior approval from SAFE by complying with certain procedural
requirements. But approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses
such as the repayment of loans denominated in foreign currencies. This could affect the ability of our PRC subsidiaries to obtain foreign exchange through debt or equity financing, including by means
of loans or capital contributions from us. The PRC government may also, at its discretion, restrict access in the future to foreign currencies for current account transactions. If the foreign exchange
control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders,
including holders of our ADSs.

PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident beneficial owners to personal liability,
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.

China has regulations that subject our PRC subsidiaries to additional restrictions if we have beneficial owners who are PRC residents
that have not properly filed with authorities in China. See "Item 4. Information on the CompanyB. Business OverviewRegulationsRegulations on Foreign
Exchange Registration of Offshore Investment by PRC Residents." However, we cannot provide any assurances that any PRC resident who becomes our beneficial owner in the future will be able to comply
with relevant regulations promulgated by SAFE, or SAFE regulations in a timely manner, or at all. Any failure or inability of our PRC resident beneficial owners to comply with the registration
procedures may subject such PRC resident beneficial owners to certain fines and legal sanctions, restrict our cross-border
investment and financing activities, or limit our PRC subsidiaries' ability to distribute dividends or obtain foreign exchange-denominated loans.

As
it remains 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 more stringent review and approval processes with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings,
which may adversely affect our business, financial condition and results of operations. 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.

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

In December 2006, the PBOC promulgated Administrative Measures for Individual Foreign Exchange, or the Individual Foreign Exchange
Rules, setting forth the requirements for foreign exchange transactions by PRC individuals under either the current account or the capital account. In January 2007, SAFE issued Implementing Rules for
the Individual Foreign Exchange Rules, which, among other things, specified approval requirements for certain capital account transactions such as a PRC citizen's participation in the employee stock
ownership plans or stock option plans of an overseas publicly-listed company. On February 15, 2012, the SAFE promulgated the Notice on Issues Related to Foreign Exchange Administration in
Domestic Individuals' Participation in Share Incentive Plans of Overseas Listed Companies, or the Stock Option Rule. Under the Stock Option Rule, PRC citizens who are granted stock options by an
overseas listed company are required, through a PRC agent or PRC subsidiary of such overseas listed company, to register with SAFE and complete certain other procedures. We and our PRC sales
professionals and staff who have been granted stock options are subject to the Stock Option Rule. 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.

Any change in the preferential tax treatment we currently enjoy in the PRC may have an adverse impact on our business, financial condition and results of operations.

Our PRC subsidiaries are subject to the corporate income tax ("CIT") with the tax rate of 25% except for Beijing Kudian Tongfang
Technology Co., Ltd., or Kudian, which was entitled to exemption from corporate income tax in 2011 and 2012 and a 50% reduction in corporate income tax for each of the following three
years from 2013 to 2015 pursuant to a Software Enterprise Certification. See "Item 5. Operating and Financial Review and ProspectsA. Operating ResultsFactors Affecting
Our Results of OperationsTaxation."

Various
local governments in China have provided discretionary preferential tax treatments to us. However, these local governments may decide to reduce or eliminate these preferential
tax treatments at any time. Furthermore, these local implementations of tax laws may be found to violate national laws or regulations and we may be subject to retroactive imposition of higher taxes as
a result. Starting from 2007, we have been required to accrue taxes for these contingencies and other uncertain tax positions taken by us. 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 business, financial condition and
results of operations.

Dividends distributed to our investors and gain on sale of our shares may be subject to PRC withholding taxes, and we may be subject to PRC taxation on our worldwide income
under the CIT Law.

Under the Corporate Income Tax Law, or CIT Law and its implementation rules, all domestic and foreign invested companies are subject to
a uniform enterprise income tax at the rate of 25% and dividends from PRC companies that are considered to be PRC resident enterprises to their foreign shareholders that are "non-resident
enterprises" and any gain realized on the transfer of ADSs or shares by such shareholders will be subject to a withholding tax at the rate of 10% unless a treaty otherwise provides.

It
is unclear whether dividends we pay with respect to our ordinary shares or ADSs, or the gain you may realize from the transfer of our ordinary shares or ADSs, would be treated as
income derived from sources within the PRC and be subject to PRC tax. If we are required under the CIT Law to withhold PRC income tax on dividends payable to our non-PRC investors that are
"non-resident enterprises" or individuals, or if you are required to pay PRC income tax on the transfer of our

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ordinary
shares or ADSs, the value of your investment in our ordinary shares or ADSs may be materially and adversely affected. With the 5% or 10% PRC dividend withholding tax imposed under the CIT
Law, depending on the tax jurisdiction of the receiver, we will incur incremental PRC tax liabilities when PRC profits are distributed by our PRC subsidiaries to their shareholders that are
non-resident enterprises.

In
addition, under the CIT Law, enterprises organized under the laws of jurisdictions outside China with their "de facto management bodies" located within China may be considered PRC
resident enterprises and therefore may be subject to PRC enterprise income tax at the rate of 25% on their worldwide income. See "Item 10. Additional InformationE.
TaxationPeople's Republic of China Taxation." If we become a PRC resident enterprise under the PRC tax system and receive income other than dividends, our profitability and cash flow
would be adversely impacted due to our worldwide income being taxed in China under the CIT Law.

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

The amended Foreign Investment Industrial Guidance Catalogue, or the Catalogue, which was jointly promulgated by the National
Development and Reform Commission ("NDRC") and the MOFCOM and came into effect on December 1, 2007, provided that real estate agency business and real estate brokerage business fell into the
restricted category of foreign investment industries. The recently further amended Catalogue, which was promulgated on December 24, 2011 and became effective on January 30, 2012,
continues to classify the real estate agency business and real estate brokerage business as restricted categories of foreign investment industries.

Our
PRC legal counsel, Commerce & Finance Law Offices, is of the opinion that only new real estate agency and brokerage businesses established after December 1, 2007, or
any existing real estate agency and brokerage businesses that require new approvals from the MOFCOM or its local branch in order to increase their registered capital or conduct an equity transfer,
would be affected by the Catalogue. It may be difficult or take a long time for us to obtain any approvals from the MOFCOM or its local branch in order to establish our new PRC operating entities or
to increase the registered capital of existing entities in the future. We cannot assure you that, if we are required to seek such approvals in the future, we will be able to obtain them from the
MOFCOM or its local branch on a timely basis, or at all.

Uncertainties with respect to the Chinese legal system could have a material and adverse effect on us.

The PRC legal system is based on written statutes. Unlike under common law systems, decided legal cases have little value as precedents
in subsequent legal proceedings. In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general, and forms of foreign investment
(including wholly foreign-owned enterprises and joint ventures) in particular. These laws, regulations and legal requirements are relatively new and are often changing, and their interpretation and
enforcement involve significant uncertainties that could limit the reliability of the legal protections available to us. We cannot predict the effects of future developments in the PRC legal system.
We may be required in the future to procure additional permits, authorizations and approvals for our existing and future operations, which may not be obtainable in a timely fashion, or at all. An
inability to obtain such permits or authorizations may have a material and adverse effect on our business, financial condition and results of operations.

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The implementation of the PRC Labor Contract Law and the Implementation Regulation for the PRC Labor Contract Law may increase our operating expenses and may materially and
adversely affect our business, financial condition and results of operations.

The PRC Labor Contract Law, or Labor Contract Law, and its Implementation Regulation for the PRC Labor Contract Law, or Implementation
Regulation may have brought substantial uncertainty as to its potential impact on our business, financial condition and results of operations. See "Item 4. Information on the
CompanyB. Business OverviewRegulationsRegulations of Labor Contracts." The implementation of the Labor Contract Law and the Implementation Regulation may
increase our operating expenses, in particular our human resources costs and our administrative expenses. In the event that we decide to significantly modify our employment or labor policy or
practice, or reduce the number of our sales professionals and staff, the Labor Contract Law may limit our ability to effectuate the modifications or changes in the manner that we believe to be most
cost-efficient or otherwise desirable, which could materially and adversely affect our business, financial condition and results of operations.

Our business, revenue growth, profitability and future prospects could be materially and adversely affected by any government policies and regulatory measures influencing
China's real estate industry.

The real estate market in China is typically affected by changes in government policies and regulatory measures affecting the property
market, financial markets and related areas. In the past, the PRC government adopted various policies and regulatory measures to curb what it perceived as unsustainable growth in the real estate
market, particularly at times when the real estate market in China has experienced rapid and significant growth. In 2008, the global financial crisis caused a slowdown in the real estate market in
China. In response to the global financial crisis, the PRC government adopted a two-year RMB 4 trillion economic stimulus plan in November 2008. As a result, property sales in China
recovered in 2009 and experienced significant growth thereafter until early 2010. Since April 2010, various administrative bodies launched a series of anti-speculative measures, which
resulted in a general slowdown in the performance of the real estate market in the PRC.

On
April 17, 2010, the State Council issued the Notice on Firmly Preventing Overly Fast Growth of Real Property Prices in Certain Cities, or the April Notice, which stipulated
that a property purchaser's down payment for such purchaser's first property purchase must not be less than 30% of the purchase price if gross floor area, or GFA, of the property is larger than 90
square meters; a purchaser's down payment for such purchaser's second property purchase must not be less than 50% of the purchase price and the mortgage loan interest rate must not be less than 1.1
times the base lending rate published by the PBOC; and a purchaser's down payment and mortgage loan interest rate must significantly increase for such purchaser's third and additional property
purchases. On September 29, 2010, the Ministry of Housing and Urban-Rural Development ("MHURD"), the PBOC, the China Banking Regulatory Commission and the Ministry of Finance promulgated a
series of administrative rules, or the September Rules, to further implement the April Notice. The September Rules require that commercial banks suspend granting of mortgage loans on a nationwide
basis (i) for any third or additional property purchases of any purchaser or (ii) to any non-resident purchaser unable to provide proof of tax or social security payments for
more than one year.

On
January 26, 2011, the State Council issued the Notice of the State Council on Issues Related to Further Enhancing the Regulation and Control of Real Estate Market, or the
January Notice. According to the January Notice, for those households who purchase a second house using a mortgage loan, the down payment may not be lower than 60% of the purchase price regardless of
the GFA of the property purchased. The mortgage loan interest may not be lower than 1.1 times the base lending rate published by the PBOC. The respective branches of the PBOC may raise the down
payment ratio and mortgage interest rate on mortgage loans for a second home purchase based on the price control targets set by the local government, the policy requirements set by the State Council
and the national

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unified
credit policies. 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. To implement this requirement, local governments of more than 30 cities, including Beijing, Shanghai, Chongqing, Shenzhen and other major cities, introduced
local rules of house-buying restrictions in 2011.

On
February 26, 2013, the General office of the State Council issued the Notice on Keeping on Enhancing the Regulation and Control of Real Estate Market, or the February Notice.
According to the February Notice, the households who have purchased one house or who are non-residents and unable to provide proof of tax or social security payment for required years are
prohibited from purchasing any house in relevant administrative region. Home owners who sell their houses will be levied an income tax as high as 20% of the profit they make in the relevant
transaction. As of April 19, 2013, some major cities in China, including Beijing, Shanghai, Chengdu have respectively promulgated local measures to restrict housing purchases.

As
a real estate services provider, we are significantly affected by these government policies and regulatory measures as we primarily generate revenues based on the successful property
transactions to which we provide real estate sales agency and consultancy services. Consequently, any of the following could cause a decline in property sales volumes and average selling prices as
well as the related revenues we generate from our business:



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

Auditors of companies that are registered with the United States Securities and Exchange Commission (the "SEC"), and traded publicly in
the United States, including our independent registered public accounting firm, must be registered with the United States Public Company Accounting Oversight Board (United States) (the "PCAOB") and
are required by the laws of the United States to undergo regular inspections by the PCAOB to assess their compliance with the laws of the United States and professional standards. Because our auditors
are located in the People's Republic of China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities, our auditors are not currently
inspected by the PCAOB.

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This lack of PCAOB inspections in China prevents the PCAOB from regularly evaluating audits and quality control procedures of any auditors operating in China,
including our auditors. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditor's audit procedures or quality
control procedures as compared to auditors outside of China that are subject to PCAOB inspections. As a result, investors may be deprived of the benefits of PCAOB inspections, and investors may lose
confidence in our auditor's audit procedure, and reported financial information and the quality of our financial statements.

We may be adversely affected by the outcome of the proceedings instituted recently by the SEC against five PRC-based accounting firms, including our independent
registered public accounting firm.

In December 2012, the SEC instituted proceedings under Rule 102(e)(1)(iii) of the SEC's Rules of Practice against five
PRC-based accounting firms, including our independent registered public accounting firm, alleging that these firms had violated U.S. securities laws and the SEC's rules and regulations
thereunder by failing to provide to the SEC the firms' work papers related to their audits of certain PRC-based companies that are publicly traded in the United States.
Rule 102(e)(1)(iii) grants to the SEC the authority to deny to any person, temporarily or permanently, the ability to practice before the SEC who is found by the SEC, after notice and
opportunity for a hearing, to have willfully violated any such laws or rules and
regulations. While we cannot predict the outcome of the SEC's proceedings, if our independent registered public accounting firm were denied, temporarily or permanently, the ability to practice before
the SEC, and we are unable to find another registered public accounting firm which can audit and issue a report on our financial statements, our financial statements could be determined to not be in
compliance with the requirements for financial statements of public companies with a class of securities registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Such a
determination could ultimately lead to the delisting of our ADSs from the New York Stock Exchange ("NYSE"), which event would effectively terminate the trading market for our ADSs in the United
States, and/or to the SEC's revoking the registration of our ADSs under the Exchange Act pursuant to Section 12(j) thereof, in which event broker-dealers thereafter would be prohibited from
effecting transactions in, or inducing the purchase or sale of, our ADSs in the United States.

Risks Related to Our ADSs

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

Based on the quarterly average value of our assets for the taxable year ended December 31, 2012, we believe that were classified
as a PFIC for the year ended December 31, 2012, and we may continue to be a PFIC in the current taxable year or a future taxable year. Accordingly, a U.S. Holder (as defined in
"TaxationUnited States Federal Income Taxation") generally will be subject to special rules generally intended to reduce or eliminate any benefits from the deferral of United States
federal income tax that a U.S. Holder could derive from investing in a non-United States corporation that does not distribute all of its earnings on a current basis, unless such U.S.
Holder makes a timely "mark-to-market" election that may mitigate these consequences. Further, because we believe we were a PFIC for the year ended December 31, 2012, we
generally will continue to be treated as a PFIC for all succeeding years during which such U.S. Holder continues to hold our ADSs or ordinary shares unless a U.S. Holder makes a timely
mark-to-market election. For more information see the section titled "Item 10. Additional InformationE. TaxationUnited States Federal Income
TaxationPassive Foreign Investment Company Considerations."

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Our ADSs would be subject to delisting from the NYSE if we are unable to achieve and maintain compliance with the NYSE's continued listing standards.

Under the NYSE listing rules, we are required to maintain an average closing price of our ADSs of US$1.00 or higher over a
30-trading-day period. On October 20, 2011, we were notified by the NYSE that the price of our ADSs had fallen below the NYSE's continued listing standard relating to
the minimum price requirement of the ADSs. As of October 19, 2011, the average closing price our ADSs over the preceding 30-trading-day period was US$0.99. Under the
NYSE's rules, our ADS price and 30-trading-day average ADS price must be back above US$1.00 within six months following receipt of the notification from the NYSE in order for
us to regain compliance with the minimum share price requirement. We changed the ratio of our ADS to ordinary share from 1:15 to 1:45, effective on April 16, 2012. On May 30, 2012 we
were notified by the NYSE that a calculation of the price of our ADSs for the 30-trading days ended May 25, 2012 indicated that the price of our ADSs was above the NYSE's minimum
requirement of US$1.00 based on a 30-trading day average and accordingly we were no longer considered below the US$1.00 continued listing criterion.

In
addition to the minimum share price requirement noted above, the NYSE's continued listing standards applicable to us also include the following: (i) the average global market
capitalization is not less than US$50 million over a 30-trading-day period and the stockholders' equity is not less than US$50 million; (ii) the average
global market capitalization is not less than US$15 million over a 30-trading-day period. The violation of the latter requirement will result in immediate initiation of
suspension and delisting procedures. Although our market capitalization fluctuates and was below US$15 million for some time due to market volatility, we are currently in compliance with these
two NYSE criteria for continued listing. However, if we are unable to maintain compliance with such NYSE criteria for continued listing, our ADSs would be subject to suspension and delisting.

If
we were unable to comply with the NYSE's continued listing standards, there may be a significant decline in the trading price, trading volume and liquidity of our ADSs. We also expect
that the suspension and delisting of our ADSs would lead to decreases in analyst coverage and market-making activity relating to our ADSs, as well as reduced information about trading prices and
volume. As a result, it could become significantly more difficult for our ADSs holders to sell their ADSs at prices comparable to those in effect prior to delisting or at all.

The market price and trading volume for our ADSs may be volatile.

In addition to the volatility in the price of our ADSs which could be caused by the materialization of any of the risks described in
this section, the securities markets in the United States, China and elsewhere have from time to time experienced significant price and volume
fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our ADSs.

We may need additional capital, and the sale of additional ADSs or other equity securities or incurrence of additional indebtedness could result in additional dilution to
our shareholders or increase our debt service obligations.

Historically, we have relied principally on our operational sources of cash, as well as external sources of financing to fund our
operations and capital expansion needs. We may require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may
pursue. If our resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity, equity-linked or debt securities or enter into a credit facility. The sale of
additional equity securities could result in additional dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and

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could
result in operating and financing covenants that would restrict our operations. It is uncertain whether financing will be available in amounts or on terms acceptable to us, if at all.

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 ordinary shares in the public market or the perception that these sales could occur, could cause the market
price of our ADSs to decline. As of April 19, 2013, the latest practicable date, we had 668,108,210 ordinary shares outstanding. The 3,761,465 ADSs representing 169,265,932 Class A
Ordinary Shares are freely transferable without restriction or additional registration under the Securities Act of 1933, as amended, or the Securities Act. In addition, we have registered for resale
an aggregate of 233,504,630 ordinary shares for Goldman Sachs Strategic Investments (Asia) L.L.C., or Goldman Sachs, and GLA.

In
addition, certain other holders of our ordinary shares will have the right to cause us to register the sale of those shares under the Securities Act. 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. Sales of these
registered shares in the public market could cause the price of our ADSs to decline.

We have adopted a shareholders rights plan, which, together with the other anti-takeover provisions of our amended and restated articles of association, could
discourage a third party from acquiring us and could limit our shareholders' opportunity to sell their shares, including ordinary shares represented by our ADSs, at a premium.

Our board of directors adopted a shareholders rights plan on November 17, 2010 and amended it on June 6, 2012. Under this
rights plan, one right was distributed with respect to each of our ordinary shares outstanding at the closing of business on November 29, 2010. These rights entitle the holders to purchase
ordinary shares from us at half of the market price at the time of purchase in the event that a person or group obtains ownership of 15% or more (or an additional 1% in the case of certain
shareholders holding more than 15% at the time of the plan adoption) of our ordinary shares (including by acquisition of the ADSs representing an ownership interest in the ordinary shares) or enters
into an acquisition transaction without the approval of our board of directors. This rights plan and the other anti-takeover provisions of our amended and restated articles of association
could deprive our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender
offer or similar transaction.

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

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

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price
of our ADSs may fall and the voting and other rights of the holders of our ordinary shares and ADSs may be materially and adversely affected.

You may 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 otherwise described, holders of our ADSs will not be able to exercise voting rights attaching to the shares represented by
our ADSs on an individual basis. Holders of our ADSs will appoint 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.

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 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 evidenced by the ADRs 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 doing so 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 we are incorporated
under Cayman Islands law, conduct substantially all of our operations in China and all of our officers reside outside the United States.

We are incorporated in the Cayman Islands. We conduct substantially all of our operations in China through the subsidiaries in China
directly or indirectly owned by us. All of our 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 or impossible for you to bring an original action against us or against these individuals in a Cayman Islands or PRC court if you believe that we or our officers have infringed your rights
under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a
judgment against our assets or the assets of our directors and officers. There is no statutory recognition in the Cayman Islands of judgments obtained in the United States. The courts of the Cayman
Islands would recognize as a valid judgment, a final and conclusive judgment in personam obtained in the United States Court against our company under which a sum of money is payable (other than a sum
of money payable in respect of multiple damages, taxes or other charges of a like nature or in respect of a fine or other penalty) or, in certain circumstances, an in personam

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judgment
for non-monetary relief, and would give a judgment based thereon provided that (a) such courts had proper jurisdiction over the parties subject to such judgment
(b) such courts did not contravene the rules of natural justice of the Cayman Islands, (c) such judgment was not obtained by fraud, (d) the enforcement of the judgment would not
be contrary to the public policy of the Cayman Islands, (e) no new admissible evidence relevant to the action is submitted prior to the rendering of the judgment by the courts of the Cayman
Islands, and (f) there is due compliance with the correct procedures under the laws of the Cayman Islands.

Our
corporate affairs are governed by our amended and restated memorandum and articles of association and by the Companies Law, Cap 22 (Law 3 of 1961, as consolidated and revised)
(the "Companies Law") 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
responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from
comparatively limited judicial precedent in the Cayman Islands as well as from 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 responsibilities 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 have a less developed body of securities laws as compared to the
United States, and provide 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.

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 major shareholders
than would shareholders of a corporation incorporated in a jurisdiction in the United States.

Item 4.    INFORMATION ON THE COMPANY

A.    HISTORY AND DEVELOPMENT OF THE COMPANY

We became the exclusive franchisor of the CENTURY 21® brand in China on March 22, 2000 through IFM Company Limited, or IFM Co., a Cayman
Islands company controlled by one of our founders, Mr. Donald Zhang. See "Item 4. Information on the CompanyB. Business OverviewOur Relationship with Realogy."
Since then, we have worked to build the CENTURY 21® brand and our franchise network of CENTURY 21® sales offices in China.

We
underwent a reorganization and introduced Goldman Sachs Strategic Investments, as an investor to develop our company-owned brokerage services business in 2006. In connection with the
reorganization, we incorporated IFM Investments Limited, our company in the Cayman Islands, on November 30, 2005 to be the holding company of our various subsidiaries, including IFM Co.
In consideration for the contribution of all issued and outstanding shares of IFM Co., our founders received all of the issued and outstanding shares of our company. On August 24, 2006,
which is the effective date of our reorganization, after giving effect to our 10-for-1 share split which was effective on January 4, 2010, we issued 200,000,000
Series A preferred shares to Goldman Sachs Strategic Investments for US$22.0 million. After this investment, we began to develop our company-owned brokerage services business. In October
2006, we incorporated Beijing Anxin to develop our company-owned sales offices in Beijing. In the same month, we also acquired 14 sales offices from a third party in Shanghai through Shanghai Ruifeng
to develop our company-owned brokerage services business in Shanghai. In 2008, we began managing our mortgage management services in Beijing and Shanghai as a separate segment.

On
October 19, 2007, after giving effect to our 10-for-1 share split which was effective on January 4, 2010, we issued 105,253,600 Series B
preferred shares to GLA, for US$40.0 million. On

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February 21,
2008, after giving effect to our 10-for-1 share split which was effective on January 4, 2010, we issued 6,113,670 Series B preferred shares to
Realogy, for approximately US$2.3 million.

As
part of our reorganization, Xinye, a PRC wholly foreign-owned enterprise controlled by our founders, Mr. Donald Zhang and Mr. Harry Lu, agreed to transfer its 51% equity
interests in IFM SH, 11.15% equity interests in IFM Beijing, 10% equity interests in Xiamen, 15% equity invest in Shandong and 10% equity interests in Xian, to us. Xinye completed its transfer to us
of the Shandong interests on December 4, 2006, the IFM SH interests on December 4, 2008, the IFM Beijing interests on August 12, 2008, the Xiamen interests on December 26,
2008 and the Xian interests on February 9, 2009.

On
January 4, 2010, we effected a share split whereby all of our issued and outstanding 26,000,000 ordinary shares of par value US$0.01 per share, 20,000,000 Series A
preferred shares of par value US$0.01 per share and 11,136,727 Series B preferred shares of par value US$0.01 per share were divided into 260,000,000 ordinary shares of US$0.001 par value per
share, 200,000,000 Series A preferred shares of par value US$0.001 per share and 111,367,270 Series B preferred shares of par value US$0.001 per share, respectively, and the number of
our authorized shares was increased from 101,374,676 to 1,013,746,760.

Trading
in the ADSs offered in our initial public offering commenced on the New York Stock Exchange on January 28, 2010. We changed the ratio of our ADS to ordinary share from
1:15 to 1:45, effective on April 16, 2012.

Our
principal executive office is located at 26/A, East Wing, Hanwei Plaza, No.7 Guanghua Road, Chaoyang District, Beijing 100004, People's Republic of China. Our telephone number at
this address is (86-10) 6561-7788 and our fax number is (86-10) 6561-3321. Our registered office in the Cayman Islands is located at the offices of
Trident Trust Company (Cayman) Limited, Fourth Floor, One Capital Place, P.O. Box 847GT Grand Cayman, Cayman Islands. Our agent for service of process in the United States is CT
Corporation System, located at 111 Eighth Avenue, New York, New York 10011.

B.    BUSINESS OVERVIEW

Overview

We are a leading comprehensive real estate services provider with the largest network of real estate sales offices in China. We are the
exclusive franchisor in China for the CENTURY 21® brand, one of the world's most recognized brands in the real estate industry. As of December 31, 2012, our CENTURY 21®
China network covered 27 major cities with 924 sales offices, including 321 company directly owned sales offices, employed 12,192 sales professionals and staff and maintained more
than 8.0 million property listings.

We
operate under four different, but closely related, business lines: (i) company-owned brokerage services, (ii) primary and commercial services, (iii) mortgage
management services, and (iv) franchise services. We have deployed a unique business model that has allowed us to rapidly scale our company-owned operations by leveraging the
in-depth market knowledge and human capital developed from our franchise network.

We
started our franchise services business in 2000 and have rapidly expanded our franchise network and our brand. Our franchise services business grants regional franchise rights for the
CENTURY 21® brand to regional sub-franchisors in China who, in turn, open their own sales offices or grant third parties the right to open sales offices within their region. We
generate revenues from our franchise services by collecting initial franchise fees and ongoing service fees from these regional sub-franchisors. Our franchise network has provided us with
valuable information to gauge market maturity and identify potential opportunities to establish and grow our company-owned brokerage

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services
business. Until we launched our company-owned brokerage services business in 2006, we generated our net revenues solely from our franchise services business. In the fourth quarter of 2010, we
reacquired the franchise rights for Chengdu region. This is part of our long-term strategy to grow our company-owned brokerage services in Chengdu and nearby cities, as well as our related
mortgage management services and primary and commercial services.

We
started our company-owned brokerage services business in Beijing and Shanghai in 2006, in Shenzhen in 2008 and in Chengdu in 2010, and have quickly expanded our company-owned sales
office network in these cities through organic growth and acquisitions of sales offices owned by third parties. As of December 31, 2012, we had 321 company-owned sales offices including four
temporarily closed company-owned sales offices, representing approximately 34.7% of our CENTURY 21® China network. Our company-owned brokerage services business owns and operates regional
sub-franchisors and sales offices in the CENTURY 21® China network. We generate revenues from our company-owned brokerage services primarily through commissions earned from
home buyers, sellers, lessors and lessees. For the years ended December 31, 2010, 2011 and 2012, our company-owned sales offices contributed approximately 90.9%, 84.9% and 83.4% of our total
net revenues, respectively.

In
2008, we launched our independent mortgage management services in Beijing and Shanghai, providing services to customers both inside and outside our CENTURY 21® China
network. Our mortgage management services business provides advisory services on mortgages, home equity loans and consumer credit loans to home buyers and home owners. We generate revenues from our
mortgage management services primarily through commissions earned from commercial banks and borrowers in consideration of our advisory brokerage services and fees and interest earned on entrusted and
mortgage credit loans. Our mortgage management services business is well positioned to take advantage of referrals from our extensive network of company-owned sales offices. In 2012, a majority of the
transactions handled by our company-owned brokerage services in which mortgages were utilized made use of our mortgage management services. We provided services for referred mortgages and home equity
loans with an aggregate loan amount of approximately RMB2.8 billion and RMB2.9 billion (US$0.5 billion) in 2011 and 2012, respectively. Average entrusted and mortgage credit loan
balance outstanding was RMB40.0 million and RMB41.5 million (US$6.7 million) in 2011 and 2012, respectively. The revenues generated from advising consumers for home equity loans
and providing entrusted loans and mortgage credit loans accounted for 59% of total mortgage management services revenues in 2012. In January 2011, we acquired a company based in Beijing with a license
to offer mortgage credit loans with property collateral through a series of contractual arrangements with the VIEs. The total consideration for the transaction was RMB5.0 million.

In
2009, we established dedicated teams for the primary and commercial real estate markets, in order to provide agency services to primary residential real estate developers and
planning, consulting and brokerage services to commercial property developers. In 2010, we launched our primary and commercial services business. We generate revenues from our primary services by
earning sales commissions from primary residential property developer clients, and we generate revenues from our commercial services by collecting service fees for consultancy services provided to
commercial property developers. In order to expand our presence in the primary and commercial market segments, in June 2011, we acquired 55% of the equity interest of Shanggu, an established local
primary real estate agency service provider based in Beijing focusing on consulting and sales for commercial real estate projects, with a plan to acquire another 35% of its equity interest between
2014 and 2019. We generated revenues from the sales of 444,351 square meters of primary properties in 2012 and have expanded our pipeline to a total GFA of 2.0 million square meters as of the
end of 2012.

In
addition, we invested in our first real estate investment fund with an investment of RMB8.4 million as of December 31, 2012, as a limited partner. The fund provides low
loan-to-value bridge loans to select real estate developers. We also act as a general partner with a 75.0% equity interest in the partnership managing this real estate fund.

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Our
rapid growth is supported by our information systems and training programs. Our information systems provide real-time and in-depth management and sales
information, support our network of sales offices, and drive our marketing efforts. We strongly believe in training members of our management team, who are generally required to complete quarterly
training courses. Additionally, all of our new sales professionals are required to complete training courses that we conduct in-house, and are also required to complete monthly refresher
or new skills courses.

We
have experienced substantial growth since we began operations in 2000. Our net revenues amounted to RMB530.8 million in 2010, RMB604.6 million in 2011, and
RMB748.1 million (US$120.1 million) in 2012. Our average number of operating sales offices was 451, 517 and 326 for 2010, 2011 and 2012, respectively. As a result of our cost reduction
strategy, we have reduced our operating sales offices to 317 as of December 31, 2012. We currently do not have a plan to significantly expand our company-owned brokerage services in 2013.
However, when the real estate service industry in China continues to mature and grow, we may expand our operations in the longer term, which will continue to place substantial demands on our
managerial, operational, financial, technological and other resources. 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 sales professionals as well as other administrative and sales and marketing personnel,
particularly as we expand into new markets.

Our Nationwide Network

We operate the largest network of real estate sales offices in China under the CENTURY 21® brand. As of December 31,
2012, our CENTURY 21® China network covered 27 major cities with 924 sales offices, employed 12,192 sales professionals and staff and maintained more than 8.0 million
property listings.

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The
map below shows the 27 cities covered by the CENTURY 21® franchise network as of the date of this annual report:

GRAPHIC


Cities
covered by our company-owned entities.()      Cities
 covered by other regional sub-franchisors.


The
table below sets forth a summary of the number of sales offices, sales professionals and staff and property listings in our CENTURY 21® franchise network, as of
December 31, 2012:

Sales Offices

Sales Professionals
and Staff

Property
ListingsShanghai


157


2,473


2,056,043Beijing


154


3,246


1,789,090Chengdu


69


1,050


373, 727Jinan


62


600


316,642Qingdao


52


483


255,181Ningbo


51


304


1,262,679Shijiazhuang


50


529


124,492Others


329


3,507


1,900,789Total


924


12,192


8,078,643


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Our Services

We operate under four different, but closely related, business lines: (i) company-owned brokerage services, (ii) primary
and commercial services, (iii) mortgage management services, and (iv) franchise services. We have deployed a unique business model that has allowed us to rapidly scale our company-owned
operations by leveraging the in-depth market knowledge and human capital developed from our franchise network. We invested in our first real estate investment fund with an investment of
RMB8.4 million as of December 31, 2012, as a limited partner. The fund provides low loan-to-value bridge loans to select real estate developers. We also act as a
general partner with a 75.0% equity interest in the partnership managing this real estate fund.

Company-owned Brokerage Services

Through our company-owned brokerage services business, we participate in sales and leasing transactions primarily with respect to
middle to high grade residential properties in the secondary real estate market. Our services include property listing, advisory services and transaction negotiation and documentation. When we assist
the seller in a real estate transaction, our sales professionals assist the seller in pricing the property and preparing it for sale, advertising the property (including on websites), introducing and
promoting the property to prospective buyers, and assisting the seller in sale negotiations.

When
we assist the buyer in a real estate transaction, our sales professionals generally help the buyer locate specific properties that meet the buyer's personal and financial
specifications, show properties to the buyer, assist the buyer in negotiating transaction terms and executing the transaction. We also promote our mortgage management services to our customers to
provide the increased convenience of one-stop real estate brokerage services. We also participate in real estate sales and leasing transactions with respect to properties in the primary
and commercial real estate markets. As of December 31, 2012, we directly owned 321 CENTURY 21® sales offices, including four temporarily closed company-owned sales offices,
strategically located in Beijing, Shanghai, Shenzhen and Chengdu, which are among the cities in China with the highest number of secondary market real estate transactions per year. We primarily focus
on China's fast-growing and highly fragmented secondary real estate market, which we expect to outgrow the primary real estate development market, especially in more economically
prosperous cities. As of December 31, 2012, we had 5,640 sales professionals and staff in our company-owned sales offices. In 2011 and 2012, such offices were involved in approximately 13,380
and 16,836 sale and purchase transactions, respectively, and net revenues from our company-owned brokerage services business represented approximately 84.9% and 83.4% of our total net revenues,
respectively.

The
table below sets forth the number of our company-owned sales offices and sales professionals and staff in each city as of December 31, 2012:

Company-owned
Sales Offices

Sales Professionals
and StaffBeijing


125
*

2,435Shanghai


151
*

2,398Shenzhen


39


618Chengdu


6


158Total


321


5,609


*Includes
one in Beijing and three in Shanghai, which were temporarily closed.


Historically,
we have developed our company-owned brokerage services business through organic growth and acquisitions of sales offices owned by third parties. We established Beijing
Anxin, the

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operator
of our company-owned sales offices in Beijing in 2006. In Shanghai and Shenzhen, we acquired the sales offices operated by two pre-existing local players with sufficient local
expertise in 2006 and 2008, respectively. After such acquisitions, we started to develop our company-owned brokerage services business locally with the assistance of the local management team.

We
operate our company-owned brokerage services business under the CENTURY 21® franchise network. Each of our company-owned sales offices enters into a franchise agreement
with one of our two wholly owned regional sub-franchisors. Under this arrangement, our company-owned sales offices are required to pay intra-group royalties to our regional
sub-franchisors who, in turn, pay royalties to us. See "Item 4. Information on the CompanyB. Business OverviewOur ServicesFranchise Services"
for more information on our CENTURY 21® franchise network and operations.

Primary and Commercial Services

We established dedicated teams to enter the primary and commercial real estate markets in 2009. Our primary and commercial services
business consists of two business units, one that provides agency services to primary residential real estate developers and one that provides planning, consulting and brokerage services to commercial
property developers. In 2010, we launched our primary and commercial services business. We generate revenues from our primary services by earning sales commissions from primary residential property
developer clients, and we generate revenues from our commercial services by collecting service fees for consultancy services provided to commercial property developers. In June 2011, we acquired 55%
of the equity interest of Shanggu an established local primary real estate agency service provider based in Beijing focusing on consulting and sales for commercial real estate projects, with a plan to
acquire another 35% of its equity interest between 2014 and 2019. We generated revenues from the sales of 444,351 square meters of primary projects in 2012 and have expanded our pipeline to a total
GFA of 2.0 million square meters as of the end of 2012.

Mortgage Management Services

We began operating our independent mortgage management services as a separate segment in 2008 in Beijing and Shanghai, under the
independent brand of Kaisheng Jinglue. Our mortgage management services include comprehensive advisory services in connection with the selection and procurement of mortgage products offered by
commercial banks. Our experienced mortgage consultants promote and introduce various mortgage products, and advise home buyers or home owners in the selection of the appropriate mortgage product based
on each mortgagor's individual needs. We also have a call center in Beijing and Shanghai to promote our mortgage management services business directly to our customers.

As
an important aspect of the one-stop real estate brokerage services available within the CENTURY 21® franchise network, our mortgage management services can be
accessed at our closing centers, providing a convenient, one-stop option to home buyers and home owners as well as a prime platform for commercial banks to offer their products and
services. In 2012, a majority of the transactions utilizing mortgage services that are handled by our company-owned sales offices made use of our mortgage management services. We also provide mortgage
management services to customers outside of our CENTURY 21® China network.

We
generate revenues in our mortgage management services primarily through our advisory services to home buyers and home owners, and provision of entrusted and mortgage credit loans.
These services principally consist of introducing home mortgage and home equity products made available by various commercial banks to home buyers and owners. We acquired a company based in Beijing
with a license to offer mortgage credit loans with property collateral through a series of contractual arrangements in order to arrange property financing, valuation services and title transfers. From
2010, we have been offering entrusted and mortgage credit loans to consumer directly. The revenues

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generated
from advising home equity loans and providing entrusted loans and mortgage credit loans accounted for 59% of our total mortgage management service revenues in 2012.

As
of December 31, 2012, we had established advisory relationships with 17 commercial banks, such as Bank of China and Industrial and Commercial Bank of China. In some cases, we
provide mortgage management services to property owners who need mortgages on their existing properties to obtain consumer loans for acquisition of additional properties and charge commissions based
on our services. We provided services for referred mortgages and home equity loans with an aggregate loan amount of
approximately RMB2.8 billion and RMB2.9 billion (US$0.5 billion) in 2011 and 2012, respectively. Average entrusted and mortgage credit loan balance outstanding was
RMB40.0 million and RMB41.5 million (US$6.7 million) in 2011 and 2012, respectively.

Franchise Services

Our franchise network consists of three levels of franchise rights. First, through IFM Co., our wholly owned subsidiary, we are
the exclusive franchisor for the CENTURY 21® brand in China. IFM Co. in turn grants the right to franchise the CENTURY 21® brand within specific geographical regions to
sub-franchisors whom we refer to as regional sub-franchisors. The geographical scope of a regional sub-franchisor is generally limited to a particular city,
although a few have rights to multiple cities. We own certain of the regional sub-franchisors.

The
regional sub-franchisors then either open their own sales offices or grant to independent operators the right to open sales offices within the
sub-franchisor's region. The sales offices owned by us are referred to as company-owned sales offices while those owned by third parties are referred to as franchised sales offices or
franchisees. As part of our strategy of expanding our network and CENTURY 21® brand recognition, in addition to owning and operating our company-owned sales offices, we seek to increase
the number of franchisees.

As
of December 31, 2012, we had 25 regional sub-franchisors with established franchise networks in 27 cities in China with a total of 924 franchised and company
owned sales offices employing 12,192 sales professionals and staff. The table below sets forth the number of the franchised sales offices in our CENTURY 21® franchise network, as of
December 31, 2012:

Franchise
Sales Offices

Sales Professionals
and StaffChengdu


62


892Jinan


62


600Qingdao


52


483Ningbo


51


304Shijiazhuang


50


529Xian


47


536Zhengzhou


41


316Hangzhou


40


460Wenzhou


26


490Kunming


23


186Others


149


1,787Total


603


6,583


*We
own all of the equity interests of the regional sub-franchisors for Beijing, Shanghai, Shenzhen and Chengdu, and 10% of the equity interest of
the regional sub-franchisor for Xi'an.


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We are the largest real estate brokerage franchisor in China based on the number of sales offices operating under the CENTURY 21® brand, and the only
real estate franchisor with a national footprint.

Pursuant
to the franchise agreements we entered into with the entities in our CENTURY 21® franchise network, we primarily generate revenues from our franchise services
business in two ways. First, each regional sub-franchisor pays us an initial sub-franchising fee in consideration of entering into the regional sub-franchise
agreement. Second, each regional sub-franchisor pays us ongoing service fees based on its revenues from the sales offices within its respective region, subject to minimum service fee
requirements. The regional sub-franchisors generate revenues through an initial franchise fee and ongoing service fees from each sales office established in their regional network.

In
addition to generating revenues from our regional sub-franchisors, we leverage the geographic breadth and local market expertise of our CENTURY 21® franchise
network to increase our brand recognition and market share as well as to accumulate market information and local expertise in the geographic regions where we see the business potential for future
expansion of our company-owned brokerage services.

Our
franchising process involves conducting market surveys and identifying target regions or locations, identifying potential regional sub-franchisors, and negotiating and
signing franchise agreements. Since 2000, we have become more efficient in developing our CENTURY 21® franchise network. Based on our research and analysis of the real estate market in
China, we believe that approximately 100 cities in China meet our criteria to develop our CENTURY 21® franchise network.

The
selection of regional sub-franchisors in target regions is of critical importance to the development of the CENTURY 21® franchise network. We identify
suitable partners in regions where we plan to develop a franchise network. An evaluation committee consisting of key members of our senior management team is in charge of reviewing and selecting
regional sub-franchisors in new regions. Major criteria for the evaluation process include reputation, financial strength, commitment and industry vision, demonstrated industry and local
expertise as well as internal control capability.

After
our regional sub-franchisor enters into our network, we start to provide our franchise services, which primarily include the license to use or sub-franchise
CENTURY 21® brand and system, training services, and the right to participate in and benefit from the marketing campaigns using NAF as well as information technology and back office
support.

As
part of our ongoing monitoring and supervision of a regional sub-franchisor's performance, we generally require our regional sub-franchisor to
(1) comply with a uniform franchise policy and procedure adopted for the region, (2) use our standardized franchise agreement with the franchisees within the region, (3) meet
certain performance criteria, including the development of a certain number of franchised sales offices, (4) abstain from engaging in any other real estate brokerage business similar to ours or
investing in any franchised sales offices, or other real estate brokerage, consulting or valuation businesses, unless otherwise agreed by us and (5) obtain our consent prior to any transfer of
more than 5% of its equity interest. We also have the right to terminate the regional sub-franchise agreement in the event that the regional sub-franchisor materially breaches
its obligations under the agreement.

Our Information Technology and Systems

We supervise and manage our operations and provide information technology and back-office support to our company-owned
brokerage services and franchise network through our proprietary information technology and systems, principally our Sales Information System ("SIS"), Transaction Management System, and Human
Resources and Commission Information System ("HCIS"). Since 2011, we have established an online listing platform to consolidate all Century 21 China real estate

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internet
advertising portals. We maintain certain backup and disaster-recovery systems for the critical functions of our SIS and HCIS. Our in-house information technology team, with the
support of third-party firms, develops, maintains and upgrades our information systems on a regular basis.



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Marketing and Brand Promotion

Marketing and brand promotion is an important tool in building the CENTURY 21® franchise network in China. We primarily
finance our marketing campaigns and activities for brand promotion activities through our National Advertising Fund (NAF) to which all regional sub-franchisors and franchisees within the
CENTURY 21® franchise network in China make monthly contributions. The contributions made to our NAF, net of amounts retained for regional promotion as discussed below, amounted to
RMB8.2 million, RMB3.9 million and RMB4.2 million (US$0.7 million) in 2010, 2011 and 2012, respectively. Our marketing committee, which consists of key management members
in charge of marketing from each of our regional franchise networks, is responsible for directing and supervising the use of the fund. We receive a 15% management fee for our administration of the
fund from each of our regional franchise networks. To promote the CENTURY 21® brand in regional markets, each regional sub-franchisor retains 30% of its annual contribution to
maintain an advertising fund for brand promotion in their respective local market. As a matter of our company's policy, all financial contributions to our NAF must be used in marketing campaigns and
brand promotion activities during the relevant year in which they are made. For major marketing campaigns we hire external marketing professionals to assist our in-house marketing team.

We
have adopted an integrated approach to promote the CENTURY 21® brand:



In
addition to our brand building efforts, each sales office may choose to allocate certain funds to online marketing of property listings through the internet. Through our cooperation
arrangements with major online real estate portals such as SouFun.com, each sales office may promote property listings to

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advance
potential customers' direct access to such listings and responsible sales professionals. Our sales offices have generated significant traffic through our online advertising efforts.

Competition

Company-owned Brokerage ServicesThe real estate brokerage industry is highly competitive in China, particularly in the
metropolitan areas in which
our company-owned brokerage services businesses operate, such as Beijing, Shanghai, Shenzhen and Chengdu. In addition, the industry has low capital commitment requirements for small operations,
lowering entry barriers for new participants, especially participants pursuing alternative methods of marketing real estate, such as internet-based listing services. However, significant capital
commitments would be required to compete on a regional or
national basis. Companies compete for brokerage business primarily on the basis of the services offered, reputation and brand recognition, personal contacts, local expertise and brokerage commission
rates. We primarily compete with Centaline (China) Property Consultants Limited in the Beijing, Shanghai, Shenzhen and Chengdu markets for secondary market real estate brokerage business. We also
compete with regional competitors in each of the regions where we own and operate sales offices.

Primary and Commercial ServicesThe major players in the PRC primary services market include World Union Properties
Consulting Co., Limited
and Syswin Inc., E-House (China) Holdings Limited and the major players in the PRC commercial services market include CB Richard Ellis and Jones Lang Lasalle. These companies
entered into the primary and commercial services market earlier than us. We intend to leverage on our existing service network to differentiate us from the other market players and build our primary
and commercial services business by adopting different promotion and sales strategies.

Mortgage Management ServicesOur mortgage management services business covers the Beijing, Shanghai, Shenzhen and Chengdu regions
in contrast to our
competitors who typically cover a single region. We compete with in-house mortgage management teams of our competitors in the brokerage businesses and in some regions specific competitors
including Beijing Houze Investment and Guarantee Company Limited and Shanghai Haoyonghang Investment Management Company Limited.

Franchise ServicesWe compete primarily with regional and local real estate brokerage brand franchisors. In addition, other
international real estate
brand franchisors, such as Coldwell Banker, have entered the China market. A real estate broker may choose to affiliate with a regional chain or choose not to affiliate with a franchisor but to remain
independent. We believe that competition for the sale of franchises in the real estate brokerage industry is based principally upon the perceived value and quality of the brand, the types of services
offered to franchisees, the availability of financing, and the fees the franchisees must pay.

The
ability of our real estate brokerage franchisees to compete is important to our prospects for growth. The ability of an individual franchisee to compete may be affected by the
quality of its sales professionals, the location of its office, the services provided to its sales professionals, the number of competing offices in the vicinity, its affiliation with a recognized
brand name, community reputation, brokerage commission rate and other factors. A franchisee's success may also be affected by general, regional and local economic conditions.

Intellectual Property

The CENTURY 21® brand name, including related intellectual property, which we are authorized to use under our master
sub-franchise agreement with Realogy, contributes to our competitive advantage in the real estate services market. We also rely on our Sales Information System and Human Resource and
Commission Information System, each of which is copyright protected, and our training system that combines our training programs and our E-learning system to manage our business

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operations.
See "Item 4. Information on the CompanyB. Business OverviewOur Information Systems." Since commencement of our operations, our company-owned brokerage and
franchise services businesses have significantly relied on the CENTURY 21® brand name, our proprietary information systems and our training system. To protect our intellectual property, we
rely on a combination of trade secrets and copyright laws in China as well as imposing procedural and contractual confidentiality on our sales professionals and staff, contractors and others. The
built-in security functions and access authorization mechanisms in our franchise systems also help protect our confidential information.

We
offer our mortgage management services under the trade name of Kaisheng Jinglue in Beijing and Shanghai. We have registered the trademark of Kaisheng Jinglue in China with a term of
ten years ending on March 6, 2023, in a range of classes, including insurance brokerage services, mortgage credit, trust, guarantee services, leasing guarantee services, insurance consulting
and real estate agent services.

Compliance and Legal Proceedings

Our operations in China are regulated by the MOFCOM, the SAFE, the MHURD, the Ministry of Land and Resources, the SAIC, the NDRC, the
PBOC, China Banking Regulatory Commission and their respective local counterparts. See "Item 4. Information on the CompanyB. Business OverviewRegulations" for further
details on the regulations promulgated by such bodies. Historically, we have not incurred any material costs in complying with these regulations.

GLA,
an affiliate of Avenue Capital and one of our shareholders, filed a petition on December 30, 2011 in the Grand Court of the Cayman Islands to request an order to wind up our
company and other remedies. We, having consulted with our legal counsel, firmly believed that there was no basis for any of GLA's claims, and that a winding up would not be the appropriate remedy for
any of the claims made. We filed a summons to strike out GLA's petition on January 6, 2012, and were contesting GLA's petition. On April 27, 2012, we entered into the Restructuring Deed
with GLA and certain other parties, pursuant to which, the parties of such restructuring deed released each other from all then outstanding claims under certain legal proceedings, including the
petition filed by GLA on December 30, 2011. For more information about the Restructuring Deed, see "Item 7. Major Shareholders and Related Party TransactionsB. Related Party
TransactionsRestructuring Deed."

We
are subject to various legal proceedings, investigations and claims incidental to the conduct of our business from time to time. We have occasionally, and in each case, successfully,
resorted to litigation against certain of our regional sub-franchisors with whom we have terminated our sub-franchise relationship for the sub-franchisor's material
breach of the regional sub-franchise agreement. In addition, we have successfully litigated against third parties who have infringed upon the CENTURY 21® trademark. Except as
mentioned in this section, we are not currently a party to, nor are we aware of, any legal proceeding, investigation or claim, which in the opinion of our management, is likely to have a material and
adverse effect on our business, financial condition or results of operations.

Our Relationship with Realogy

In March 2000, IFM Company Limited, or IFM Co. entered into an international master sub-franchise agreement with
Cendant Global Services B.V., a subsidiary of Cendant Corporation, the entity from which Realogy was spun off in 2006. Cendant Global Services B.V. assigned its rights under the master
sub-franchise agreement to a subsidiary of Realogy which, in turn, assigned such rights to Realogy. IFM Co. became the exclusive franchisor of the CENTURY 21® brand and
system in China for a term of 25 years, extendable at IFM Co.'s election for additional terms of 25 years upon payment of renewal fees of US$4.5 million for each renewal,
to be adjusted for inflation or deflation. Under the agreement, IFM Co. is authorized to establish, operate and promote the CENTURY 21® network in

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China
by using and sublicensing the CENTURY 21® brand and system owned by Realogy, which includes: (i) the trade names, trademarks, service marks, slogans, logos or other indicia
relating to the CENTURY 21® franchise network; and (ii) the standard franchise agreement, sales tools and brochures, real estate products, programs, services and
franchise/sub-franchise plans. Pursuant to our restructuring in 2005, our company was incorporated in the Cayman Islands and IFM Co. became our wholly owned subsidiary.

Under
the master sub-franchise agreement, we are required to comply with certain franchise policies adopted by Realogy, as amended from time to time. The master
sub-franchise agreement sets out certain terms pursuant to which we are required to operate our franchise services business, including the form of regional sub-franchise
agreements to be entered into with regional sub-franchisors and the service fees payable to Realogy. The master sub-franchise agreement also provides that Realogy must approve
and has a right of first refusal with respect to any sale or transfer of more than 25% of our equity interest, or any series of transactions resulting in sales or transfer of more than 49% of our
equity interest. Realogy approved our initial public offering and waived any right of first refusal it may have with respect to our initial public offering. In addition, Realogy agreed not to, during
the term of the agreement, license any other parties to sublicense to any other parties the CENTURY 21® brand and system to operate real estate brokerages in China.

Upon
entering into the master sub-franchise agreement, we paid Realogy an initial franchise fee. Apart from the initial franchise fee, we are required to pay certain ongoing
service fees to Realogy, based on revenues generated from initial franchise fees and ongoing service fees collected from our regional sub-franchisors or direct franchisees. The master
sub-franchise agreement also includes a minimum annual fee requirement, and to the extent that the service fees payable within a certain year are lower than such minimum amount, we are
required to make additional payment to reach the minimum fee requirement. In the years ended December 31, 2010, 2011 and 2012, the service fees which were paid or to be paid to Realogy amounted
to RMB3.9 million, RMB4.4 million and RMB2.6 million (US$0.4 million), respectively.

Either
party has the right to terminate the master sub-franchise agreement if the other party materially breaches the master sub-franchise agreement.
Additionally, Realogy has the right to terminate the master sub-franchise agreement in the event that (1) we assign our rights and obligations without Realogy's approval,
(2) we fail to honor Realogy's right of first refusal in connection with the assignment, or (3) we become insolvent. Within two years after the master sub-franchise agreement
terminates or expires, we may not engage in the real estate brokerage franchise business, subject to certain exceptions. See "Item 3. Key InformationD. Risk FactorsWe
do not own the CENTURY 21® brand and our right to use the CENTURY 21® brand is subject to risks and limitations" for further discussion of the risks associated
with this agreement and our reliance thereon.

On
June 30, 2002, IFM Co. entered into a cooperation agreement with Beijing International Franchise Management Company Limited, or IFM Beijing, an entity controlled by our
founders, Mr. Donald Zhang and Mr. Harry Lu. IFM Beijing then became the exclusive agent of IFM Co. to sub-franchise the CENTURY 21® brand and system in
China on behalf of IFM Co. IFM Beijing is obliged to pay Realogy the service fees payable by IFM Co. under the master sub-franchise agreement. We became the controlling
shareholder of IFM Beijing in October 2006.

On
February 21, 2008, after giving effect to our 10-for-1 share split which was effective on January 4, 2010, we issued 6,113,670 Series B
preferred shares to Realogy for approximately RMB16.2 million, which were then converted to 5,337,647 Class A ordinary shares upon our initial public offering.

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Regulations

The real estate market and our operations in China are regulated by the MOFCOM, the SAFE, the MOHURD, the Ministry of Land and
Resources, the SAIC, the NDRC, the PBOC, China Banking Regulatory Commission and their respective local counterparts.

Regulations on the Real Estate Market

Under the laws of the PRC, land is owned either by the state or by rural collective organizations. Generally, the land use rights for
real estate development purposes must be granted by the local counterparts of the Ministry of Land and Resources. The government can therefore control the volume of land granted for real estate
development each year. The construction of real estate shall also abide by the planning of the local counterparts of the MOHURD. The government policies regulating, among others, (i) the
monetary supply and credit markets issued by the PBOC; (ii) the real estate developer qualification issued by the MOHURD; and (iii) taxes applicable to real estate transaction issued by
the State Tax Bureau will have a material effect on the real estate market and our business.

Regulations on the Real Estate Service Industry

The principal regulations governing the real estate service industry in China include the Law on the Administration of the Urban Real
Estate, as amended in August 2007, the Real Estate Brokerage Administration Measures issued by the MOHURD, the NDRC, and the
Ministry of Human Resources and Social Security on January 20, 2011, which became effective on April 1, 2011.

Real Estate Service Companies

In accordance with the Law on the Administration of the Urban Real Estate and the Real Estate Brokerage Administration Measures, real
estate services refer to services of real estate consultation, appraisal and brokerage. A real estate service company is required to meet certain financial and personnel requirements and register with
the SAIC or its local counterpart. To be qualified to engage in real estate services, a company is required to file with the local real estate regulatory authority within thirty days following the
issuance of its business license by the SAIC or its local counterparts. It must also keep proper records and comply with prescribed procedures in delivering its services.

Pursuant
to the Real Estate Brokerage Administration Measures, a real estate brokerage company must have a certain number of real estate brokers and real estate broker assistants. Local
authorities in Beijing, Shanghai, Shenzhen and Chengdu have specific requirements on employing such brokers.

On
December 29, 2006, the MOHURD and the PBOC jointly issued a circular to further strengthen the regulation of the real estate services industry. The MOHURD and NDRC jointly
issued the Notice of strengthening the Real Estate Brokerage Administration and Further Standardizing the Order of Real Estate Transactions on May 11, 2011. According to such rules, a real
estate brokerage company cannot display information on properties or customers until the execution of a brokerage contract with the relevant clients. Furthermore, a real estate brokerage company is
forbidden to display any false or unverified information. The real estate brokerage company and its brokers shall not conceal transaction price and other transaction information from the transacting
parties. Such entities are also prohibited from obtaining any gains by purchasing or renting a property at a lower price and then selling or leasing such property at a higher price. The real estate
brokerage company is also required to establish a separate account for transaction settlement.

Real Estate Service Brokers

In accordance with the Real Estate Brokerage Administration Measures, the PRC government implemented the occupational qualification
system for real estate broker personnel.

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Pursuant
to the Interim Regulations on Professional Qualification for Real Estate Brokerage Professionals and the Implementation Rules on the Examinations of Real Estate Brokerage
Professional Qualification issued by the Ministry of Human Resources and Social Security and the MOHURD on December 18, 2001 and relevant circulars, real estate brokerage professionals include
real estate brokers and assistant real estate brokers. To practice as a qualified real estate broker, an individual must pass an exam and obtain a qualification certificate for real estate brokers,
and register with the China National Institute of Real Estate Appraisers and Brokers to obtain the real estate broker license. After obtaining a real estate brokerage license, an individual can act as
broker, but may only provide brokerage services in the name of the real estate brokerage company for which he works. Each broker can only serve one real estate service company at a time.

In
accordance with the Brokers Administration Measures issued by the SAIC in August 2004, the local offices of the SAIC are the administrative bodies responsible for brokers, including
their registration and supervision. Within twenty days after a brokerage company employs or dismisses an individual broker, it must file the individual broker's information and the related employment
contracts with the local offices of SAIC. In addition, no brokerage or broker can engage in any activities beyond the permitted business scope or against a client's interests. In cases of
non-compliance, the local offices of the SAIC can issue warnings or impose fines up to RMB30,000.

Real Estate Service Charges

According to the Circular on Real Estate Service Charges promulgated by the NDRC and the MOHURD on July 7, 1995, a real estate
service company must display its service charges, or commissions. Commissions for the sale of real properties should range between 0.5% and 2.5% of the transaction price. For exclusive brokerage
services, commissions can be raised to up to 3% of the transaction price. However, the Circular on Real Estate Service Charges only sets a standard for reference with respect to real estate consulting
services. Real estate consulting services providers may negotiate and determine their commission rates with clients.

In
Beijing, government authorities issued guidance in August 2011 for maximum commission rates for consulting services that a real estate service company may charge. Particularly, the
maximum commission rate for selling brokerage services has been lowered to 2% by Beijing Municipal Commission of Development and Reform and Beijing Municipal Commission of Housing and Urban-Rural
Development. Although such maximum commission rate can float under the negotiation between the real estate service company and its clients for certain complex selling brokerage services,
the floating range may not exceed 10%. For property leasing brokerage services, the commission rate may range from 50% to 100% of the underlying properties' contracted monthly rent.

In
Shanghai, pursuant to the Circular on Brokerage Services Charges for Sales and Rental of Residential Properties jointly issued by the Shanghai Price Bureau and the Shanghai House and
Land Resources Administration Bureau on August 28, 2003, our PRC real estate brokerage subsidiaries located in Shanghai shall charge clients in accordance with the guidance commission rate. The
maximum guidance commission rate for real estate brokerage services is 2% of the purchase price recorded with the real estate trading center. The maximum commission rate for property leasing brokerage
services is 70% of the underlying properties' contracted monthly rent. The guidance commission rate for investigation of property title and conditions, industry and market research, assisting the
seller and the purchaser to conclude a property purchase contract and handling the registration of title assignment is 2% of the purchase price recorded with the real estate trading center. The
maximum commission rate for rental services is 70% of the monthly rent.

In
Shenzhen, the guidance commission rate for real estate brokerage services is 3% of the transaction price. A real estate brokerage company may not charge its client a commission rate
exceeding 120% of this guidance commission rate.

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Regulations on Franchise Businesses

To regulate the franchise industry, the MOFCOM issued the Administration Regulations on Commercial Franchise on February 6,
2007, the Administration Rules on Filing of Commercial Franchise on December 12, 2011 and the Notice Concerning Authorizing Provincial Commerce Authorities to Conduct Filings of Commercial
Franchise in April 2009. Pursuant to these regulations, a franchisor must be an enterprise with at least two self-operated stores and have been in operation for at least one year. The
franchisor should have a mature operating model and the ability to provide operating guidance, technology support and business training to franchisees. The franchisor is required to enter into a
written franchise agreement with each of its franchisees, under which the franchisees have the right to terminate this agreement after a designated period. With the exception of renewed franchise
agreements, the term of a franchise agreement must be no less than three years, unless otherwise agreed to by the franchisee.

A
franchisor starting its franchise business after May 1, 2007 is required to file its business license, sample franchise agreement and other documents to the provincial commerce
authority where it is
registered for record within fifteen days following the execution of its first certificate of approval with business scope of conducting business through franchise agreement with a franchisee inside
China. Moreover, the franchisor shall file information regarding the execution, withdrawal, renewal of and amendment to franchise agreements to the commerce authority for record before March 31
of each year.

Any
changes in the recorded information of the franchisor should also be filed with the relevant commerce authority within thirty days following the occurrence of these changes. For a
franchisor failing to file in accordance with these regulations, the relevant commerce authority may order it to comply within a designated time frame and impose a fine ranging from RMB10,000 to
RMB50,000. If the franchisor fails to comply as ordered, the relevant commerce authority may impose another fine ranging from RMB50,000 to RMB100,000 and publicly announce the franchisor's violation.

The
Administration Regulations on Information Disclosure for Commercial Franchise, issued by the MOFCOM on February 23, 2012, further requires a franchisor to disclose its basic
information, ownership of business resources, franchise fees charged, products and services to be provided as well as other information to any franchisees at least thirty days prior to the execution
of the franchise agreement.

Regulations on Mortgage Credit Companies

The Measures for the Administration of Mortgage Credit ("Mortgage Credit Measures") were jointly issued by the MOFCOM and the Ministry
of Public Security, on February 9, 2005 and came into effect on April 1, 2005. According to the Mortgage Credit Measures, competent commercial authorities shall implement supervision and
administration over the mortgage credit industry, and public security bureau shall carry out security administration over the mortgage credit industry. Any mortgage credit company shall obtain
mortgage credit operations business license and special industry license as well as other requisite licenses for its operations.

Approval
from the competent governmental authority at the provincial level is generally required if a mortgage credit company intends to change its entity name or registered capital
(except where the registered capital amounts to over RMB50 million after the intended change) or legal representative, or relocate its domicile to another place within the same city or transfer
shares. The competent commercial department at the provincial level shall report to MOFCOM for record-filing within twenty days after issuing the approval. The MOFCOM shall collectively issue new
license for mortgage credit business to mortgage credit companies that have undergone changes in June and December each year. Where a mortgage credit company intends to divide, merge or consolidate,
move its domicile to another city, transfer accumulatively over 50% of its shares to any party other than the existing

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shareholders,
or where the registered capital thereof amounts to over RMB50 million after the intended change, the mortgage credit company shall, with consent of the competent commercial
department at the provincial level, obtain approval from the MOFCOM.

On
December 5, 2012, the MOFCOM issued the Regulation for Monitoring of Mortgage Credit Industry, or the Monitoring Regulation. The Monitoring Regulation clarifies and details the
different administrative monitoring powers of relevant authorities on mortgage credit companies and clarifies the management of mortgage credit companies, such as the management of admittance, daily
operation management and annual inspection management.

Regulation on Entrusted Loan

The General Rules on Credit (the "General Rules") were promulgated by the PBOC on June 28, 1996 and came into effect on
August 1, 1996. The General Rules define a "loan provider" as a PRC owned financial institution established in the PRC that engages in the provision of interest bearing loans. One type of loan
defined in and regulated in accordance with the General Rules is the entrusted loan. Entrusted loans are arrangements whereby the capital for a loan is supplied by a government department, an
enterprise or a natural person (the "capital provider") and entrusted to a financial institution as the loan provider. Entrusted loans are made by the loan provider to a specified borrower for a
particular purpose and in an amount, for a term and at an interest rate determined by the capital provider. The term "specified borrower" describes the party specified by the capital provider as the
person who will receive the amount of an entrusted loan (the "loan recipient"). The General Rules do not contain any restriction or prohibition on the provision of entrusted loans to specified
borrowers who are related parties to the capital provider. While the loan provider exercises supervision over and receives repayment from the loan recipient, the loan provider does not assume any risk
of default in repayment by the loan recipient. In accordance with the General Rules and the relevant judicial interpretation from the Supreme People's Court of the PRC, in an entrusted loan
arrangement, the relationship between the loan provider and the capital provider is that of trustee and trustor; and the relationship between the loan provider and the loan recipient is that of lender
and borrower. No creditor/debtor relationship exists between the capital provider and the loan recipient. The General Rules require that loan providers must be authorized by and have been granted a
financial institution licence or a financial institution operation licence from the PBOC; and must have registered with the SAIC. The General Rules further stipulate that enterprises which are not
authorized and registered as loan providers must not breach the laws of the PRC by engaging in intercompany loan transactions or the provision of loans through unauthorized means. An intercompany loan
is a loan provided directly from one company to another where the loan provider is not authorized and registered as a loan provider.

Regulations on Trademarks

The PRC Trademark Law, enacted by the National Congress on August 23, 1982, as amended, and the Implementation Rules of the PRC
Trademark Law issued by the State Council on March 10, 1983, as amended, protect the title holders of registered trademarks and grant a renewable term of ten years to a trademark registered in
the PRC. The Trademark Office under the SAIC handles trademark registrations and the filing of registered trademark licenses. Pursuant to the Regulations on Filing of Trademark License Contracts,
promulgated on August 1, 1997, trademark license contracts are required to be filed with the Trademark Office within three months after executing such license contacts. However, unless
otherwise provided in a trademark license contract, failure to complete the filing procedure will not affect the validity of this trademark license contract in accordance with the Interpretation
Concerning Several Issues on Application of Laws in Handling Trademark Civil Dispute Cases issued by the Supreme People's Court on October 12, 2002.

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Regulations on Foreign Currency Exchange and Dividend Distribution

Foreign Currency Exchange

The principal regulations governing foreign currency exchange in China are the Foreign Currency Administration Regulations, as amended
in 2008. Under these regulations, the Renminbi may be converted for current account items, including the distribution of dividends, interest and royalties payments, trade and service-related foreign
exchange transactions. Conversion of the Renminbi for capital account items, such as direct investment, loans, repatriation of investment and investment in securities outside China, however, is still
subject to the SAFE's approval.

Dividend Distribution

Under the relevant regulations, a foreign investment enterprise, or an FIE, in China may pay dividends only out of its accumulated
profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, it is required to allocate at least 10% of its accumulated profits each year, if any, to fund
certain reserve funds unless these reserves have reached 50% of its registered capital. These reserves are not distributable as cash dividends. Our PRC subsidiaries which are FIEs are restricted from
distributing any dividends to us until they have met the requirements set out in these regulations.

Pursuant
to the CIT Law of the PRC and its implementation rules, which became effective on January 1, 2008, dividends payable by an FIE to its foreign investors will be subject to
a 10% withholding tax, unless the foreign investor's jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. The Cayman Islands and the British
Virgin Islands, where two of our offshore holding corporations are incorporated, do not have a tax treaty with China. In accordance with the Arrangement between the Mainland and Hong Kong Special
Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion, or the Double Taxation Arrangement, which became effective on January 1, 2007, any dividends from one
of our PRC subsidiaries, Shenzhen CIR, paid to City Integrated Residential Services (China) Limited, its direct shareholder established in Hong Kong, may be subject to a withholding tax of the
enterprise income tax at the rate of 5%, provided that City Integrated Residential Services (China) Limited holds at least 25% of the equity interest of Shenzhen CIR.

According
to Circular of State Administration of Taxation on Printing and Issuing the Administrative Measures for Non-resident Individuals and Enterprises to Enjoy the
Treatment under Taxation Treaties which come into force on October 1, 2009, non-resident individuals and enterprises can enjoy the relevant tax treatments relating to dividends
under taxation treaties after obtaining approvals from competent tax authorities.

Foreign Shareholder's Loan

In accordance with the Interim Provisions on the Management of Foreign Debts issued by the NDRC, the Ministry of Finance and the SAFE,
which became effective on March 1, 2003, the summation of the accumulated medium-term and long-term debts and the balance of short-term debts borrowed by an
FIE shall not exceed the difference between the total investment and the registered capital of the FIE. The FIE shall register the loan agreement with SAFE for the loan extended by its foreign
shareholder upon execution of the loan agreement. Such loan agreement will not become valid and effective without such registration.

Regulations on Foreign Exchange Registration of Offshore Investment by PRC Residents

On October 21, 2005, SAFE issued the "State Administration of Foreign Exchange's Notice on Relevant Issues Concerning Foreign
Exchange Administration for PRC Residents to Engage in

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Financing
and Round-trip Investment via Special Purpose Offshore Companies" (Hui Fa 2005 No. 75), or Notice No. 75, a public notice which became effective on
November 1, 2005. Notice No. 75 requires PRC residents to register with the local SAFE branch before directly establishing or indirectly controlling any company referred to in the notice
as a "special purpose offshore company" outside of the PRC for the purpose of capital financing with assets or equity interest in an onshore enterprise in the PRC, and to undergo registration
procedures after completing an investment in or acquisition of any operating subsidiaries in the PRC via the special purpose offshore company, which we refer to herein as a "round-trip
investment." In addition, any change of shareholding or any other material capital alteration in such special purpose offshore company not involving a round-trip investment, such as a
change in share capital or merger and acquisition, must be filed or registered within 30 days from the date of change. The relevant SAFE regulations apply retrospectively to registration of
direct or indirect investments made by PRC residents in special purpose offshore companies before Notice No. 75 came into effect.

On
May 20, 2011, SAFE promulgated the Notice of Issuing the Foreign Exchange Administration Operational Rules for PRC Resident to Engage in Financing and Round-trip
investment via Special Purpose Offshore Companies, or Notice No.19, which came into effect on 1 July 2011. The Notice No.19 stipulates the detailed procedures for first-time
registration with SAFE, registration of subsequent changes and cancellation of registration with SAFE or its local branches.

In
the event that a PRC resident with a direct or indirect stake in a special purpose offshore company fails to make the required SAFE registration, the PRC subsidiaries of such special
purpose offshore company may be prohibited from distributing their profits to their offshore parent and from paying the offshore parent proceeds from any reduction in capital, share transfer or
liquidation in respect of the PRC subsidiaries, and the offshore parent's ability to contribute additional capital or provide loans, whether using the proceeds from the securities offering or
otherwise, would be impaired. In addition, failure to comply with SAFE registration requirements as described above may also result in liability under PRC laws for evasion of applicable foreign
exchange restrictions.

Regulations on Employee Stock Options Plan

On February 15, 2012, the SAFE promulgated the Notice of the State Administration of Foreign Exchange on Issues Related to
Foreign Exchange Administration in Domestic Individuals' Participation in Share Incentive Plans of Overseas Listed Companies, or the Stock Option Rule. According to the Stock Option Rule, a Chinese
citizen who is granted shares or share options by an overseas listed company under its share incentive plan is required, through the PRC subsidiary of such overseas listed company or other qualified
PRC agents (the "Domestic Agent"), to register with SAFE and complete certain other procedures relating to the share incentive plan. The Domestic Agent can open a domestic special foreign exchange
account in the bank with a certificate of foreign exchange registration for the share incentive plan. Permissible proceeds to such account shall include the foreign currency funds transferred from
individuals' personal foreign currency deposit accounts, the foreign currency purchased by the domestic agent for individuals, the principal and earnings repatriated after sale of shares or beneficial
interests under the share incentive plan by individuals, repatriated dividends and other proceeds approved by the local office of the SAFE. Permissible expenditures from this account shall include the
funds transferred abroad for participation in the share incentive plan, the repatriated foreign currency funds to be converted into RMB funds, the foreign currency funds to be transferred to the
individuals' personal foreign currency deposit accounts, and other expenditures approved by the local office of the SAFE.

In
addition, in the case of any significant change to the share incentive plan of a company listed abroad (such as amendment to any major terms of the original plan, addition of a new
plan, or other changes to the original plan due to merger, acquisition or reorganization of the overseas listed company or the domestic company or other major events), the domestic agency or overseas
trustee shall, within

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three
months of the occurrence of such changes, go through procedures for change of foreign exchange registration with the local office of the SAFE.

We
and our Chinese employees who have been granted stock options are subject to the Stock Option Rule. If we or our Chinese employees fail to comply with the Stock Option Rule, we and/or
our Chinese employees may face sanctions imposed by foreign exchange authority or any other Chinese government authorities.

Regulations on Labor Contracts

On June 29, 2007, the PRC National People's Congress enacted the PRC Labor Contract Law, or the Labor Contract Law, which became
effective on January 1, 2008 and was newly revised on December 28, 2012. The Implementation Regulation for the PRC Labor Contract Law, or the Implementation Regulation, was promulgated
by the State Council and took effect on September 18, 2008. The Labor Contract Law formalizes, among others, workers' rights concerning overtime hours, pensions and layoffs, the execution,
performance, modification and termination of labor contracts, the clauses of labor contracts and the role of trade unions. In particular, it provides for specific standards and procedures for entering
into non-fixed-term labor contracts as some of our sales professionals and staff do. Either the employer or the applicable sales professional or staff is entitled to terminate
the labor contract in circumstances as prescribed in the Labor Contract Law or if certain preconditions are fulfilled, and in certain cases, the employer is required to pay a statutory severance upon
the termination of a labor contract pursuant to the standards provided by the Labor Contract Law.

C     ORGANIZATIONAL STRUCTURE

The following diagram illustrates our corporate structure, including our principal subsidiaries, as of the date of this annual report:

GRAPHIC

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Our Principal Subsidiaries

Company-owned Brokerage Services

We operate our company-owned brokerage services business through the following
subsidiaries:



Primary and Commercial Services

We operate our primary and commercial service business through the following
subsidiaries:



Mortgage Management Services

We operate our mortgage management services business through the following
subsidiaries:



Franchise Services

We operate our franchise services business through the following subsidiaries:



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D.    PROPERTY, PLANTS AND EQUIPMENT

Our headquarters are located in Beijing, China, where we lease approximately 1,700 square meters of corporate office space. As of December 31, 2012, our
company-owned sales offices in Beijing, Shanghai, Shenzhen and Chengdu occupied an aggregate of approximately 33,400 square meters of leased space. We consider our corporate office space adequate for
our current operations, and we expect that we are able to find new office spaces at reasonable rental rates if we open new company-owned sales offices.

Item 4A.    UNRESOLVED STAFF COMMENTS

None.

Item 5.    OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion and analysis of our financial condition and results of operations in
conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on Form 20-F. This discussion may contain forward-looking
statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of
various factors, including those set forth under "Item 3. Key InformationD. Risk Factors" or in other parts of this annual report on
Form 20-F.

A.    OPERATING RESULTS

Overview

We are a leading comprehensive real estate services provider with the largest network of real estate sales offices in China. We are the
exclusive franchisor in China for the CENTURY 21® brand, one of the world's most recognized brands in the real estate industry. As of December 31, 2012, our CENTURY 21®
China network covered 27 major cities with 924 sales offices, employed 12,192 sales professionals and staff and maintained approximately 8.0 million property listings. We primarily focus on
China's fast-growing and highly fragmented secondary real estate market, which we expect to outgrow the primary market, especially in more economically prosperous cities.

We
have significant experience providing professional services in the real estate services industry, and have experienced substantial net revenues growth in recent years. We entered the
real estate services market in 2000 as a pioneer of the franchise model in China and, from our base in Beijing, have grown our network of sales offices, including our company-owned sales offices and
franchised sales offices. In late 2006, we launched our company-owned brokerage services business. We subsequently launched our mortgage management services which we began managing as a separate
segment in 2008. We are now a market leader in Beijing and Shanghai in both of these business lines.

Our
total consolidated net revenues for the year ended December 31, 2012 were RMB748.1 million (US$120.1 million), representing a 23.7% increase from the year ended
December 31, 2011. Net loss attributable to IFM Investments Limited for the year ended December 31, 2012 was RMB53.5 million (US$8.6 million), a decrease of 84.1% from the year
ended December 31, 2011. Excluding the store closure-related costs of approximately RMB6.5 million (US$1.0 million), net loss attributable to

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IFM
Investments Limited for the year ended December 31, 2012 would be RMB47.0 million (US$7.5 million).

Our
total assets as of December 31, 2012 were RMB734.7 million (US$117.9 million), of which cash and cash equivalents amounted to RMB191.0 million
(US$30.7 million) and total net loans receivable amounted to RMB35.2 million (US$5.6 million). As of December 31, 2012, our total liabilities and accumulated deficit were
RMB301.6 million (US$48.4 million) and RMB691.9 million (US$111.1 million), respectively.

Factors Affecting Our Results of Operations

Our operating results are subject to general conditions typically affecting the real estate services industry, including changes in PRC
government policies and laws with respect to real estate and real estate financing, mortgage interest rates, economic growth, seasonality, demographic changes and demand for residential property in
China, particularly in the secondary market. In addition, our operating results may be affected by competition from other real estate services companies and increases in operating costs and expenses
due to inflation and other factors. Unfavorable changes in any of these conditions could negatively affect our transaction volume and the transaction value of the properties for which we facilitate
sales and otherwise adversely affect our results of operations.

Our
operating results are also affected by company-specific factors, including our revenue growth and ability to effectively manage our operating costs and expenses. We describe certain
of these specific factors affecting our statements of operations below.

Net Revenues.We generate revenues by providing company-owned brokerage services, primary and commercial services, mortgage
management services, and
franchise services. Our net revenues are presented net of PRC business taxes, discounts and related surcharges. The following table sets forth the net revenues generated by each of our business lines,
both as an amount and as a percentage of total net revenues for the years indicated:

For the Years Ended December 31,2010

2011

2012RMB

%

RMB

%

RMB

US$(1)

%(in thousands, except for percentages)Net Revenues:Company-owned brokerage services


482,371


90.9


513,375


84.9


623,927


100,147


83.4Primary and commercial services


7,066


1.3


44,735


7.4


85,115


13,662


11.4Mortgage management services


24,381


4.6


22,903


3.8


25,686


4,123


3.4Franchise services


17,011


3.2


23,546


3.9


13,405


2,152


1.8Total net revenues


530,829


100.0


604,559


100.0


748,133


120,084


100.0


(1)Translations
of RMB amounts into U.S. dollars were made at a rate of RMB6.2301 to US$1.00, the noon buying rate for U.S. dollars in effect on
December 31, 2012 as set forth in the H.10 weekly statistical release of the Federal Reserve Board of the United States.


Company-Owned Brokerage Services.Our company-owned brokerage services accounted for 90.9% 84.9% and 83.4% of net revenues for the years
ended
December 31, 2010, 2011 and 2012, respectively. Net revenues from our company-owned brokerage services increased in 2012 from 2010 and 2011, primarily due to the increase in our sales and
purchase transaction volume as a result of the increase in the overall secondary home sales transaction volume in China. We generate revenues from our company-owned brokerage services primarily
through commissions earned from home buyers, sellers, lessors and lessees, principally with respect to the residential and commercial properties in the secondary real estate market, and from property
developers for primary homes in 2012. Most of our

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agency
contracts specify a commission rate expressed as a percentage of sales or monthly rental price of a particular property. We expect that our company-owned brokerage services will continue to
constitute the majority of our net revenues in future periods. Commissions from secondary brokerage services are generally payable upon the signing of a real estate sales and purchase agreement or
rental agreement, at which time we recognize revenues.

Net
revenues from our company-owned brokerage services are significantly affected by transaction volume, our commission rates and the average transaction value of the properties that we
assist in selling, purchasing and leasing, as follows:



Primary and Commercial Services.Our primary and commercial services accounted for 1.3%, 7.4% and 11.4% of net revenues for the years
ended
December 31, 2010, 2011 and 2012, respectively. We began to create teams dedicated to the primary and commercial real estate markets in 2009 and began

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managing
our primary and commercial services as a separate segment in 2010. In 2011, we acquired 55% equity ownership of Shanggu to further expand our primary and commercial services.

We
generate revenues in our primary services primarily through sales commissions earned from property developer clients. Our primary services mainly consist of marketing and sales 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 with developer
clients specifies commission rates that are expressed as percentages of transaction value. We define the transaction value of a 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.

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



We
generate revenues in our commercial services primarily through service fees for project consultancy services and commissions from selling or leasing these commercial properties.
Revenues from our commercial services relate to the provision of planning, consulting and brokerage services to commercial property developers. We primarily provide project consultancy services to
commercial property developers, such as project planning services and overall sales and marketing consultancy services, and earn service fees for these project consultancy services.

Mortgage Management Services.Our mortgage management services accounted for 4.6%, 3.8% and 3.4% of our net revenues for the years
ended
December 31, 2010, 2011 and 2012, respectively.

We
generate revenues in our mortgage management services primarily through our advisory services to home buyers and home owners, and provision of entrusted and mortgage credit loans.
These services principally consist of introducing home mortgage and home equity products made available by various commercial banks to home buyers and owners, and arranging property financing,
valuation services and title transfers. From 2010, we have been offering entrusted and mortgage credit loans to consumer directly. The revenues generated from advising home equity loans and providing
entrusted loans and mortgage credit loans accounted for 59% of our total mortgage management service revenues in 2012.

Revenues
from our mortgage management services are significantly affected by transaction volume, commission rates and the average loan amount of the home mortgage, home equity, entrusted
and
mortgage credit loans. The number of persons seeking home mortgages in connection with the purchase of a property significantly impacts the number of applications for home mortgages for which we can
advise or offer services. In this regard, we cross-sell our mortgage management services to clients of our company-owned sales offices. In 2011 and 2012, a substantial majority of the
transactions handled by our company-owned brokerage services in which mortgages were utilized made use of our mortgage management services. Since the second quarter of 2010, due to changes in the
market practice in the mortgage management industry in Beijing, we no longer provide interim guarantees to our mortgage management service customers.

Franchise Services.Our franchise services accounted for 3.2%, 3.9% and 1.8% of net revenues for the years ended December 31, 2010,
 2011 and
2012, respectively.

We
generate revenues in our franchise services primarily by granting regional franchise rights for the CENTURY 21® brand in China to regional sub-franchisors in
various cities. The regional

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sub-franchisors,
in turn, are authorized to grant individual sales office franchise rights to franchisees in their cities. In consideration for such rights, we collect from each regional
sub-franchisor an initial franchise fee and ongoing service fees based on the higher of a percentage of the franchisees' gross income or a fixed monthly amount. Similarly, a regional
sub-franchisor collects from its franchisees an initial franchise fee and ongoing service fees.

Revenues
from our franchise services are significantly affected by the number of new regional sub-franchisors, the number of new franchisees and ongoing service fees.



Commissions and other agent-related costs.Our commissions and other agent-related costs primarily include salaries, benefits and
commissions paid to
our sales professionals, other staff and management for company-owned brokerage services and primary and commercial services and, to a lesser degree, for mortgage management services and franchise
services. Compensation for our sales professionals and managers consists of a fixed salary and benefit package, together with a variable incentive-based component that is expected to comprise a
majority of the sales professional or manager's compensation. We believe such a commission-based system aligns the interests of our sales professionals with our interests, and allows us to control
expenses if transaction volumes or property values decline. Commissions and other agent-related costs amounted to 60.1%, 70.9% and 60.9% of net revenues for the years ended December 31, 2010,
2011 and 2012, respectively.

Operating costs.Our operating costs primarily include sales offices rental, equipment and utility costs, ongoing service fees
and sales office
closing related costs. These expenses primarily consist of leasing costs, for which we typically execute written leases with terms of up to five years, and costs associated with supporting each sales
office, including computer, telephone, electricity, office supplies and related expenses. Ongoing service fees refer to the ongoing service, or royalty and fees, that we must pay in connection with
our right to use the CENTURY 21® brand.

Operating
costs amounted to 37.6%, 49.1% and 23.4% of net revenues for the years ended December 31, 2010, 2011 and 2012, in each case, respectively. The majority of these
operating costs are incurred in relation to our company-owned brokerage services, which accounted for 93.8%, 91.5% and 89.2% of operating costs for the years ended December 31, 2010, 2011 and
2012 in each case, respectively.

Selling, general and administrative expenses.Our selling, general and administrative expenses primarily include back office and
support staff
expenses for all business segments, advertising and promotions expenses, bad debt expenses and share-based compensation. Expenses related to back office and support staff primarily consist of
compensation and benefits expenses for administrative personnel,

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including
accounting, human resources, transaction support, legal, information technology, employee training, customer service and other similar functions. Advertising and promotions expenses
primarily consist of marketing and advertising costs, including contributions to our NAF.

Selling,
general and administrative expenses amounted to 33.2%, 36.1% and 23.7% of net revenues for the years ended December 31, 2010, 2011 and 2012, respectively. Expenses
relating to our company-owned brokerage services accounted for 45.7% and 49.4% and 48.4% of selling, general and administrative expenses for the years ended December 31, 2010, 2011 and 2012,
respectively. Expenses relating to our primary and commercial services accounted for 2.9%, 7.8% and 6.8% of selling, general and administrative expenses for the years ended December 31, 2010,
2011 and 2012, respectively. Expenses relating to non-allocated costs accounted for 33.6%, 30.7% and 34.1% of selling, general and administrative expenses for the years ended
December 31, 2010, 2011 and 2012, respectively. Non-allocated costs consist primarily of costs and expenses associated with our centralized back office departments, including our IT
department and on-line marketing department.

Share-based
compensation expenses were RMB16.9 million, RMB3.2 million and RMB3.5 million (US$0.6 million) for the years ended December 31, 2010, 2011
and 2012, respectively. As of December 31, 2012, there was RMB0.3 million (US$45,642) of total unrecognized compensation cost related to non-vested share-based compensation
granted under the plan. The cost is expected to be recognized over a weighted average period of 1.09 years.

As
a result of a modification to our Series A Preferred Shares terms on January 27, 2010 as described in Note 18 to our consolidated financial statements, we
recognized a compensation expense of approximately RMB4.9 million in 2010. No such compensation expense was recognized in 2011.

On
July 9, 2012, we extended the expiration dates of all then outstanding and unexercised stock options to the fifth anniversary of the date of such adjustment and amended the
exercise prices of such stock options to the then current market value of our shares. We recorded the incremental fair value of
RMB1.9 million (US$0.3 million) as a result of the adjustment of options into the consolidated statements of operations for the year ended December 31, 2012.

Goodwill impairment losses.Goodwill impairment losses in 2012 were RMB10.8 million (US$1.7 million), as a result of
the decline in the
results of operations of our Shanggu business unit compared with the previous estimates at the end of 2011.

Net change in fair value.Net change in fair value in 2012 included RMB10.5 million (US$1.7 million) as a result of the
fair value
change of the contingent consideration payable in respect of our company's acquisition of the Shanggu business unit in June 2011, and RMB1.5 million (US$0.2 million) as a result of the
decline in the fair value of a financial liability, which was related to the share options held by a former-employee. The change in the contingent consideration payable resulted primarily from the
disparity between estimated and actual revenue and earnings in 2012, and the re-estimated revenue and earnings for 2013 for the Shanggu business unit.

Taxation.We are incorporated in the Cayman Islands. Under the current law of the Cayman Islands, we are not subject to income or
capital gains tax.
In addition, dividend payments are not subject to withholding tax in the Cayman Islands. Dividends from our PRC subsidiaries are subject to a withholding tax at the rate of 10% except for Shenzhen
CIR, whose dividends are subject to a withholding tax at the rate of 5%. Our current holding structure does not provide for any further treaty relief. Dividends from our Hong Kong subsidiary are
exempt from withholding tax as long as after-tax profits are distributed.

Our
subsidiaries in China are subject to business tax and related surcharges by various local tax authorities at rates ranging from 5.6% to 5.65% on gross revenues generated from
providing real estate services.

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The
CIT Law, under which foreign invested enterprises, or FIEs, and domestic companies are subject to enterprise income tax at a uniform rate of 25%, became effective on
January 1, 2008. In accordance with the CIT Law, enterprises that previously received preferential tax treatments granted by relevant tax authorities underwent a transition period. Enterprises
previously subject to an enterprise income tax
rate lower than 25% continued to enjoy the lower rate and gradually transitioned to the new tax rate within five years after the effective date of the CIT Law.

As
Shanghai Ruifeng and Anshijie are both registered in Shanghai PuDong New Area and Shenzhen CIR is registered in Shenzhen Special Economic Zone, they were subject to the preferential
income tax rate of 15% according to the Foreign Investment and Foreign Enterprise Income Tax Law before 2008. From January 1, 2008 onwards, their respective income tax rate increased
progressively from 18% to 25% from 2008 to 2012, according to preferential treatments granted by the PRC central and local governments.

In
October 2009, Huachuang, obtained a Software Enterprise Certification which entitled it to exemption from corporate income tax in 2009 and 2010.

In
August 2011, Kudian, obtained a Software Enterprise Certification which entitled it to exemption from corporate income tax in 2011 and 2012, in which it had taxable income and a 50%
reduction in corporate income tax for each of the following three years from 2013 to 2015.

On
November 16, 2011, the Ministry of Finance and the State Administration of Taxation jointly issued the Implementation Measures on the Pilot Progress of Replacing Business Tax
with Value-Added Tax in Transport and Some Modern Service Industries. On July 31, 2012, the Ministry of Finance and the State Administration of Taxation jointly issued the Notice on Expanding
the Pilot Progress of Replacing Business Tax with Value-Added Tax, or the VAT Pilot Rules, to Beijing and the other eight provinces and cities. According to the VAT Pilot Rules, the sales tax was
changed from business tax to VAT for certain service industries, including consulting service and advertising industries, in Shanghai, Beijing and Shenzhen. Some of our subsidiaries located in Beijing
were recognized as VAT general taxpayers at the rate of 6% from September 1, 2012 according to the VAT Pilot Rules and discontinued paying business tax. Under the CIT Law, dividends from our
PRC subsidiaries out of earnings generated after January 1, 2008, are subject to a withholding tax which 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%. Distributions of earnings generated before January 1, 2008 are exempt from PRC withholding tax. Dividend payments are
not subject to withholding tax in the British Virgin Islands or the Cayman Islands.

Under
the CIT Law, enterprises established under the laws of foreign countries or regions and whose "de facto management bodies" are located within the PRC are considered PRC resident
enterprises, and will be subject to PRC enterprise income tax at the rate of 25% on their worldwide income. Under the implementation rules of the CIT 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 CIT Law and be subject to PRC enterprise income tax at
the rate of 25% on our worldwide income. See "Item 3. Key InformationD. Risk FactorsRisks Related to Doing Business in ChinaDividends distributed
to our investors and gain on sale of our shares may be subject to PRC withholding taxes, and we may be subject to PRC taxation on our worldwide income under the CIT Law."

Results of Operations

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

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

For the Years Ended December 31,2010

2011

2012

2012(RMB)

(RMB)

(RMB)

(US$)(1)(in thousands)Net revenue


530,829


604,559


748,133


120,084Costs and ExpensesCommissions and other agent-related costs


(318,872
)

(428,920
)

(455,282
)

(73,078
)Operating costs


(199,670
)

(296,652
)

(175,330
)

(28,142
)Selling, general and administrative expenses


(176,271
)

(218,110
)

(177,475
)

(28,487
)Goodwill impairment losses





(30,614
)

(10,755
)

(1,726
)Net change in fair value





25,716


11,989


1,924Total costs and expenses


(694,813
)

(948,580
)

(806,853
)

(129,509
)Income (loss) from operations


(163,984
)

(344,021
)

(58,720
)

(9,425
)Interest income


6,685


5,845


2,324


373Other income


9,350


2,086


6,497


1,043Foreign currency exchange loss


(12,161
)

(5,713
)

(19
)

(3
)Income (loss) before income tax and share of associates' losses


(160,110
)

(341,803
)

(49,918
)

(8,012
)Income tax


(2,985
)

(1,103
)

(2,713
)

(435
)Share of associates' (losses)/income


(605
)

2,496


2,547


409Net income (loss)


(163,700
)

(340,410
)

(50,084
)

(8,038
)Non-controlling interest


1,462


3,895


(3,427
)

(550
)Net income (loss) attributable to IFM Investments Limited


(162,238
)

(336,515
)

(53,511
)

(8,588
)


(1)Translations
from Renminbi to U.S. dollars have been made at the noon buying rate of RMB6.2301 to US$1.00, the rate as set forth in the H.10 weekly
statistical release of the Federal Reserve Board of the United States on December 31, 2012.


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Selected
financial information and operational data relating to each of our business lines is set forth below for the years indicated:

2010

2011

2012

2012(RMB)

(RMB)

(RMB)

(US$)(1)Company-owned brokerage servicesNet revenues (in thousands)


482,371


513,375


623,927


100,147Average number of operating sales offices(2)


451


517


326


326Average monthly net revenues per operating sales office (in thousands)


89.1


82.7


159.5


25.6Primary and Commercial ServicesNet revenues (in thousands)


7,066


44,735


85,115


13,662Aggregate gross floor area of properties sold (in thousand square meters)


45


224


444


444Mortgage management servicesNet revenues (in thousands)


24,381


22,903


25,686


4,123Amount of referred mortgages and home equity loans (in thousands)


4,425,031


2,842,539


2,860,512


459,144Average entrusted and mortgage credit loan balance outstanding (in thousands)


10,422


39,950


41,490


6,659Franchise servicesNet revenues (in thousands)


17,011


23,546


13,405


2,152Number of regional sub-franchisors as of year end


28


28


25


25


(1)Translations
from Renminbi to U.S. dollars have been made at the noon buying rate of RMB6.2301 to US$1.00, the rate as set forth in the H.10 weekly
statistical release of the Federal Reserve Board of the United States on December 31, 2012.(2)Equals
the sum of the number of sales offices under operation that existed at the end of each month (excluding temporarily closed offices) in the applicable
period, divided by the number of months in such period.


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

Net revenues.Our net revenues increased by RMB143.5 million, or 23.7%, from RMB604.6 million for the year ended
December 31, 2011 to
RMB748.1 million (US$120.1 million) for the year ended December 31, 2012. This increase was primarily due to the significantly higher sales and purchase transaction volumes from
both company-owned brokerage services and primary and commercial services in 2012, as well as a continued recovery in the overall real estate market since the second quarter of 2012.

Company-Owned Brokerage Services.Net revenues from our company-owned brokerage services increased by RMB110.5 million, or
21.5%, from
RMB513.4 million for the year ended December 31, 2011 to RMB623.9 million (US$100.1 million) for the year ended December 31, 2012. The increase was mainly due to
higher transaction volumes and improved per-sales office performance in 2012. The number of total sales and purchase transactions increased from approximately 13,400 in 2011 to
approximately 16,800 in 2012, among which the number of sales and purchase transactions of new homes increased from approximately 3,100 in 2011 to approximately 4,080 in 2012. The average number of
our company-owned sales offices in operation decreased to 326 for the year ended December 31, 2012, from 517 for the year ended December 31, 2011. As a result of the foregoing, our
average monthly net revenues per operating sales office increased to approximately RMB159,500 (US$25,602)

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for
the year ended December 31, 2012 from approximately RMB82,700 for the year ended December 31, 2011.

Primary and Commercial Services.Net revenues from our primary and commercial services increased by RMB40.4 million, or
90.4%, from
RMB44.7 million for the year ended December 31, 2011 to RMB85.1 million (US$13.7 million) for the year ended December 31, 2012. This increase was primarily due to
commissions generated from the sale of a total GFA of approximately 444,350 square meters of new properties in 2012 as compared to a total GFA of approximately 224,400 square meters of new properties
sold in 2011. The increased sales volumes resulted mainly from our acquisition of Shanggu in 2011 to expand our primary and commercial services.

Mortgage Management Services.Net revenues from our mortgage management services increased by RMB2.8 million, or 12.2%,
from
RMB22.9 million for the year ended December 31, 2011 to RMB25.7 million (US$4.1 million) for the year ended December 31, 2012. This increase was primarily due to an
increase in revenue and service fees earned from mortgage credit loans provided by our company. We provided services for referred mortgages and home equity loans with an aggregate amount of
RMB2.9 billion (US$0.5 billion) to our customers in 2012, as compared with RMB2.8 billion in 2011. The revenues generated from advising consumers for home equity loans and
providing entrusted and mortgage credit loans accounted for 59% of total mortgage services revenues in 2012. As of December 31, 2012, our total outstanding entrusted loans and mortgage loans
receivable balance was RMB35.2 million (US$5.6 million), with an average loan-to-value ratio of approximately 50%.

Franchise Services.Net revenues from our franchise services decreased by RMB10.1 million, or 43.0%, from
RMB23.5 million for the year
ended December 31, 2011 to RMB13.4 million (US$2.2 million) for the year ended December 31, 2012. This decrease was primarily attributable to higher initial franchise fees
received in 2011 as we granted licenses to two new regional sub-franchisors in 2011, compared with the resale of franchise rights in one location, the city of Urumqi, a regional
sub-franchise, in 2012, and a decrease in royalty revenues paid by some regional sub-franchisors in 2012 due to their performance.

Commissions and other agent-related costs.Our commissions and other agent-related costs accounted for 70.9% and 60.9% of net
revenues for the years
ended December 31, 2011 and 2012, respectively, and
increased by RMB26.4 million, or 6.2%, from RMB428.9 million for the year ended December 31, 2011 to RMB455.3 million (US$73.1 million) for the year ended
December 31, 2012. This increase was primarily attributable to higher commission expenses in 2012 as a result of the significant increase in commission revenues from company-owned brokerage
services and primary and commercial services, partially offset by a decrease in salary and benefits for sales staff as a result of a decrease in the number of sales staff employed during 2012. We had
an average of approximately 5,360 company-owned brokerage services sales staff in 2012, as compared to approximately 8,150 in 2011. As to the variable costs, our consolidated commission expenses were
RMB245.7 million (US$39.4 million) and RMB166.6 million, or 32.8% and 27.6% as a percentage of total consolidated net revenues for 2012 and 2011 respectively.

Operating costs.Our operating costs represented 49.1% and 23.4% of our net revenues for the years ended December 31, 2011
and 2012,
respectively, and decreased by RMB121.4 million, or 40.9%, from RMB296.7 million for the year ended December 31, 2011 to RMB175.3 million (US$28.1 million) for the
year ended December 31, 2012. This decrease was primarily due to a decrease in rental costs and store closure-related costs resulting from the lower average number of sales offices in the
company-owned brokerage network in 2012 as compared to 2011. Excluding store closure-related costs of approximately RMB6.5 million (US$1.0 million), total operating costs in fiscal year
2012 would have been RMB168.8 million (US$27.1 million). Total depreciation and amortization expenses for 2012 were RMB28.2 million (US$4.5 million).

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Selling, general and administrative expenses.Our selling, general and administrative expenses accounted for 36.1% and 23.7% of
our net revenues for
the years ended December 31, 2011 and 2012, respectively, and decreased by RMB40.6 million, or 18.6%, from RMB218.1 million for the year ended December 31, 2011 to
RMB177.5 million (US$28.5 million) for the year ended December 31, 2012. This decrease was largely due to a decrease in marketing expenses, the number of non-sales
staff and other general and administrative expenses in 2012.

Net change in fair value.Our net change in fair value in 2012, which was recognized as a gain, included RMB10.5 million
(US$1.7 million) as a result of the fair value change of the contingent consideration payable in respect of our company's acquisition of the Shanggu business unit in June 2011, and
RMB1.5 million (US$0.2 million) as a result of the decline in the fair value of a financial liability, which was related to the share options held by a former employee. The fair vlaue
change in the contingent consideration payable resulted primarily from the disparity between estimated and actualrevenue and
earnings in 2012, and the re-estimated revenue and earnings for 2013 for the Shanggu business unit.

Goodwill impairment losses.Our goodwill impairment losses in 2012 were RMB10.8 million (US$1.7 million), as a result
of the shortfall
in the results of operations of our Shanggu business unit as compared to those previously estimated.

Interest income.Our interest income decreased by RMB3.5 million, or 60.3%, from RMB5.8 million for the year ended
December 31, 2011 to
RMB2.3 million (US$0.4 million) for the year ended December 31, 2012. Cash and cash equivalents decreased from RMB235.5 million as of December 31, 2011 to
RMB191.0 million (US$30.7 million) as of December 31, 2012.

Foreign currency exchange loss.We had foreign currency exchange loss of RMB5.7 million for the year ended December 31,
 2011, while we
did not incur much foreign currency exchange loss for the year ended December 31, 2012, primarily due to the decrease of balances in U.S. dollars and the appreciation of the RMB against the
U.S. dollar in 2012.

Income tax.Income tax increased from RMB1.1 million for the year ended December 31, 2011 to RMB2.7 million
(US$0.4 million) for the year ended December 31, 2012, mainly because of the profitable results for the primary and commercial segment.

Share of associates' income.Share of associates' income was RMB2.5 million (US$0.4 million) for both the years ended
December 31, 2011 and 2012.

Net income.As a result of the foregoing, we had a net loss of RMB50.1 million (US$8.0 million) for the year ended
December 31,
2012 as compared to a net loss of RMB340.4 million for the year ended December 31, 2011.

Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

Net revenues.Our net revenues increased by RMB73.8 million, or 13.9%, from RMB530.8 million for the year ended
December 31,
2010 to RMB604.6 million for the year ended December 31, 2011. This year-over-year increase was primarily due to the increase in the revenues from our
company-owned brokerage services and primary and commercial services.

Company-Owned Brokerage Services.Net revenues from our company-owned brokerage services increased by RMB31.0 million, or
6.4%, from
RMB482.4 million for the year ended December 31, 2010 to RMB513.4 million for the year ended December 31, 2011. The increase was mainly due to slightly higher sales and
purchase transaction volumes, higher commission rates for new homes sales and the increase in the rental commission revenues in 2011. The number of total sales and purchase transactions increased from
approximately 13,000 in 2010 to approximately 13,400 in 2011, among

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which
the number of sales and purchase transactions of new homes increased from approximately 700 in 2010 to approximately 3,100 in 2011, respectively. The average number of our company-owned sales
offices increased to 541 for the year ended December 31, 2011 (including 24 average number of sales offices which were temporarily closed), from 451 for the year ended December 31, 2010.
As a result of the foregoing, our average monthly net revenues per operating sales office decreased to approximately RMB82,700 for the year ended December 31, 2011 from approximately RMB89,100
for the year ended December 31, 2010. As a result of the current downturn of the real estate market and along with our cost reduction strategy, we started to close our operating sales offices
in the 2nd half of 2011. The number of our operating sales offices was 386 and 328 as of December 31, 2011 and March 31, 2012, respectively.

Primary and Commercial Services.Net revenues from our primary and commercial services increased by RMB37.6 million, or
529.6%, from
RMB7.1 million for the year ended December 31, 2010 to RMB44.7 million for the year ended December 31, 2011. This increase was primarily due to commissions generated from
the sale of a total GFA of approximately 224,400 square meters of new homes as
compared to a total of GFA of approximately 45,000 square meters new homes sold in 2010. The increased sales volumes resulted mainly from our acquisition of Shanggu in 2011 to expand our primary and
commercial services. This increase in revenues from primary and commercial services was also due to revenues from consulting services provided on several new commercial development projects in 2011.

Mortgage Management Services.Net revenues from our mortgage management services decreased by RMB1.5 million, or 6.1%, from
RMB24.4 million for the year ended December 31, 2010 to RMB22.9 million for the year ended December 31, 2011. This decrease was primarily due to lower mortgage loan volume
brokered by our company in 2011, as a result of the restrictive lending policies implemented in China from early 2011. We provided services for referred mortgages and home equity loans with an
aggregate amount of RMB2.8 billion to our customers in 2011, as compared with RMB4.4 billion in 2010. In order to mitigate such decline, we have been diversifying our product and
services offerings such as providing home equity loans, entrusted loans and mortgage credit loans. The revenues generated from advising consumers for home equity loans and providing entrusted and
mortgage credit loans accounted for 54% of total mortgage services revenues in 2011. As of December 31, 2011, our total outstanding entrusted loans and mortgage loans receivable balance was
RMB37.5 million, with an average loan-to-value ratio of approximately 50%.

Franchise Services.Net revenues from our franchise services increased by RMB6.5 million, or 38.2%, from
RMB17.0 million for the year
ended December 31, 2010 to RMB23.5 million for the year ended December 31, 2011. The year-over-year increase was primarily due to the initial franchise
fees recognized in 2011 for the licenses granted to two new regional sub-franchisors in the cities of Nanjing and Xuzhou in 2011, offset by a decrease of RMB2.8 million in royalty
revenues.

Commissions and other agent-related costs.Our commissions and other agent-related costs accounted for 60.1% and 70.9% of net
revenues for the year
ended December 31, 2010 and 2011, respectively and increased by RMB110.0 million, or 34.5%, from RMB318.9 million for the year ended December 31, 2010 to
RMB428.9 million for the year ended December 31, 2011. The increase was mainly due to the increases in fixed salaries and benefit costs for our company-owned brokerage services from
RMB158.2 million in 2010 to RMB242.7 million in 2011 as a result of higher sales staff headcount. We had an average of approximately 8,150 company-owned brokerage services sales staff in
2011, as compared to approximately 6,130 in 2010. As to the variable costs, our consolidated commission expenses were RMB166.6 million and RMB153.5 million, or 27.6% and 28.9% as a
percentage of total consolidated net revenues for 2011 and 2010, respectively.

Operating costs.Our operating costs represented 37.6% and 49.1% of our net revenues for the years ended December 31, 2010
and 2011,
respectively, and increased by RMB97.0 million, or 48.6%,

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from
RMB199.7 million for the year ended December 31, 2010 to RMB296.7 million for the year ended December 31, 2011. We have incurred approximately RMB34.3 million
write-off charges in sales office closing related costs such as unamortized leasehold improvement and forfeited rental deposits in 2011. In addition, the
year-over-year increase was also due to a RMB31.1 million increase in rental costs and a RMB27.6 million increase in other store related costs as a result of
overall higher number of sales offices as well as more operating cost incurred in the primary and commercial services as a result of the acquisition of Shanggu in 2011. Total depreciation and
amortization expenses for the year 2011 were RMB34.6 million.

Selling, general and administrative expenses.Our selling, general and administrative expenses accounted for 33.2% and 36.1% of
our net revenues for
the years ended December 31, 2010 and 2011, respectively, and increased by RMB41.8 million, or 23.7%, from RMB176.3 million for the year ended December 31, 2010 to
RMB218.1 million for the year ended December 31, 2011. The year-over-year increase was largely due to an increase in the number of non-sales staff,
expansion of the primary and commercial services segment and an increase in marketing expenses incurred in 2011.

Net change in fair value.Our net decrease in the fair value of RMB25.7 million related to the contingent consideration
payable for our
acquisition of Shanggu in the second quarter of 2011. The changes in the contingent consideration payable resulted from a decline in year-end estimated revenue and earnings of Shanggu for
2012 and 2013 from those previously estimated, which reduced the estimated contingent consideration payable to the seller of Shanggu, resulting in recognition of a gain.

Goodwill impairment losses.Our goodwill impairment losses included a RMB4.4 million impairment loss from Shenzhen CIR and
RMB26.2 million impairment loss from Shanggu, as a result of the decline of the business conditions of the related entities due to the continuing nationwide slowdown in the real estate market.

Interest income.Our interest income decreased by RMB0.9 million, or 13.4%, from RMB6.7 million for the year ended
December 31, 2010 to
RMB5.8 million for the year ended December 31, 2011. Cash and cash equivalents decreased from RMB520.6 million as of December 31, 2010 to RMB235.5 million as of
December 31, 2011.

Foreign currency exchange loss.Our foreign currency exchange loss decreased from RMB12.2 million for the year ended
December 31, 2010 to
RMB5.7 million for the year ended December 31, 2011 primarily due to appreciation of the RMB against the U.S. dollar and the decrease of balances in U.S. dollars in 2011.

Income tax.Income tax decreased from RMB3.0 million for the year ended December 31, 2010 to RMB1.1 million for
the year ended
December 31, 2011, primarily due to the decrease of income from operations by our operating subsidiaries from 2010 to 2011 as a result of the current downturn of the real estate market.

Share of associates' (losses)/income.Share of associates' (losses)/income increased from share of associates' loss of
RMB0.6 million for the
year ended December 31, 2010 to share of associates' income of RMB2.5 million for the year ended December 31, 2011, mainly due to the fact that one of our equity investees,
Tianjin Shiji TianRe Equity Investment Fund Management Limited Partnership ("Fund Management Partnership"), generated profits in 2011 as a result of its business development.

Net income.As a result of the foregoing, we had a net loss of RMB340.4 million for the year ended December 31, 2011 as
compared to a
net loss of RMB163.7 million for the year ended December 31, 2010.

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

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with US GAAP, appearing elsewhere in this annual report. The preparation of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates based on
historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. 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
our accounting policies with respect to revenue recognition, allowance for doubtful accounts, loans and allowance for impairment, property and equipment, goodwill and intangible assets, impairment of
long-lived assets, share-based compensation, income taxes and variable interest entities ("VIE") represent critical accounting policies that reflect the more significant judgments and
estimates used in the preparation of our consolidated financial statements.

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. When reviewing our financial statements, you should consider (i) our selection of critical accounting policies, (ii) judgment and other uncertainties
affecting the application of such policies and (iii) the sensitivity of reported results to changes in conditions and assumptions.

Revenue Recognition

We recognize revenue where there is persuasive evidence of an arrangement, delivery has occurred, the sales price is fixed or
determinable and collectability is reasonably assured. Revenues are recorded net of sales related taxes and discounts.

Company-Owned Brokerage Services

Our company-owned brokerage services business earns most of its revenues from brokerage commissions from secondary real estate property
sales and purchases transactions, and brokerage commissions from primary real estate property sales and purchase transactions, and to a lesser extent leasing transactions. This commission income is
recorded as revenue upon meeting the revenue recognition criteria described above, including the signing of a real estate sales and purchase agreement or rental agreement, and the relevant purchase
contract between the property developer and the property buyer becomes unconditional or irrevocable, and the services as stipulated in the relevant agency contract have been rendered by us. All
revenue amounts are net of any sales discounts that management estimates based on current circumstances at the time of the sale and historical experience of anticipated subsequent discounts granted to
customers. We may also be entitled to earn additional revenue on the agency services if certain sales and other performance targets are achieved, such as total volume over a pre-determined
period. These additional agency service revenues are recognized when we have accomplished the required targets.

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

Primary and Commercial Services

We provide marketing and sales agency services to real estate developers. We recognize the commission revenue when the relevant
purchase contract between the property developer and the property buyer becomes unconditional or irrevocable, and the services as stipulated in the agency contracts have been rendered by us. We may
also be entitled to earn additional revenue on the agency services if certain sales and other performance targets are achieved, such as total volume over a pre-determined period. These
additional agency service revenues are recognized when we have accomplished the required targets.

For
new commercial properties, we recognize commission revenue when the relevant purchase contract between the property developer and the property buyer becomes unconditional or
irrevocable, the services as stipulated in the relevant agency contracts have been rendered by us, and the purchase amount set forth in the relevant purchase contract has been received by the property
developer. Therefore, we recognize commission revenue in installments in proportion to the purchased amount
that has been received by the property developer under the relevant purchase contract, or in installments as agreed with the developers under the contractual terms.

We
provide real estate consulting and agency services to commercial property developers. We recognize revenue on consulting services when we have completed our services.

Mortgage Management Services

We provide mortgage management services, many of which are provided in connection with our company-owned brokerage services business.

The
mortgage management services income is recognized on a net basis when the mortgage loan funds are disbursed by banks to the customers. The financial guarantee revenue is recognized
when the respective mortgage pledge documents are collateralized by the banking institutions. We had RMB0.9 million (US$0.1 million) in interim financial guarantees outstanding as of
December 31, 2012.

Starting
from the third quarter of 2010, we began offering entrusted and mortgage credit loans through our partnership arrangement with certain banks and through the mortgage credit to
consumers. Income for the entrusted and mortgage credit loans is recognized in the income statement over the lives of the loans, based on effective interest rates. We review the carrying amounts of
entrusted and mortgage credit loans at each quarter end or more frequently if circumstances indicated impairment may have occurred. We did not incur any impairment losses on the entrusted and mortgage
credit loans for the year 2012.

Franchise Services

We recognize our franchise services revenues as earned. Franchise revenues include initial franchise fees, which are generally
non-refundable and recognized as revenues when all material services or conditions relating to the initial franchise fee have been substantially performed and we have fulfilled all of our
commitments and obligations (generally when a franchisee commences its operation under the CENTURY 21® brand). Our commitments and obligations related to earning the initial franchise fee
include providing training and assessing the franchisees' qualifications for commencement of operations. Franchise revenues also consist of ongoing service fees received from our franchisees. The
ongoing service fees received are primarily based on a percentage of the franchisees' gross income or a fixed monthly amount. The ongoing service fees are accrued as the underlying franchisee revenues
are earned. On an ongoing
basis, the services we provide to our franchisees include the license to use or sub-franchise CENTURY 21® brand and system, training services, and the right to

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participate
in and benefit from the marketing campaigns using our NAF as well as information technology and back office support.

We
also collect marketing fees from our franchisees and utilize such fees to fund advertising campaigns on behalf of our franchisees through our NAF. Management fee income of NAF is
recognized in proportion to the NAF that had been spent during the reporting period.

Contingent consideration payable

We determine the fair value of the contingent consideration payable based on a probability-weighted cash flow analysis. This fair value
measurement is based on significant inputs not observable in the market. The fair value of the contingent consideration payable associated with those future earn-out payments is based on
several factors, including:



The
fair value of the contingent consideration payable was re-measured at the end of each reporting period and the changes in the fair value were recorded in our consolidated
statements of operations.

As
of December 31, 2012, we had contingent consideration payable in the amount of RMB33.8 million (US$5.4 million).

Redeemable non-controlling interest

We determine the fair value of the redeemable non-controlling interest using a combination of a discounted cash flow model
and market comparables of similar transactions and companies. Before June 30, 2014 when the non-controlling interest is not currently redeemable, but it is probable that it will
become redeemable, we will recognize any subsequent changes in the redemption value immediately as they occur with the carrying amount adjusted to the redemption value at the end of each reporting
period. Subsequent to June 30, 2014, when the non-controlling interest becomes currently redeemable, we will adjust its carrying amount to the maximum redemption value as of the
balance sheet date for each period end. These adjustments to redemption value are calculated after allocating the net income or loss attributable to this non-controlling interest. These
periodic adjustments are reflected only to the extent of any excess of the redemption value over fair value in the calculation of our net loss per share.

As
of December 31, 2012, we had a balance of redeemable non-controlling interest of RMB69.4 million (US$11.1 million).

Allowance for doubtful accounts

We accrue for allowances for doubtful accounts for receivable balances that are unlikely to be collected based on management analysis
and estimates. This analysis is based on an assessment of our historical experience with particular customers or franchisees and the age of
certain receivable balances, which may indicate that such receivables are no longer fully collectible. If the financial condition of our

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customers
and franchisees were to deteriorate, resulting in an impairment of their ability to make payments, or if such customers or franchisees decided not to pay us, additional allowances could be
required that would materially impact our financial position and results of operations.

We
have adopted a provisioning policy for doubtful debts for our receivable balances based on the historical experience of the recoverability of the receivables. For the years presented,
our provision based on historical bad debts is approximately 2% of net revenue. The appropriateness of our provisioning is assessed on an ongoing basis based on our actual experience. In addition, we
also make specific bad debt provisions for problem account receivable balances (e.g. for certain franchisees). Established reserves have historically been sufficient, and are based on aging,
specific customer circumstances, historical experience and current knowledge of the related political and economic environments. It is possible, however, that the accuracy of the management's
estimation process could be impacted by unforeseen circumstances.

Allowances
for doubtful accounts charged to selling, general and administrative expenses were RMB9.0 million, RMB14.3 million and RMB12.1 (US$1.9 million) for the
years ended December 31, 2010, 2011 and 2012, respectively. The allowance for doubtful accounts ending balance of RMB10.4 million, RMB15.5 million and RMB17.3
(US$2.8 million) as of December 31, 2010, 2011 and 2012, respectively, represents a net ending balance after actual write-offs during the year. Accounts receivable are stated
net of such allowance balances at the end of year.

Loans and allowance for loan impairment

We report loans at their outstanding principal balances net of any unearned income and unamortized deferred fees and costs. Loan
origination fees and certain direct origination costs are deferred and recognized as adjustments to income over the lives of the related loans. Based on management's initial intent and ability to hold
those loans until maturity, all the loans are held-for-investment and are classified as loans, net of unearned income on the Consolidated Balance Sheets, and the related cash
flows are included within the cash flows from investing activities category in the Consolidated Statement of Cash Flows under the captions Providing loans and Repayment of loans.

As
a general policy, interest accrual ceases when monthly interest payments are 90 days contractually past due.

Allowance
for loan impairment represents management's best estimate of probable impairment inherent in the portfolio, as well as probable impairment related to large individually
evaluated impaired loans. Attribution of the allowance is made for analytical purposes only, and the entire allowance is available to absorb probable loan impairment inherent in the overall portfolio.
Additions to the allowance are made through the provision for loan impairment. Loan impairments are deducted from the allowance, and subsequent recoveries are added.

No
impairment of loans receivable was recognized for the years ended December 31, 2010, 2011 and 2012.

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Property and equipment

Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated
on a straight-line basis over the following estimated useful lives:

Computers and software

5 yearsFurniture, fixtures and equipment

5 yearsVehicles

5 yearsLeasehold improvements

shorter of lease term or useful lives of assets


Repairs
and maintenance expenditures, which are not considered improvements and do not extend the useful life of the property and equipment, are expensed as incurred. Judgment is
required to determine the estimated useful lives of assets and changes in these estimates and assumptions could materially impact our financial position and results of operations.

Gains
and losses from the disposals of property and equipment are included in loss from operations.

Goodwill, indefinite-lived and other amortized intangible assets

Goodwill represents the excess of purchase price over the fair value of net tangible and intangible assets of acquired businesses.
Other intangible assets represent the rights to use and sub-franchise the CENTURY 21® brand in the PRC for 14.5 to 25 years. In addition, intangible assets also
represent the customer relationships, brand name, real estate listing databases, sub-franchisee base and mortgage credit license acquired through business combinations consummated in 2006,
2008, 2010 and 2011. We amortize long-lived intangible assets over their estimated useful lives on a straight-line basis. The value of indefinite-live intangible
assets is not amortized, but tested for impairment annually on November 30 of each year, or whenever events or changes in circumstances indicate the carrying value of the assets may not be
recoverable.

We
test goodwill for impairment at the reporting unit level on an annual basis, or more frequently if an event occurs or circumstances change that could more likely than not reduce the
fair value of the goodwill below its carrying amount.

We
make judgments about goodwill whenever events or changes in circumstances indicate that an impairment in the value of goodwill recorded on our balance sheets may exist. The timing of
an impairment test may result in changes to our statements of operations in our current reporting year that could not have been reasonably foreseen in prior years. Application of an impairment test of
goodwill requires judgment, including the identification of reporting units, assigning assets and liabilities to the reporting units, assigning goodwill to reporting units and estimating the fair
value of each reporting unit. Changes in these estimates and assumptions could materially affect the determination of fair value of each reporting unit, which could trigger impairment. More
conservative assumptions of the anticipated future benefits from these reporting units could result in impairment charges, which would decrease net income and result in lower asset values on our
balance sheets. Conversely, less conservative assumptions could result in smaller or no impairment charges, higher net income and higher asset values. We recognized a RMB10.8 million
(US$1.7 million) impairment loss from Shanggu in 2012, as a result of the shortfall in the results of operations of Shanggu business unit, as compared to those previously estimated. If
different judgments or estimates had been utilized, material differences could have resulted in the amount and timing of the impairment charge. See Note 2(i) "Goodwill and indefinite-lived
intangible assets" in the Consolidated Financial Statements for additional information.

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Impairment of long-lived assets

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of
an asset may no longer be recoverable. When these events occur, we assess the recoverability of the long-lived assets by comparing the carrying value of the long-lived assets
to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition where the fair value is lower than the carrying value, measurement of an
impairment loss is recognized in the statements of operations for the difference between the fair value, using the expected future discounted cash flows, and the carrying value of the assets.
Determination of recoverability is based on estimates and changes in these estimates and assumptions could materially impact our financial position and results of operations. No impairment of long
lived assets was recognized for the years ended December 31, 2010, 2011 and 2012.

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. For options that were granted with performance conditions which vest
subsequent to our initial public offering, share-based compensation expenses would be recognized upon the offering using the graded-vesting method. Share-based compensation for the remaining options
granted with service conditions are recognized using straight-line method, net of a forfeiture rate, over the requisite service period of the award, which is the vesting term, based on the
fair value of the award on the grant date. Share-based compensation expense is charged to additional paid-in capital in the consolidated balance sheets. In determining the fair value of
share options granted, the Black-Scholes valuation model is applied. Determining the value of our share-based compensation expenses in future periods requires the input of highly subjective
assumptions, including the expected life of the share-based payment awards, estimated forfeitures and the price volatility of the underlying shares. The assumptions used in calculating the fair value
of share-based payment awards represent management's best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and
we use different assumptions, our share-based compensation expenses could be materially different in the future.

In
determining the fair value of our ordinary shares on each grant date before our initial public offering, we relied in part on a valuation report prepared by an independent valuer
based on data we provided. The valuation report provided us with guidelines in determining the fair value, but the final determination as to the fair value of our share awards was made by our
management. To determine the fair value of our ordinary shares, the three generally accepted approaches were considered: the cost, market and income approaches. While useful for certain purposes, the
cost approach is generally not considered applicable to the valuation of companies which are a going concern, as it does not capture the future earning potential of the business. Given that our
current stage of development is different from those of other publicly listed companies in the same industry, comparability of peer companies' financial metrics and the relevance of the market
approach were considered low. In view of the above, we considered the income approach to be the most appropriate method to derive the fair values of our ordinary shares. After our public listing on
January 28, 2010, the quoted price in the open market for our ordinary shares became available and served as Level 1 input in determining the fair value of our options granted after this
date.

For
the income approach, we utilized a discounted cash flow, or DCF, analysis based on our management's best estimates of projected cash flows as of each of the valuation dates. The
projected cash flows include among other things, an analysis of projected revenue growth, gross margins, effective tax rates, capital expenditures and working capital requirements. The income approach
involves applying appropriate discount rates to estimated cash flows that are based on earnings forecasts. The

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assumptions
used in deriving the fair value of our ordinary shares are consistent with our business plan. These assumptions include: no material changes in the existing political, legal, fiscal and
economic conditions in China; our ability to recruit and retain competent management, key personnel and technical staff to support our ongoing operations; and no material deviation in industry trends
and market conditions from economic forecasts. These assumptions are inherently uncertain and subjective. The discount rates reflect the risks management perceived as being associated with achieving
the forecasts and were derived by using the Capital Asset Pricing Model, after taking into account systematic risks and company-specific risks.

Prior
to our initial public offering, we also applied discounts for lack of marketability or, DLOM, to our equity value to reflect the fact that there was no ready public market for our
shares as we were a closely held private company. When determining the DLOM, the Black-Scholes option model was used. Under this method, the cost of a put option that could be used to hedge the price
change before a privately held share can be sold, was considered as a basis to determine the appropriate discount factor for lack of marketability.

Income Taxes

We currently have deferred tax assets resulting from net operating loss carry forwards and deductible temporary differences, all of
which are available to reduce future income taxes payable in our significant tax jurisdictions. The largest component of our deferred tax assets are operating loss carry forwards generated by our PRC
subsidiaries due to their historical operating losses. In assessing whether such deferred tax assets can be realized in the future, we need to make judgments and estimates on the ability of each of
our PRC subsidiaries to generate taxable income in future years. To the extent that we believe that it is more likely than not that some portion or the entire amount of deferred tax assets will not be
realized, we established a valuation allowance to offset the deferred tax assets. As of December 31, 2010, 2011 and 2012, we recognized a total valuation allowance of RMB62.6 million,
RMB152.9 million and RMB168.1 million (US$27.0 million), respectively. If we subsequently determine that all or a portion of the carry forwards are more likely than not to be
realized, the valuation allowance will be released, which will result in a tax benefit in our consolidated statements of operations.

The
guidance on accounting for uncertainties in income taxes prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. Guidance was also provided on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities,
accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures. We made significant judgment in evaluating our
uncertain tax positions and determining its provision for income taxes. We did not recognize any significant interest and penalties associated
with uncertain tax positions for the years ended December 31, 2010, 2011 and 2012. As of December 31, 2012, we did not have any significant unrecognized uncertain tax positions.

B.    OUR LIQUIDITY AND CAPITAL RESOURCES

Through December 31, 2012, our principal sources of liquidity were cash generated from our operating activities and the proceeds from our initial public
offering in 2010. Our net cash used in operating activities was RMB118.5 million, RMB315.0 million and RMB31.7 million (US$5.1 million) for the years ended
December 31, 2010, 2011 and 2012, respectively. Consequently, our accumulated deficit was RMB301.9 million, RMB638.4 million and RMB691.9 (US$111.1 million) as of
December 31, 2010, 2011 and 2012, respectively. Our cash and cash equivalents consist of cash on hand and liquid investments placed with banks and other financial institutions that are
unrestricted as to withdrawal or use and have maturities of three months or less. Our loans receivables are granted with maturity of less than 12 months.

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We
have no debt obligations. On February 2, 2010, we completed an initial public offering with gross proceeds of RMB557.5 million. Since then, we have utilized a
significant amount of cash on hand and the proceeds from our initial public offering to open more sales offices in Beijing, Shanghai, Shenzhen and Chengdu as we expanded our network of company-owned
brokerage services up to the first quarter of 2011, and expanded mortgage management services and primary and commercial services in 2010 and 2011. We have reduced number of operating sales offices
significantly from 621 as of December 31, 2010 to 386 as of December 31, 2011 and to 317 as of December 31, 2012. As a result, we expect to incur less fixed costs for
company-owned brokerage services due to the decrease in sales offices and sales staff. We currently anticipate that we will be able to meet our needs to fund operations for at least the next twelve
months with operating cash flows and existing cash and bank balances.

We
are a holding company with no material operations of our own. We conduct our operations primarily through our subsidiaries in China. As a result, our ability to pay dividends and to
finance any debt we may incur depends upon dividends paid by our subsidiaries. If our subsidiaries or any newly formed subsidiaries incur debt on their own behalf in the future, the instruments
governing their debt may restrict their ability to pay dividends to us. In addition, our subsidiaries are permitted to pay dividends to us only out of their retained earnings, if any, as determined in
accordance with accounting standards and regulations applicable to such subsidiaries. Under PRC law, each of our PRC subsidiaries is required to set aside at least 10% of its after-tax
profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each of our PRC subsidiaries with foreign investments is also required to further set
aside a portion of its after-tax profits to fund the employee welfare fund at the discretion of the board. Although the statutory reserves can be used, among other ways, to increase the
registered capital and eliminate future losses in
excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation of these subsidiaries. In addition, dividend
payments from our PRC subsidiaries could be delayed as such dividends may only be distributed upon completion of an annual audit of such subsidiary. As we intend to reinvest earnings in further
expanding our business, we currently do not plan to declare dividends in 2013.

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

For the Years Ended December 31,2010

2011

2012

2012(RMB)

(RMB)

(RMB)

(US$)(in thousands)Net cash used in operating activities


(118,458
)

(314,966
)

(31,734
)

(5,093
)Net cash (used in) provided by investing activities


(195,272
)

29,574


(5,165
)

(829
)Net cash (used in) provided by financing activities


510,085


5,702


(7,486
)

(1,202
)Effects of foreign exchange rate changes on cash and cash equivalents


(10,297
)

(5,507
)

(17
)

(3
)Net increase (decrease) in cash and equivalents


186,058


(285,197
)

(44,402
)

(7,127
)Cash and cash equivalents at the beginning of the year


334,589


520,647


235,450


37,792Cash and cash equivalents at the end of the year


520,647


235,450


191,048


30,665


Operating Activities

Our operating activities primarily consist of our company-owned brokerage services, primary and commercial services, mortgage
management services and franchise services. The timing of when we collect our fees on all of the business lines may differ from when we recognize revenues, which may result in significant changes in
certain of our related balance sheet items such as deferred revenues and accounts receivable.

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For
the year ended December 31, 2012, net cash used in operating activities amounted to RMB31.7 million (US$5.1 million), primarily due to the RMB50.1 million
(US$8.0 million) net loss during the period and an increase of RMB91.3 million (US$14.6million) in accounts receivable, offset mainly by RMB67.0 million (US$10.8 million)
in accrued expense and other current liabilities. The principal non-cash items accounting for the difference between the net loss and the cash used in operating activities in 2012 were
RMB28.2 million (US$4.5 million) in depreciation and amortization expenses, RMB3.5 million (US$0.6 million) in share-based compensation expenses and RMB12.1 million
(US$1.9 million) in the provision of doubtful accounts.

For
the year ended December 31, 2011, net cash used in operating activities amounted to RMB315.0 million, primarily due to the RMB340.4 million net loss during the
period and, to a lesser degree, an increase of RMB14.3 million in the provision for doubtful accounts resulting from the increase in revenues in 2011.

For
the year ended December 31, 2010, net cash used in operating activities amounted to RMB118.5 million, primarily due to the RMB163.7 million net loss during the
period and, to a lesser degree, an increase of RMB25.3 million in accrued expenses and other current liabilities due to an increase in commissions and other agent-related costs, operating costs
and selling, general and administrative expenses and an increase of RMB22.9 million in depreciation and amortization due to the increase in number of our operating sales stores.

Investing Activities

Our investing activities primarily relate to our purchases and disposals of equipment, placement of time deposits with banks with
maturities between three months and one year, and business combinations activities.

Net
cash used in investing activities amounted to RMB5.2 million (US$0.8 million) for the year ended December 31, 2012, primarily as a result of the net effect of
mortgage credit loan repayments of RMB2.5 million (US$0.4 million) and purchase of property, plant and equipment of RMB8.1 million (US$1.3 million).

Net
cash provided by investing activities amounted to RMB29.6 million for the year ended December 31, 2011, which was mainly comprised of an initial payment of
RMB25.0 million for the acquisition of Shanggu, consumer loans of RMB72.1 million provided cumulatively in 2011, and the purchase of property, plant and equipment of
RMB37.8 million, and was offset by matured time deposits of RMB120.0 million and repayment of entrusted and mortgage credit loans totalling RMB47.0 million.

Net
cash used in investing activities amounted to RMB195.3 million for the year ended December 31, 2010 primarily due to our purchase of property and equipment and
intangible assets, business combinations, placement and uplift of matured time deposits and providing entrusted and mortgage credit loans services.

Financing Activities

Our financing activities primarily consist of proceeds from the issuance of ordinary shares upon our initial public offering and the
issuance and sale of our preferred shares to investors.

Net
cash used in financing activities amounted to RMB7.5 million (US$1.2 million) for the year ended December 31, 2012, as a result of an increase in restricted
cash.

Net
cash provided by financing activities amounted to RMB5.7 million for the year ended December 31, 2011, as a result of an increase of RMB19.2 million in
restricted cash offset by share repurchases of RMB15.3 million.

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Net
cash provided by financing activities amounted to RMB510.1 million for the year ended December 31, 2010 as a result of gross proceeds of RMB557.5 million
received from the issuance of ordinary shares (in the form of ADSs) upon our initial public offering and offset by share repurchases of RMB26.8 million.

C.    RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

The CENTURY 21® brand name, including related intellectual property, which we are authorized to use under our master sub-franchise
agreement with Realogy, contributes to our competitive advantage in the real estate services market. We also rely on our Sales Information System and Human Resource and Commission Information System,
each of which is copyright protected, and our training system that combines our training programs and our E-learning system to manage our business operations. Since commencement of our
operations, our company-owned brokerage and franchise services businesses have significantly relied on the CENTURY 21® brand name, our proprietary information systems and our training
system. To protect our intellectual property, we rely on a combination of trade secrets and copyright laws in China as well as imposing procedural and contractual confidentiality and invention
assignment obligations on our sales professionals and staff, contractors and others. The built-in
security functions and access authorization mechanisms in our franchise systems also help protect our confidential information.

We
offer our mortgage management services under the trade name of Kaisheng Jinglue in Beijing and Shanghai. We have registered the trademark of Kaisheng Jinglue in China with a term of
ten years ending on March 6, 2023, in a range of classes, including insurance brokerage services, mortgage credit, trust, guarantee services, leasing guarantee services, insurance consulting
and real estate agent services.

D.    TREND INFORMATION

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events, including those listed
under "Key InformationRisk Factors," for the year ended December 31, 2012 that are reasonably likely to have a material adverse effect on our net revenues, income, profitability,
liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.

E.    OFF-BALANCE SHEET COMMITMENTS AND ARRANGEMENTS

As is customary in the mortgage management industry in Beijing, we provided interim guarantees to commercial banks in respect of the mortgage loans they extend to
property buyers. An interim guarantee covers the period beginning when the bank disburses the mortgage loan to the property buyer and ending when the mortgage registration certificate is issued to the
bank by the applicable property registry, which typically takes one to six months. The fair value of the interim guarantees as of December 31, 2010, 2011 and 2012 was immaterial.

The
contingent guarantee obligation in connection with our provision of interim guarantees was RMB0.9 million (US$0.1 million) as of December 31, 2012. Since the
second quarter of 2010, due to changes in the market practice in the mortgage management industry in Beijing, we no longer provide interim guarantees to our mortgage management service customers. We
have not experienced any losses associated with our interim guarantees.

Other
than the contingent liabilities discussed above and the obligations set forth in the preceding section, we have not entered into any financial guarantees or other commitments to
guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are not reflected in our consolidated financial statements. Furthermore, we do not have
any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or

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market
risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing,
hedging or research and development services with us.

F.     TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The following table sets forth our contractual obligations as of December 31, 2012:

Contractual Obligations
(in thousands of RMB)

Total

Less than
1 year

1 - 3
years

3 - 5
years

More than
5 yearsOperating Lease Obligations


217,127


99,748


101,084


15,236


1,059Minimum Service Fees


7,632


623


1,246


1,246


4,517Contingent Consideration payable


33,774


24,724


9,050





Long-term Deposits Payable


10,541


933


2,206


1,661


5,741Total


269,074


126,028


113,586


18,143


11,317


Operating Leases

Our operating lease agreements are principally for our administrative offices and real estate brokerage sales offices. These leases
have expiration dates, the latest of which is in 2017.

Minimum Service Fees

Pursuant to the master sub-franchise agreement entered into with Realogy, we are required to pay an annual minimum service
fee to Realogy for the licensing of the CENTURY 21® brand. The minimum annual service fee is the greater of US$100,000 (RMB623,010) or an amount calculated by multiplying US$500 (RMB3,115)
by the number of sales offices in our CENTURY 21® franchise network, to be adjusted for inflation or deflation.

Contingent Consideration Payable

The contingent consideration payable arose from our acquisition of Shanggu in the second quarter of 2011 and is measured at fair value.
The contingent consideration payable as of December 31, 2012 was RMB33.8 million (US$5.4 million).

Long-term Deposits Payable

We receive security deposits from franchisees which are recorded as long-term deposits payable. These deposits are
refundable at the end of the franchise agreement period if the franchisees do not breach the franchise agreements. The long-term deposits payable as of December 31, 2012 were
RMB10.5 million (US$1.7 million).

G.    SAFE HARBOR

This annual report on Form 20-F contains forward-looking statements. These statements are made under the "safe harbor" provisions of
Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends,"
"plans," "believes," "estimates," "may," "intend," "is currently reviewing," "it is possible," "subject to" and similar statements. Among other things, the sections titled "Item.3 Key
InformationD. Risk Factors," "Item.4 Information on the Company," and "Item.5 Operating and Financial Review and Prospects" in this annual report on Form 20-F,
as well as our strategic and operational plans, contain forward-looking statements. We may also make written or oral forward-looking statements in our filings with the Securities and Exchange
Commission, in our

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annual
report to shareholders, in press releases and other written materials and in oral statements made by our officers, directors or employees to third parties. Statements that are not historical
facts, including statements about our beliefs and expectations, are forward-looking statements and are subject to change, and such change may be material and may have a material adverse effect on our
financial condition and results of operations for one or more prior periods. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual
results to differ materially from those contained, either expressly or impliedly, in any of the forward-looking statements in this annual report on Form 20-F. Potential risks and
uncertainties include, but are not limited to, continued low real estate transaction volume in China, a further slowdown in the growth of China's economy, government measures that may adversely and
materially affect our business, failure of the real estate services industry in China to develop or mature as quickly as expected, diminution of the value of our brand or image due to our failure to
satisfy customer needs and/or other reasons, our inability to successfully execute our strategy, our failure to manage growth, our loss of competitive advantage and other risks outlined in our filings
with the Securities and Exchange Commission. All information provided in this annual report on Form 20-F and in the exhibits is as of the
date of this annual report on Form 20-F, and we do not undertake any obligation to update any such information, except as required under applicable law.

H.    RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In July 2012, the FASB issued revised guidance on "Testing Indefinite-Lived Intangible Assets for Impairment." The revised guidance applies to all entities, both
public and nonpublic, that have indefinite-lived intangible assets, other than goodwill, reported in their financial statements. Under the revised guidance, an entity has the option first to assess
qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing
the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take
further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform a quantitative impairment test by
comparing the fair value with the carrying amount in accordance with Subtopic 350-30. An entity also has the option to bypass a qualitative assessment for any indefinite-lived
intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. In
conducting a qualitative assessment, an entity should consider the extent to which relevant events and circumstances, both individually and in the aggregate, could have affected the significant inputs
used to determine the fair value of the indefinite-lived intangible asset since the last assessment. An entity also should consider whether there have been changes to the carrying amount of the
indefinite-lived intangible asset when evaluating whether it is more likely than not that the indefinite-lived intangible asset is impaired. An entity should consider positive and mitigating events
and circumstances that could affect its determination of whether it is more likely than not that the indefinite-lived intangible asset is impaired. The amendments are effective for annual and interim
impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before
July 27, 2012, if a public entity's financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for
issuance. We are currently evaluating the impact on our consolidated financial statements of adopting this guidance.

In
February 2013, the FASB issued revised guidance on "Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." The revised guidance does
not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the revised guidance requires an entity to provide information about the
amounts reclassified out of accumulated other comprehensive income by component. In addition, an

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entity
is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the
respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other
amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP
that provide additional detail about those amounts. The revised guidance is effective prospectively for reporting periods beginning after December 15, 2012 for public entities. The revised
guidance is not applicable to us.

Item 6.    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.    DIRECTORS AND SENIOR MANAGEMENT

The following table sets forth our current directors, and executive officers, their ages as of the date of this annual report and the positions held by them. The
business address for each of our directors and executive officers, is 26/A, East Wing, Hanwei Plaza, No.7 Guanghua Road, Chaoyang District, Beijing 100004, People's Republic of China.

Name

Age

PositionDonald Zhang


59

Chairman, Chief Executive OfficerHarry Lu


46

Vice Chairman, PresidentKevin Cheng Wei


45

Director and Chief Financial OfficerWeiping Zhang


59

Director and Vice PresidentJennifer Tang


46

DirectorQiang Chai


51

Independent DirectorLiang Pei


44

Independent DirectorConor Chiahung Yang


50

Independent DirectorBo Ren Kwan


50

Independent DirectorSheng Kang


39

General Manager of Mortgage Management Services Business UnitHau Piu Ip


38

General Manager of Shanghai RuifengHailong Kou


49

General manager of Beijing Anxin


Mr. Donald Zhangis one of our co-founders. In addition to founding our company, Mr. Zhang has served as our
director and chairman since 2000 and our chief executive officer since 2009. Prior to assuming his role with our company, Mr. Zhang founded Maxpro International Enterprises, Inc. and has
served as its chairman and chief executive officer since it was founded in 1992. Maxpro is an import and export and real estate investments company. From 1982 to 1986, Mr. Zhang served as an
assistant manager in the procurement department of China National Offshore Oil Corporation. Mr. Zhang received his bachelor's degree from the University of International Business and Economics
in Beijing and a master's degree in International Trade from Webster University in Missouri. Mr. Zhang is a brother-in-law of Mr. Harry Lu.

Mr. Harry Luis one of our co-founders. In addition to founding our company, Mr. Lu has served as our director
and vice chairman since 2000 and president since 2008. From 1995 to 1999, Mr. Lu served as the general manager of the PRC Region of Maxpro International Enterprises, Inc., managing the
China aspects of Maxpro's import and export and real estate investments business. From 1992 to 1995, he served as the export manager of China National Pharmaceutical and Healthcare Product
Import & Export Co., Ltd. Mr. Lu currently serves as the deputy general secretary of the China National Institute of Real Estate Appraisers and Brokers, the policy and
standard setting institute of the real estate market in China. Mr. Lu received his bachelor's degree from Beijing Institute of Technology and his master's degree from Rutgers Business School,
State University of New Jersey. Mr. Lu is a brother-in-law of Mr. Donald Zhang.

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Mr. Kevin Cheng Weihas served as our director since November 2008. He joined us as our chief financial
officer in December 2007. Prior to joining us, from 2006 to 2007, Mr. Wei served as the chief financial officer of Solarfun Power Holdings Co., Ltd. (i.e. Hanwha
SolarOne Co., Ltd.) (Nasdaq: HSOL), a Chinese solar company. From 2005 to 2006, Mr. Wei was the chief financial officer of an on-line advertising agency in China.
Mr. Wei was the chief audit executive of LG Philips Displays International Ltd. from 2003 to 2005, where he was responsible for managing global internal audit coverage and risk
management. From 1999 to 2003, he was Asia Pacific regional corporate audit manager with Altria Corporate Services Inc., including one year at Nabisco Inc. prior to its acquisition by
Kraft Foods. Prior to Altria, from 1991 to 1999, Mr. Wei worked with KPMG LLP and Deloitte Touche LLP. Mr. Wei has served as an independent non-executive
director and the chairman of the audit committee of Tibet 5100 Water Resources Holdings Ltd., a company listed on the main board of the Hong Kong Stock Exchange (stock code 1115), since March
2011. Mr. Wei graduated from Central Washington University, where he received his bachelor's degree (cum laude) with a double major in accounting and management information systems.

Mr. Weiping Zhanghas served as general manager of our franchise business unit since 2013. From 2006 to 2013, he was the chairman
of Shanghai Ruifeng. He has served as vice president since 2002 and as a director since 2006. From 2004 to 2007, he was senior vice president of IFM Beijing. From 2002 to 2004, he was general manager
for IFM BJ Broker. He was the representative of Maxpro International Enterprises, Inc. Beijing office from 1993 to 2002. Maxpro is an import and export and real estate investments company. From
1992 to 1993, Mr. Zhang was the Assistant General Manager of Hong Kong Donglong Company. Mr. Zhang received his bachelor's degree from Beijing Foreign Language Institute.

Ms. Jennifer Tanghas served as our director since 2009. Ms. Tang joined Avenue Asia Singapore Pte Ltd in 2006 and
serves as its senior managing director responsible for asset management and legal matters for the Avenue Asia Strategy. From 2000 to 2006, Ms. Tang held various positions with Hutchison Whampoa
Limited, including serving as group senior legal counsel of Hutchison Telecommunications International Ltd, a public company listed on the New York Stock Exchange and the Stock Exchange of Hong
Kong. Ms. Tang received her bachelor's degree in commerce and a bachelor's degree in law from the University of New South Wales. She is currently admitted as a solicitor in New South Wales and
Hong Kong.

Mr. Qiang Chaihas served as our independent director since January 2010. Mr. Chai has served as the independent director of
Shanghai New Huangpu Real Estate Co. Ltd. and China Merchants Property Development Co. Ltd. since 2008. Mr. Chai also served as vice president and secretary general
of China National Institute of Real Estate Appraisers and Brokers since 1999. From 1992 to 1999, he was the director of the Real Estate and Residence Research Institute and deputy chief economist of
the Policy Research Center of the Ministry of Housing and Urban-Rural Development of PRC. From 1985 to 1992, Mr. Chai was chief and deputy director of the Urban Economic Research Office of
Urban-Rural Development Economic Institute. Mr. Chai received his bachelor's degree in engineering from Wuhan University of Technology, and his master's degree and doctorate degree in economics
from the graduate school of China Academy of Social Sciences.

Mr. Liang Peihas served as our independent director since January 2010. Mr. Pei has also served as the independent director
of Baiyuan Costume Co. Ltd. since 2011. Mr. Pei has served as the secretary general of China Chain Store & Franchise Association since 2002 and an independent director of
Fujian New Hua Du Supercenter Co., Ltd. since 2007. From 1992 to 2002, he worked as an official with Ministry of Internal Trade. Mr. Pei received his bachelor's degree in commerce
and economics and doctorate degree in business administration, both from Renmin University of China.

Mr. Conor Chiahung Yanghas served as our independent director since January 2010. Mr. Yang is the chief financial officer
of Tuniu.com since January 2013. He was the chief financial officer of

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DangDang.com
(Nasdaq: DANG) from March 2010 to July 2012. Prior to joining DangDang.com, he served as chief financial officer of AirMedia Group Inc. (Nasdaq: AMCN) from March 2007 to March
2010. He was the chief executive officer of Rock Mobile Corporation from 2004 to February 2007. From 1999 to 2004, Mr. Yang served as the chief financial officer of the Asia Pacific region for
CellStar Asia Corporation. Mr. Yang was an executive director of Goldman Sachs (Asia) L.L.C. from 1997 to 1999. Mr. Yang was a vice president of Lehman Brothers Asia Limited from 1994 to
1996 and worked at Morgan Stanley Asia from 1992 to 1994. Mr. Yang received his MBA degree from University of California, Los Angeles in 1992 and his bachelor's degree from Fu Jen University in
Taiwan in 1985.

Mr. Bo Ren Kwanhas served as our director since 2012. Mr. Kwan joined ZY Real Estate Investment (China) Limited in 2008 and
serves as its senior partner and managing director. Mr. Kwan worked for ING Group from 1994 to 2007. He was the chief financial officer of ING Real Estate Investment Asia from 2005 to 2007, and
was a member of its Asia Executive Committee responsible for new fund development and held a con-current position as the chief executive officer of ING Asia Retail Fund during his final
year. Previously, he was a managing director of ING Real Estate China from 2003 to 2005. From 1994 to 2002, he was a managing director of Baring Private Equity Partners responsible for private equity
investment in the China market. Mr. Kwan is a UK Chartered Accountant and worked for KPMG in London from 1985 to 1992. He is licensed by the Hong Kong Securities and Futures Commission on asset
management and advisory activities. Mr. Kwan received his bachelor's degree in physics from the University of Nottingham.

Mr. Sheng Kanghas served as general manager of our mortgage management services business unit since 2008. From 2007 to 2009, he
was the general manager of Beijing Kaisheng Jinglue Guarantee Co. Limited. From 2006 to 2007, he was the general manager of Beijing Weijia Anjie Investment Guarantee Co., Ltd.
From 2002 to 2006, he was the finance service and trading management director of 5i5j Real Estate Co., Ltd. From 2000 to 2002, Mr. Kang was the deputy general manager of Dongfang
Hengji Real Estate Consulting Co., Ltd. of Dongli Group. From 1999 to 2000, he was the project deputy manager of China Xin Xing Construction Development Co., Ltd.
Mr. Kang received his bachelor's degree from Wuhan University of Hydraulic and Electrical Engineering and his master's degree from Tsinghua University.

Mr. Hau Piu Iphas served as the general manager of Shanghai Ruifeng since 2009. He was a director and general manager of Shanghai
Hopefluent Real Properties Consulting Co. Limited since 2007. From 1997 to 2006, he was the senior director of Centaline Property Agency Limited. Mr. Ip received his bachelor's degree
from Liverpool John Moores University and his master's degree from Tongji University and United Business Institutes of Belgium.

Mr. Hailong Kouhas served as the general manager of Beijing Anxin and held a concurrent position of the general manager of Beijing
region of Beijing Aifeite International Real Estate Franchise Company Ltd. Prior to that, Mr. Kou was the manager of Maxpro International Enterprises, Inc., Beijing office, from
1995 to 2005. He was the deputy section chief of China National Pharmaceutical and Healthcare Product Import & Export Co., Ltd. from 1991 to 1995. From 1986 to 1991,
Mr. Kou served as the engineer of the Beijing Hoisting Machinery Works. He received his bachelor's degree from a branch of Tsinghua University and EMBA in Tsinghua University in Beijing, China.

Employment Agreements

We have entered into employment agreements with each of our executive officers. We may terminate an executive officer's employment for
cause, at any time, without remuneration, for certain acts of the officer, including, but not limited to, the continued failure to
perform duties and obligations, fraud or material dishonesty and a conviction or plea of guilty for the commission of a felony or other crimes. An executive officer may terminate the employment at any
time upon advance written notice. Furthermore, we may terminate an executive officer's employment at any time without cause, in which

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case,
we will continue to make the base salary payment and certain benefits to the executive officer within a severance period in accordance with the employment agreement.

Except
for the foregoing, our officers and directors are not entitled to any severance payments upon the termination of their employment, or in the case of directors, service to the
board, for any reason.

Each
executive officer has agreed to hold in strict confidence any trade secrets or confidential information of our company. Each officer also agrees to faithfully and diligently serve
our company in accordance with the employment agreement and the guidelines, policies and procedures of our company approved from time to time by our board of directors.

B.    COMPENSATION

For the year ended December 31, 2012, we paid an aggregate of approximately RMB14.6 million (US$2.3 million) in cash compensation to our
executive officers, and we paid an aggregate of RMB732,036 (US$117,500) in cash compensation to our non-executive directors. On July 9, 2012, we adjusted the exercise price of all
then outstanding and unexercised options, including those held by our executive officers and directors, according to our stock incentive plan and extended the expiration dates of which to the fifth
anniversary as of the date of such adjustment. The total amount set aside or accrued by us to provide pension, retirement or similar benefits for our executive officers and directors for the year
ended December 31, 2012 was approximately RMB0.7 million (US$0.1 million).

Stock Incentive Plan

Stock Incentive Plan.On August 18, 2006, we adopted a stock incentive plan, or the plan, which was amended on October 19,
2007 and
February 1, 2008, to provide additional incentive to those officers, employees, directors, consultants and others who serve our company, in order to strengthen the commitment of such persons to
our company, motivate such persons to faithfully and diligently perform their duties and to attract and attain competent and dedicated persons whose efforts will result in our long-term
growth and profitability. The plan permits us to grant five types of awards: incentive stock options, nonqualified stock options, restricted shares, restricted share units and other awards. As of
December 31, 2012, the ordinary shares reserved for issuance under our plan represented 5.9% of our equity interest on a fully-diluted basis. As of December 31, 2012, after giving effect
to our 10-for-1 share split which was effective on January 4, 2010, we had outstanding 37.77 million options to purchase ordinary shares of our company
exercisable at a weighted average exercise price at US$0.02 per share option and the aggregate number of ordinary shares underlying these options is 32.97 million. These options generally
expire five years after their dates of grant. On July 9, 2012, we extended the expiration dates of all then outstanding and unexercised stock options to the fifth anniversary of the date of
such adjustment and amended the exercise prices of such stock options to US$1.18 per ADS, representing 100% of the 30-trading day volume weighted average price per ADS as of the date of
such adjustment, except that the exercise price of the then outstanding and unexercised stock options held by Donald Zhang was amended to US$1.30 per ADS, representing 110% of 30-trading
day volume weighted average price per ADS as of the date of such adjustment. See Note 21 "Share-Based Compensation" in the Consolidated Financial
Statements for additional information.

Plan Administration.Our board of directors, or a committee designated by our board or directors, administers the plan. The committee or
the full
board of directors, as appropriate, determines the provisions and terms and conditions of granting awards under the plan.

Award Agreement.Options and other awards granted under our plan are evidenced by an award agreement that sets forth the terms,
conditions and
limitations for each grant. In addition, the award agreement may also provide that securities granted are subject to certain lock-up period following the effective date of a registration
statement filed by us under the Securities Act, if so requested by us or

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any
representative of the underwriters in connection with any registration of the offering of any of our securities.

Eligibility.We may grant awards to employees, directors and consultants of our company or any of our related entities, which include
our
subsidiaries or any entities in which we hold a substantial ownership interest.

Term of the Awards.The term of each award grant shall be stated in the relevant award agreement, provided that the term shall not
exceed
10 years from the date of the grant.

Vesting Schedule.In general, the plan administrator determines, or the relevant award agreement specifies, the vesting schedule.

Transfer Restrictions.Awards granted under the plan may not be transferred in any manner by the grantee other than by will or the laws
of succession
and may be exercised during the lifetime of the grantee only by the grantee.

Termination of the Plan.Our board of directors has the authority to amend or terminate the plan subject to shareholder approval to the
extent
necessary to comply with applicable law. However, no such action may (i) impair the rights of any grantee unless agreed by the grantee and the plan administrator or (ii) affect the plan
administrator's ability to exercise the powers granted to it under our plan.

C.    BOARD PRACTICES

Board of Directors

Our board of directors currently consists of nine directors. A director is not required to hold any shares in our company by way of
qualification unless prescribed by special resolutions. A director may, subject to any separate requirement for audit committee approval under applicable law or the listing rules of the New York Stock
Exchange, and unless disqualified by the chairman of the relevant board meeting, vote with respect to any contract or transaction in which he or she is materially interested provided the nature of the
interest is disclosed in accordance with our amended and restated articles of association.. The directors may exercise all the powers of our company which are not, by the Companies Law or its amended
and restated articles of association, required to be exercised by shareholders, including the power to borrow money, mortgage its undertaking, property and uncalled capital, and issue debentures or
other securities whenever outright or as security for any debt, liability or obligation of our company or of any third party.

Duties of Directors

Under Cayman Islands law, our directors have a fiduciary duty to act honestly, in good faith and with a view to our best interests. Our
directors also have a duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty
of care to us, our directors must ensure compliance with our memorandum and articles of association, as amended from time to time. A shareholder in our name may have the right to seek damages if a
duty owed by our directors is breached.

The
functions and powers of our board of directors include, among others:



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Terms of Directors and Executive Officers

Our board of directors is divided into three classes. At each annual general meeting one-third of the directors for the
time being (or, if their number is not multiple of three (3), the number nearest to but not greater than one-third) shall retire from office by rotation in accordance with the provisions
of our amended and restated articles of association. Subject to the provisions of our amended and restated articles of association, upon expiration of the term of a class of directors, directors in
that class are eligible for re-election at the annual meeting of the shareholders in the year in which their respective terms expire. The classes of our directors were
re-designated, following the effectiveness of our amended and restated articles of association on May 31, 2012, as follows:



Directors
added to the board of directors between annual meetings of members by reason of an increase in the authorized number of directors shall belong to the class designated by the
board provided that the number of board seats designated to belong to Class I, Class II and Class III must be as nearly equal in number as possible. There is no shareholding
qualification for directors unless prescribed by special resolution.

The
classification of our board of directors may have the effect of delaying or preventing changes in control of our company.

Subject
to the Companies Law and our amended and restated articles of association, shareholders may by special resolution elect any person to be a director either to fill a casual
vacancy or as an addition to the existing board. The directors have the power from time to time and at any time to appoint any person as a director to fill a casual vacancy on the board or as an
addition to the existing board. Subject to our amended and restated articles of association, any director so appointed by the board shall hold office only until our next annual general meeting and
shall then be eligible for re-election.

Board Committees

Our board of directors has established an audit committee.

Audit Committee

Our audit committee consists of Conor Chiahung Yang and Liang Pei. Conor Chiahung Yang and Liang Pei satisfy the "independence"
requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange. In addition, Conor Chiahung Yang and Liang Pei meet the "independence" standards under
Rule 10A-3 under the Securities Exchange Act of 1934, as amended.

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Conor
Chiahung Yang is the chairman of our audit committee. Our audit committee consists solely of independent directors that satisfy New York Stock Exchange and SEC requirements. We currently have
only two independent directors on our audit committee and we no longer comply with Section 303A of the Corporate Governance Rules of the New York Stock Exchange, which requires a listed company
to have three independent directors on its audit committee within one year of listing. While we expect to appoint another independent director to our audit committee and regain compliance with these
corporate governance rules in the near future, as a foreign private issuer, we are permitted to follow home country practice in lieu of the above requirements as to the minimum number of audit
committee members. The corporate governance practice in our home country, the Cayman Islands, does not require a minimum number of members on any committees.

The
purpose of the audit committee is to assist our board of directors with its oversight responsibilities regarding: (i) the integrity of our financial statements,
(ii) our compliance with legal and regulatory requirements, (iii) the independent auditor's qualifications and independence, and (iv) the performance of our internal audit
function and independent auditor. The audit committee is responsible for, among other things:



D.    Employees

We recruit sales professionals for our company-owned sales offices based on their education, qualification, experience and personality. We recruit on an
as-needed basis. Most new recruits undergo a probation period before they are formally hired. We had 9,568, 7,562 and 7,394 employees as of December 31, 2010, 2011 and 2012,
respectively. The following table sets forth the number of our full-time employees by area of responsibility as of the dates indicated

As of December 31,2010

2011

2012Company management


51


62


69Sales professionals


7,337


6,718


6,614Other employees


2,180


782


711Total


9,568


7,562


7,394


We
review the performance of our sales professionals on a periodic basis. We also have our own accreditation system for experienced sales professionals, including those sales
professionals at our franchisees. We pay our sales professionals and managers a combination of salaries and sales commissions and pay salaries to all other employees. All our sales professionals and
staff are entitled to welfare and benefits as required under PRC laws.

We
consider our relations with our employees to be good.

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E.    SHARE OWNERSHIP

Please see Item 7.A.

Item 7.    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.    MAJOR SHAREHOLDERS

Beneficial Share Ownership

The following table sets forth information with respect to beneficial ownership of our ordinary shares as of April 19, 2013, the
latest practicable date, by:



Ordinary Shares
Beneficially OwnedName

Number(1)

Percent(1)Directors and Executive Officers:Donald Zhang(2)


273,925,429


40.2
%Harry Lu(3)


55,492,271


8.3
%Kevin Cheng Wei(4)


7,202,808


1.1
%Weiping Zhang


*


*Jennifer Tang





Qiang Chai





Liang Pei





Bo Ren Kwan





Conor Chiahung Yang





Sheng Kang


*


*Hau Piu Ip


*


*Hailong Kou


*


*All Directors and Executive Officers as a group(5)


288,708,107


41.5
%5% and above Shareholders:IFM Overseas Partners L.P.(6)


277,417,700


40.5
%Goldman Sachs Strategic Investments (Asia) L.L.C.(7)


141,611,117


21.2
%GL Asia Mauritius II Cayman Limited(8)


91,893,513


13.8
%Columbia Wanger Asset Management, LLC(9)


90,000,000


13.5
%


Notes: *Indicates
less than 1%.(1)Beneficial
ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person
or the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days of the date of this annual report, including through the exercise of
any option, warrant or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.(2)Includes
(i) 260,000,000 Class A ordinary shares beneficially held by Donald Zhang through IFM Overseas Partners L.P., and
(ii) 13,925,429 Class A ordinary shares


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underlying
share options held by Donald Zhang that are exercisable within 60 days after the date of this annual report. (3)Includes
(i) 52,000,000 of the 260,000,000 Class A ordinary shares held in IFM Overseas Partners L.P. by Harry Lu., and
(ii) 3,492,271 Class A ordinary shares underlying share options held by Harry Lu that are exercisable within 60 days after the date of this annual report.(4)Includes
(i) 1,800,000 Class A ordinary shares and (ii) 5,402,808 Class A ordinary shares underlying share options held by Kevin
Cheng Wei that are exercisable within 60 days after the date of this annual report.(5)Includes
(i) 260,000,000 Class A ordinary shares beneficially held by Donald Zhang and Harry Lu through IFM Overseas Partners L.P.,
(ii) 1,800,000 Class A ordinary shares held by Kevin Cheng Wei, and (iii) 26,908,107 Class A ordinary shares underlying share options held by our directors and executive
officers as a group that are exercisable within 60 days after the date of this annual report.(6)Includes
(i) 260,000,000 Class A ordinary shares held by IFM Overseas Partners L.P., and (ii) 17,417,700 Class A ordinary
shares underlying share options held by Donald Zhang and Harry Lu that are exercisable within 60 days after the date of this annual report. IFM Overseas Limited, a corporation incorporated
under the laws of the Cayman Islands that acts as the general partner of IFM Overseas Partners L.P. and exercises investment control over the Class A ordinary shares held by this entity.
Maxpro International Enterprises, Inc., a New York corporation, owns 100% of the equity interest in IFM Overseas Limited. Donald Zhang owns 100% of the equity interest in Maxpro International
Enterprises, Inc. through D&M Capital Corporation. IFM Holding Company Limited and Harry Lu, each a limited partner of IFM Overseas Partners L.P., hold 80% and 20% of the partnership
interest in IFM Overseas Partners L.P., respectively. IFM Holding Company Limited is a corporation incorporated under the laws of Cayman Islands, and is 100% owned by Maxpro International
Enterprises, Inc.(7)Includes
141,611,117 Class A ordinary shares held by Goldman Sachs Strategic Investments (Asia) L.L.C. Goldman Sachs Strategic Investments (Asia)
L.L.C. is an indirectly wholly owned subsidiary of The Goldman Sachs Group, Inc., which is a bank holding company whose shares are listed on the New York Stock Exchange. The address of Goldman
Sachs Strategic Investments (Asia) L.L.C. is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801, USA.(8)Includes
91,893,513 Class A ordinary shares held by GL Asia Mauritius II Cayman Limited, a Cayman Islands exempted company. GL Asia Mauritius II
Cayman Limited is 50% owned by Avenue Asia International, Ltd. and 50% by GL Asia Mauritius II, LLC, but all of GL Asia Mauritius II Cayman Limited's beneficial interest in the above
shares has been allocated solely to GL Asia Mauritius II, LLC. GL Asia Mauritius II, LLC is owned by Avenue Asia Investments, L.P., Avenue Asia Special Situations Fund
III, L.P. and Avenue Asia Special Situations Fund IV, L.P., but all of GL Asia Mauritius II, LLC's beneficial interest in the above shares has been allocated solely to Avenue Asia
Special Situations Fund IV, L.P., a Cayman Islands exempted limited partnership. The general partner of Avenue Asia Special Situations Fund IV, L.P. is Avenue Asia Capital
Partners IV, Ltd., a Cayman Islands exempted company. The sole shareholder of Avenue Asia Capital Partners IV, Ltd. is Avenue Asia Capital Partners IV, LLC, a Delaware limited
liability company. The managing member of Avenue Asia Capital Partners IV, LLC is GL Asia Partners IV, LLC, a Delaware limited liability company, which is controlled by Marc Lasry and Sonia Gardner.
Voting and investment power of shares held


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by
GL Asia Mauritius II Cayman Limited may be exercised by Avenue Asia Capital Partners IV, Ltd. or Avenue Asia Capital Management, L.P., a Delaware limited partnership.
The general partner of Avenue Asia Capital Management, L.P. is Avenue Asia Capital Management GenPar, LLC, a Delaware limited liability company, which is controlled by Marc Lasry and
Sonia Gardner. Mr. Lasry and Ms. Gardner disclaim beneficial ownership with respect to the above shares except to the extent of their pecuniary interest therein. The address of GL Asia
Mauritius II Cayman Limited is 2nd Floor Anchorage Centre, Georgetown, Grand Cayman, Cayman Islands. (9)Such
number of ordinary shares was calculated based upon Schedule 13G/A jointly filed by Columbia Wanger Asset Management, LLC and Columbia
Acorn Select on February 14, 2013. Columbia Wanger Asset Management, LLC does not directly own any shares of our company. As the investment adviser of Columbia Acorn Select and various
other investment companies and managed accounts, Columbia Wanger Asset Management, LLC may be deemed to beneficially own the shares held by Columbia Acorn Select. The address of Columbia Wanger
Asset Management, LLC is 227 West Monroe Street, Suite 3000, Chicago, IL 60606.


Changes in Share Ownership

In May 2011, Goldman Sachs Strategic Investments (Asia) L.L.C converted all of its 80,502,938 Class B ordinary shares into
80,502,938 Class A ordinary shares.

Voting Rights

After the conversion of all of our Class B ordinary shares into Class A ordinary shares in May 2011, none of our existing
shareholders have different voting rights from other shareholders. Our Class B ordinary shares did not carry any voting rights.

Record Holders in the United States

As of April 19, 2013, the latest practicable date, approximately 25.3% of our total outstanding Class A ordinary shares,
were held by a single holder of record in the United States, JPMorgan Chase Bank, N.A., the depositary for our ADS program.

B.    RELATED PARTY TRANSACTIONS

Related Party Loans and other Payments

We have entered into certain loan arrangements in the past with certain of our related parties, including our associate companies,
Xinye, a PRC wholly foreign-owned enterprise controlled by Mr. Donald Zhang, our chairman and CEO, and Mr. Harry Lu, our vice chairman and president, and Maxpro International
Enterprises Inc., or Maxpro, a New York corporation owned by Mr. Donald Zhang through D&M Capital Corporation, and the Fund Management
Partnership, the partner of which is a former employee and Director of our company, owning 10% equity interests in TianRe Co. Ltd. In January 2011, MMC BJ, a wholly-owned subsidiary of
our company, entered into an entrusted loan agreement to offer RMB 30.0 million loan to Tianjin Shiji TianRe Equity Fund Limited Partnership ("TianRe Fund I"), a limited partnership established
by the Fund Management Partnership. The loan is repayable at an annual interest rate of 14%. This loan was repaid in December 2011.

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Purchase of Equity Interests from a Former Employee

On November 15, 2011, Beijing IFM Investment Managements Limited, Everising Investment Management Company Ltd. and a
former employee entered into a share purchase agreement which resulted in a transfer of 10% stake in Tianjin Shiji TianRe Investment Management Company Ltd. and 9.9% stake in Fund Management
Partnership from this former employee to Beijing IFM Investment Managements Limited at total consideration of RMB1.9 million (US$0.3 million), which was determined based upon the then
present value of the estimated future earnings generated by the companies.

On
November 21, 2011, the company agreed with this former employee that, subject to his compliance of certain non-competition undertakings, his option agreement will
remain effective as if he were an employee of our company, including the terms regarding any option re-pricing or any extension of the exercise period from time to time. Since the
termination of this former employee's employment with the company and the modification to his options occurred concurrently, his options continue to be subject to ASC 718 until further modifications
are made.

On
July 9, 2012, we extended the expiration dates of all then outstanding and unexercised stock options to the fifth anniversary of the date of such adjustment and amended the
exercise prices of such stock options according to the then market value of our ordinary shares. The exercise price and expiration date of the options held by this former employee were adjusted
accordingly and his options were classified as liability and measured at fair value.

Restructuring Deed

We entered into a restructuring deed with GLA, IFM Overseas Partners L.P. ("IFMOP"), Donald Zhang, Harry Lu and IFM Overseas
Limited, the general partner of IFMOP, on April 27, 2012 and a supplemental deed to the restructuring deed on June 6, 2012 (collectively, the "Restructuring Deed"). Pursuant to the
Restructuring Deed, (i) the parties of the Restructuring Deed released each other from all then outstanding claims under certain legal proceedings, including the petition to request an order to
wind up our company and other remedies filed by GLA on December 30, 2011, (ii) the then existing secured note between GLA and IFMOP was amended and restated by the New Note, see
"Item 3. Key InformationD. Risk FactorsOur corporate actions are substantially controlled by Mr. Donald Zhang and Mr. Harry Lu. The transactions between
our shareholders may result in a change of control of our company.", (iii) GLA was granted an option within a period of six months commencing on the earlier of the date of repayment or maturity
of the New Note, to require IFMOP and us to buy or procure the purchase of all or any portion of our ordinary shares held by GLA, at a purchase price to be calculated based on the then current
weighted average trading price of our ADSs or, if our ADSs or ordinary shares cease to be listed and traded on any stock exchange, the fair market value to be determined by a financial advisor, and
(iv) GLA was granted certain other rights, including, among others, information rights and a right of prior approval over certain corporate matters relating to us and our business, including,
among others, change in capital structure, disposal and acquisition of material assets, and incurrence of any material indebtedness.

Registration Rights

Pursuant to the registration rights agreement dated December 30, 2009, we granted to each of Goldman Sachs Strategic
Investments, GLA, Realogy and IFM Overseas Partners L.P. certain registration rights in relation to their shares of our company. The registration rights set forth in this registration rights
agreement shall terminate on (i) the fifth anniversary following the completion of our initial public offering in February 2010, or, (ii) if, in the opinion of our counsel, all such
shares entitled to registration rights proposed to be sold by the relevant holders may then be sold without registration in any 90 day period pursuant to Rule 144 promulgated under the
Securities Act.

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Item 8.    FINANCIAL INFORMATION

A.    CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

Consolidated Financial Statements

Please see "Item 18. Financial Statements" for our audited consolidated financial statements filed as a part of this annual
report.

Legal Proceedings

GLA, an affiliate of Avenue Capital and one of our shareholders, filed a petition on December 30, 2011 in the Grand Court of the
Cayman Islands, our company's jurisdiction of organization, to request an order to wind up our company and other remedies. We, having consulted with our legal counsel, firmly believed that there was
no basis for any of GLA's claims, and that a winding up would not be the appropriate remedy for any of the claims made. We filed a summons to strike out GLA's petition on January 6, 2012, and
were contesting GLA's petition. On April 27, 2012, we entered into the Restructuring Deed with GLA and certain other parties, pursuant to which, the parties of such restructuring deed released
each other from all then outstanding claims under certain legal proceedings, including the petition filed by GLA on December 30, 2011. For more information about the Restructuring Deed, see
"Item 7. Major Shareholders and Related Party TransactionsB. Related Party TransactionsRestructuring Deed."

Other
than the legal proceeding noted above, we are not involved in any legal matters that management believes will have a material adverse effect on our business.

Dividend Policy

We have never declared or paid any dividends on our ordinary shares. We do not anticipate paying any cash dividends in the foreseeable
future. We currently intend to retain future earnings, if any, to finance operations and expand our business.

As
we are a holding company, we rely, in part, on dividends paid to us by our subsidiaries in China for our cash requirements, including funds to pay dividends and other cash
distributions to our shareholders, service any debt we may incur and pay our operating expenses. In China, the payment of dividends is subject to limitations. PRC regulations currently permit payment
of dividends only out of accumulated profits as determined in accordance with PRC accounting standards and regulations. Under current PRC laws and regulations, our subsidiaries in China are required
to set aside a certain amount of their accumulated after-tax profits each year, if any, to fund certain statutory reserves. These reserves may not be distributed as cash dividends.
Further, if our subsidiaries in China 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 us.

Our
board of directors has sole discretion on whether to pay dividends, subject to the approval of our shareholders. Even if our board of directors decides to pay dividends, the form,
frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that they may deem
relevant. If we pay any dividends, we will pay our ADS holders to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses
payable thereunder. Cash dividends on our ADSs, if any, will be paid in U.S. dollars.

B.    SIGNIFICANT CHANGES

Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial
statements included in this annual report.

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Item 9.    THE OFFER AND LISTING

A.    OFFER AND LISTING DETAILS

Price Range of American Depositary Shares

Not applicable, except for Item 9A (4) and Item 9C.

Our
ADSs have been listed on the New York Stock Exchange since January 28, 2010. Our ADSs trade under the symbol "CTC." The following table provides the high and low closing
prices for our ADSs on the New York Stock Exchange to date. Closing prices for all periods presented, adjusted to reflect the change of ratio of our ADSs from one ADS for fifteen
(15) Class A ordinary shares to one ADS for forty-five (45) Class A ordinary share effective on April 16, 2012.

Calendar Period

High

Low(US$ per ADS)2010 (January 28 to December)


24.45


11.132011


14.97


0.87January to March


14.97


10.65April to June


10.38


3.48July to September


6.03


2.40October to December


3.06


0.872012


2.58


0.99January to March


2.58


0.99April to June


2.10


1.00July to September


1.98


1.08October to December


1.95


1.34October


1.77


1.36November


1.60


1.39December


1.95


1.342013January


4.14


2.06February


3.48


2.42March


2.72


2.00January to March


4.14


2.00April (through April 24)


2.69


2.28


C.    MARKETS

Our ADSs have been listed on New York Stock Exchange since January 28, 2010 under the symbol "CTC." We changed the ratio of our ADS to ordinary share from
1:15 to 1:45, effective on April 16, 2012.

F.     EXPENSES OF THE ISSUE

Not applicable

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Item 10.    ADDITIONAL INFORMATION

A.    SHARE CAPITAL

Not applicable

B.    MEMORANDUM AND ARTICLES OF ASSOCIATION

We incorporate by reference into this annual report the description of our amended and restated memorandum and articles of association contained in our
registration statement on Form F-1 (File No. 333-164216) filed with the Securities and Exchange Commission on January 27, 2010.

An
amended and restated articles of association was adopted by the shareholders of our company on May 31, 2012. A brief summary of some of the amendments are as set out below. The
summary is not intended to be exhaustive and the amended and restated articles of association should be read in its entirety.



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C.    MATERIAL CONTRACTS

We have not entered into any material contracts other than in the ordinary course of business or other than those described in "Item 4. Information on the
Company" and elsewhere in this annual report on Form 20-F.

D.    EXCHANGE CONTROLS

See "Item 4. Information on the CompanyB. Business OverviewRegulationRegulations on Foreign Currency Exchange and
Dividend Distribution."

E.    TAXATION

The following summary of material Cayman Islands, PRC and United States federal income tax consequences of an investment in our ADSs or ordinary shares is based
upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change.

Cayman Islands Taxation

The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there
is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the Government of the Cayman Islands except for stamp duties that may be
applicable on instruments executed in, or brought into, the Cayman Islands. The Cayman Islands is not party to any double tax treaties. There are no exchange control regulations or currency
restrictions in the Cayman Islands.

People's Republic of China Taxation

Under the PRC tax laws effective prior to January 1, 2008, dividends paid to foreign investors by foreign-invested enterprises,
such as dividends paid to us by our PRC subsidiaries, were exempt from PRC withholding tax. Under the CIT Law and its implementation rules effective on January 1, 2008, all domestic and
foreign-invested companies in China are subject to a uniform corporate income tax at the rate of 25% and dividends from a PRC subsidiary to its foreign parent company are 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 tax, or the tax is otherwise exempted
or reduced pursuant to the PRC tax laws.

Under
the CIT Law, enterprises organized under the laws of jurisdictions outside China with their "de facto management bodies" located within China are considered PRC resident
enterprises and therefore are subject to PRC corporate income tax at the rate of 25% on their worldwide income. Under the implementation rules of the CIT Law, "de facto management bodies" is defined
as the bodies that have material and overall management and control over the business operations, personnel and human resources, finances and treasury, and acquisition and disposition of properties
and other assets of an enterprise. In addition, the Circular Related to Relevant Issues on the Identification of a Chinese Holding Company Incorporated Overseas as a Residential Enterprise under the
Criterion of De Facto Management Bodies Recognizing issued by the State Administration of Taxation on April 22, 2009 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

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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.

Ambiguities
exist with respect to the interpretation of the provisions of the CIT Law, its implementation rules and other regulations 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 CIT Law. If we are deemed
to be a PRC resident enterprise, we will be subject to PRC corporate income tax at the rate of 25% on our worldwide income. In that case, however, dividend income we receive from our PRC subsidiaries
may be exempt from PRC corporate income tax because the CIT Law and its implementation rules generally provide that dividends received by a PRC resident enterprise from its directly invested entity
that is also a PRC resident enterprise is exempt from corporate income tax. However, as there is still uncertainty as to how the CIT Law and its implementation rules will be interpreted and
implemented, we cannot assure you that we are eligible for such PRC corporate income tax exemptions or reductions.

In
addition, ambiguities exist with respect to the interpretation of the provisions of the CIT Law and its implementation rules relating to identification of PRC-sourced
income. If we are deemed to be a PRC resident enterprise, dividends distributed to our non-PRC entity investors by us, or the gain our non-PRC entity 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 pursuant to the CIT Law. If we became a PRC resident
enterprise under the PRC tax system and received income other than dividends, our profitability and cash flows would be adversely impacted due to our worldwide income being taxed in China under the
CIT Law.

United States Federal Income Taxation

The following is a summary of the material United States federal income tax considerations relating to the acquisition, ownership, and
disposition of our ADSs or ordinary shares by a U.S. Holder (as defined below) that will hold ADSs or ordinary shares as "capital assets" (generally, property held for investment) under the United
States Internal Revenue Code of 1985, as amended. This summary is based upon existing United States federal tax law, which is subject to differing interpretations or change, possibly with retroactive
effect. This summary does not discuss all aspects of United States federal income taxation that may be important to particular investors in light of their individual investment circumstances,
including investors subject to special tax rules (for example, financial institutions, insurance companies, broker-dealers, partnerships and their partners, and tax-exempt organizations
(including private foundations)), holders who are not U.S. Holders, holders who own (directly, indirectly, or constructively) 10% or more of our voting stock, investors that hold their ADSs or
ordinary shares as part of a straddle, hedge, conversion, constructive sale, or other integrated transaction for United States federal income tax purposes, or investors that have a functional currency
other than the United States dollar, all of whom may be subject to tax rules that differ significantly from those summarized below. In addition, this summary does not discuss any
non-United States, state, or local tax considerations. Each U.S. Holder is urged to consult its tax advisor regarding the United States federal, state, local, and non-United
States income and other tax considerations of an investment in ADSs or ordinary shares.

General

For purposes of this summary, a "U.S. Holder" is a beneficial owner of our ADSs or ordinary shares that is, for United States federal
income tax purposes, (i) an individual who is a citizen or

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resident
of the United States, (ii) a corporation (or other entity treated as a corporation for United States federal income tax purposes) created in, or organized under the law of, the United
States or any state thereof or the District of Columbia, (iii) an estate the income of which is includible in gross income for United States federal income tax purposes regardless of its
source, or (iv) a trust (A) the administration of which is subject to the primary supervision of a United States court and which has one or more United States persons who have the
authority to control all substantial decisions of the trust or (B) that has otherwise elected to be treated as a United States person under the United States Internal Revenue Code.

If
a partnership is a beneficial owner of our ADSs or ordinary shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the
activities of the partnership. If a U.S. Holder is a partner of a partnership holding our ADSs or ordinary shares, the U.S. Holder is urged to consult its tax advisor regarding an investment in our
ADSs or ordinary shares.

For
United States federal income tax purposes, a U.S. Holder of ADSs will be treated as the owner of the underlying shares represented by the ADSs.

Passive Foreign Investment Company Considerations

A non-U.S. corporation, such as our company, will be classified as a "passive foreign investment company" or a PFIC, for
United States federal income tax purposes, if, in the case of any particular taxable year, either (i) 75% or more of its gross income for such year consists of certain types of "passive" income
or (ii) 50% or more of its average quarterly assets (as determined on the basis of fair market value) during such year produce or are held for the production of passive income. For this
purpose, cash is categorized as a passive asset and the company's unbooked intangibles are taken into account. A non-U.S. corporation will be treated as owning a proportionate share of the
assets and income of any other corporation in which it owns, directly or indirectly, more than 25% (by value) of the stock.

Based
on the quarterly average value of our assets for the taxable year ended December 31, 2012, we believe that we were classified as a PFIC for the year ended
December 31, 2012 and we may continue to be classified as a PFIC in the current taxable year or a future taxable year. Based on the composition of our income and assets as reasonably
approximated for purposes of applying the PFIC rules, we may continue to be a PFIC for the current taxable year if the price of our ADSs and ordinary
shares is relatively low and we continue to hold a substantial amount of cash and other liquid assets. The composition of our income and our assets will be affected by how, and how quickly, we use our
liquid assets and cash holdings.

In
estimating the value of our goodwill and other unbooked intangibles, we have taken into account our market capitalization. Among other matters, if our market capitalization is
relatively low, we may continue to be a PFIC for the current or one or more future taxable years. Further, while we believe our classification methodology and valuation approach is reasonable, it is
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 continuing to be classified as
a PFIC for the current or one or more future taxable years. 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.

Because
PFIC status is a fact-intensive determination made on an annual basis, no assurance can be given that we will not continue to be classified as a PFIC, and our PFIC
status will depend on whether (i) we follow our capital expenditure plans and (ii) our market capitalization expands or contracts from its current level. The United States federal income
tax rules that apply to U.S. Holders for taxable years in which we are classified as a PFIC are generally discussed below under "Passive Foreign Investment Company Rules."

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Dividends

Subject to the discussion under "Passive Foreign Investment Company Rules" below, any cash distributions (including the amount of any
PRC tax withheld) paid on our ADSs or ordinary shares out of our earnings and profits, as determined under United States federal income tax principles, will generally be includible in the gross income
of a U.S. Holder as dividend income. Because we do not intend to determine our earnings and profits on the basis of United States federal income tax principles, any distribution paid will generally be
treated as a "dividend" for United States federal income tax purposes. A non-corporate recipient of dividend income generally will be subject to tax on dividend income from a "qualified
foreign corporation" at a reduced rate provided that certain holding period requirements are met. A non-United States corporation (other than a corporation that is classified as a PFIC for
the taxable year in which the dividend is paid or the preceding taxable year) generally will be considered to be a qualified foreign corporation (i) if it is eligible for the benefits of a
comprehensive tax treaty with the United States which the Secretary of Treasury of the United States determines is satisfactory for purposes of this provision and which includes an exchange of
information program, or (ii) with respect to any dividend it
pays on stock (or ADSs in respect of such stock) which is readily tradable on an established securities market in the United States. However, as discussed above, we believe that we were classified as
a PFIC for the taxable year ended December 31, 2012. Our ADSs are listed on the New York Stock Exchange, which is an established securities market in the United States, and we presently believe
our ADSs should qualify as being readily tradable. In the event that we are deemed to be a PRC resident enterprise under the CIT Law, we may be eligible for the benefits of the United
States-PRC income tax treaty. See "Item 10. Additional InformationE. TaxationPeoples' Republic of China Taxation." If we are eligible for such
benefits, dividends we pay on our ordinary shares, regardless of whether such shares are represented by the ADSs, would be eligible for the reduced rates of taxation. In the event that we are deemed
to be a PRC resident enterprise under the CIT Law, a U.S. Holder may be subject to PRC withholding taxes on dividends paid on our ADSs. Dividends received on our ADSs or ordinary shares will not be
eligible for the dividends received deduction allowed to corporations.

Dividends
generally will be treated as income from foreign sources for United States foreign tax credit purposes. A U.S. Holder may be eligible, subject to a number of complex
limitations, to claim a foreign tax credit in respect of any foreign withholding taxes imposed on dividends received on ADSs. A U.S. Holder who does not elect to claim a foreign tax credit for foreign
tax withheld, may instead claim a deduction, for United States federal income tax purposes, in respect of such withholdings, but only for a year in which such holder elects to do so for all creditable
foreign income taxes.

Sale or Other Disposition of ADSs or Ordinary Shares

Subject to the discussion under "Passive Foreign Investment Company Rules" below, a U.S. Holder will generally recognize capital gain
or loss upon the sale or other disposition of ADSs or ordinary shares in an amount equal to the difference between the amount realized upon the disposition and the holder's adjusted tax basis in such
ADSs or ordinary shares, each determined in US dollars. Any capital gain or loss will be long-term if the ADSs or ordinary shares have been held for more than one year. Net
long-term capital gains of non-corporate U.S. Holders, including individuals, are currently eligible for reduced rates of taxation. Any gain or loss will generally be United
States source gain or loss for United States foreign tax credit purposes. In the event that gain from the disposition of the ADSs or ordinary shares is subject to tax in the PRC, a U.S. Holder that is
eligible for the benefits of the income tax treaty between the United States and the PRC may elect to treat the gain as PRC source income. See "Item 10. Additional InformationE.
TaxationPeoples' Republic of China Taxation." The deductibility of a capital loss may be subject to limitations.

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Passive Foreign Investment Company Rules

If we are classified as a PFIC for any taxable year during which a U.S. Holder holds our ADSs or ordinary shares, and unless the U.S.
Holder makes a mark-to-market election (as described below), the U.S. Holder will generally be subject to special tax rules that have a penalizing effect, regardless of whether
we remain a PFIC, on (i) any excess distribution that we make to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is greater than 125% of
the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder's holding period for the ADSs or ordinary shares), and (ii) any gain realized on the
sale or other disposition, including a pledge, of ADSs or ordinary shares. Under the PFIC rules, if a U.S. Holder receives any such excess distribution or realizes any such
gain:



If
we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs or ordinary shares and any of our non-United States subsidiaries is also a PFIC, the U.S.
Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules.

If
we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs or ordinary shares, and unless the U.S. Holder makes a mark-to-market election (as
described below), we will continue to be treated as a PFIC with respect to such holder for all subsequent years during which such holder holds the ADSs or ordinary shares, unless we cease to be a PFIC
and such holder makes a "deemed sale" election or, in certain circumstances, a "deemed dividend" election with respect to the ADSs or ordinary shares, as applicable. If a deemed sale election is made,
the U.S. Holder will be deemed to have sold the ADSs or ordinary shares held by such holder at their fair market value and any gain from such deemed sale would be subject to the PFIC rules described
above. If a deemed dividend election is made, the U.S. Holder must include in income as a dividend its pro rata share of certain earnings and profits of our company, and such deemed dividend would be
treated as an excess distribution for purposes of the PFIC rules described above. After the deemed sale election or deemed dividend election, so long as we do not become a PFIC in a subsequent taxable
year, the U.S. Holder's ADSs or ordinary shares with respect to which such election was made will not be treated as shares in a PFIC.

As
an alternative to the foregoing rules, a U.S. Holder may be able to make a mark-to-market election, to mitigate the adverse United States federal income tax
consequences of holding an equity interest in a PFIC, provided that the ADSs are regularly traded on the NYSE. We believe that our ADSs should qualify as being regularly traded, but no assurances may
be given in this regard. If a U.S. Holder makes a timely election, the holder will generally (i) include as income as ordinary income for each taxable year the excess, if any, of the fair
market value of ADSs held at the end of the taxable year over the adjusted tax basis of such ADSs and (ii) deduct as an ordinary a loss the excess, if any, of the adjusted tax basis of the ADSs
over the fair market value of such ADSs held at the end of the taxable year, but such loss is allowed only to the extent of the amount previously included in income as

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a
result of the mark-to-market election. The U.S. Holder's adjusted tax basis in the ADSs would be adjusted to reflect any ordinary income or loss resulting from the
mark-to-market election. If a U.S. Holder makes a mark-to-market election in respect of a corporation classified as a PFIC and such corporation ceases
to be classified as a PFIC, the holder will not be required to take into account the gain or loss described above during any period that such corporation is not classified as a PFIC. A
mark-to-market election generally must be made for the first taxable year in which a U.S. Holder holds stock of a PFIC, and is made by filing Internal Revenue Service
Form 8621 with such U.S. Holder's original or amended United States federal income tax return on or before the due date (including extensions) of the return. Each U.S. Holder should consult its
own tax advisor regarding the procedure for, and advisability of making, a mark-to-market election.

Because
a mark-to-market election cannot be made for any lower-tier PFICs that we may own, a U.S. Holder may continue to be subject to the
PFIC rules with respect to its indirect interest in any investments held by us that are treated as an equity interest in a PFIC for United States federal income tax purposes.

Subject
to certain limitations, a United States person may make a "qualified electing fund" election, or QEF election, with respect to its investment in a PFIC in which the United States
person owns shares (directly or indirectly) of the PFIC. This alternative will not, however, be available to U.S. Holders as we do not currently intend to compute and report the information necessary
to make a QEF election.

If
a U.S. Holder owns our ADSs or ordinary shares during any taxable year that we are a PFIC, the holder must file an annual Internal Revenue Service Form 8621 (or any other form
that may be required by the U.S. Treasury in future guidance) with respect to any distributions received on the ADSs or ordinary shares, any gain realized on the disposition of ADSs or ordinary
shares, or any reportable election (including a mark-to-market election). In the case of a U.S. Holder who has held ADSs or ordinary shares during any taxable year in respect
of which we were classified as a PFIC and continues to hold such ADSs or ordinary shares (or any portion thereof) and has not previously determined to make a mark-to-market
election, and who is now considering making a mark-to-market election, special tax rules may apply relating to purging the PFIC taint of such ADSs or ordinary shares.

Information Reporting

Information reporting requirements and backup withholding may apply to certain payments to U.S. Holders of dividends and to the
proceeds of a sale or other disposition of ADSs or ordinary shares. Backup withholding may be required if the U.S. Holder fails (i) to furnish the U.S. Holder's taxpayer identification number,
(ii) to certify that such U.S. Holder is not subject to backup withholding or (iii) to otherwise comply with the applicable requirements of the backup withholding rules. Certain U.S.
Holders are not subject to the information reporting and backup withholding requirements. Backup withholding is not an additional tax. A U.S. Holder generally may be entitled to a refund or a credit
with respect to any amounts withheld under the backup withholding rules, provided that the required information is furnished to the IRS in a timely manner.

In
addition, certain U.S. Holders who are individuals and who hold certain foreign financial assets (which may include ADSs or ordinary shares) may be required to report information
relating to such assets, subject to certain exceptions. Each U.S. Holder should consult its own tax advisor regarding the effect, if any, of this reporting requirement on its ownership and disposition
of ADSs or ordinary shares.

F.     DIVIDENDS AND PAYING AGENTS

Not applicable.

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G.    STATEMENTS BY EXPERTS

Not applicable.

H.    DOCUMENTS ON DISPLAY

We have filed with the SEC a registration statement on Form F-1, a registration statement Form on F-6, and a registration statement
on Form 8-A, including relevant exhibits and schedules under the Securities Act, covering the ordinary shares represented by the ADSs, as well as the ADSs. You should refer to our
registration statements and their exhibits and schedules if you would like to find out more about us and about the ADSs and the ordinary shares represented by the ADSs. This annual report summarizes
material provisions of contracts and other documents to which we refer you. Since the annual report may not contain all the information that you may find important, you should review the full text of
these documents.

The
SEC also maintains a website that contains reports, proxy statements and other information about issuers, such as us, who file electronically with the SEC. The address of that site
is http://www.sec.gov. The information on that website is not a part of this annual report.

We
will furnish to JPMorgan Chase Bank, N.A., as depositary of our ADSs, copies of our annual report. When the depositary receives these reports, it will upon our request promptly
provide them to all holders of record of ADSs. We will also furnish the depositary with all notices of shareholders' meetings and other reports and communications in English that we make available to
our shareholders. The depositary will make these notices, reports and communications available to holders of ADSs and will upon our request mail to all holders of record of ADSs the information
contained in any notice of a shareholders' meeting it receives.

We
are subject to the periodic reporting and other informational requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Under the Exchange Act, we are
required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F no later than four months after the close of each fiscal
year, which is December 31.

Copies
of reports and other information, when so filed, may be inspected without charge and may be obtained at prescribed rates at the public reference facilities maintained by the SEC
at 100 F Street, N.E., Room 1580, Washington, D.C. 20549, and at the regional office of the SEC located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. The public may obtain information regarding the Washington, D.C. Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web
site at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign
private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders
are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.

I.     SUBSIDIARY INFORMATION

For a listing of our principal subsidiaries, see "Item 4. Information on the CompanyC. Organizational Structure."

Item 11.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our exposure to interest rate risk primarily relates to the interest income generated by excess cash invested in liquid investments
with original maturities of three months or less. We have not used any

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derivative
financial instruments to manage our interest risk exposure. Interest-earning instruments carry a degree of interest rate risk. We have not been exposed to material risks due to changes in
interest rates. An increase in interest rates, however, may raise the cost of any debt we incur in the future. In addition, our future interest income may be lower than expected due to changes in
market interest rates. With respect to cash and cash equivalents as of December 31, 2012, a 10% decrease in interest rates would have decreased our interest income by RMB0.1 million for
the year then ended.

Foreign Exchange Risk

Substantially all of our revenues and most of our expenses are denominated in RMB. Our exposure to foreign exchange risk primarily
relates to cash and cash equivalents denominated in U.S. dollars as a result of our past issuances of preferred shares through a private placement and proceeds from our initial public offering. We do
not believe that we currently have any significant direct foreign exchange risk and have not hedged exposures denominated in foreign currencies or any other derivative financial instruments. Although
in general, our exposure to foreign exchange risks should be limited, the value of your investment in our ADSs will be affected by the foreign exchange rate between U.S. dollars and RMB because the
value of our business is effectively denominated in RMB, while the ADSs will be traded in U.S. dollars.

The
value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China's political and economic conditions. The
conversion of RMB into foreign currencies, including U.S. dollars, has been based on rates set by the PBOC. On July 21, 2005, the PRC government changed its decade-old policy of
pegging the value of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in
policy has resulted in an appreciation of over 20.0% of the RMB against the U.S. dollar over the following three years. There remains significant international pressure on the PRC government to adopt
an even more flexible currency policy, which could result in a further and more significant appreciation of the RMB against the U.S. dollar. See "Item 3. Key InformationD. Risk
FactorsFluctuations in the value of the RMB may have a material and adverse effect on your investment." Our cash and cash equivalents included aggregate amounts US$0.7 million as
of December 31, 2012. A 1.0% increase in the value of the RMB against the U.S. dollar would decrease the amount of the RMB by RMB0.04 million as of December 31, 2012. We had U.S.
dollar payables of US$0.5 million as of December 31, 2012. A 1.0% increase in the value of the RMB against the U.S. dollar would increase the payable amount by RMB0.03 million as
of December 31, 2012. We have not used any forward contracts or currency borrowings to hedge our exposure to foreign currency exchange risk.

Item 12.    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

American Depositary Shares

JPMorgan Chase Bank, N.A. is the depositary for our ADSs. The depositary's office is located at 4 New York Plaza, New York, NY
10004. Each of our ADRs represents 45 of our Class A ordinary shares, par value US$0.001 per share.



The depositary may charge each person to whom ADSs are issued, including, without limitation, issuances against deposits of shares,
issuances in respect of share distributions, rights and other distributions, issuances pursuant to a stock dividend or stock split declared by us or issuances pursuant to a merger, exchange of
securities or any other transaction or event affecting the ADSs or deposited securities, and each person surrendering ADSs for withdrawal of deposited securities or whose ADRs are cancelled or reduced
for any other reason, US$5.00 for each 100 ADSs (or any portion thereof)

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issued,
delivered, reduced, cancelled or surrendered, as the case may be. The depositary may sell (by public or private sale) sufficient securities and property received in respect of a share
distribution, rights and/or other distribution prior to such deposit to pay such charge.

The
following additional charges shall be incurred by the ADR holders, by any party depositing or withdrawing shares or by any party surrendering ADSs or to whom ADSs are issued
(including, without
limitation, issuance pursuant to a stock dividend or stock split declared by us or an exchange of stock regarding the ADRs or the deposited securities or a distribution of ADSs), whichever is
applicable:



We
will pay all other charges and expenses of the depositary and any agent of the depositary (except the custodian) pursuant to agreements from time to time between us and the
depositary.



In relation to the change of the ratio of our ADS to ordinary share from 1:15 to 1:45 effective on April 16, 2012, we and
JPMorgan Chase Bank, N.A., the depositary for our ADSs, agreed that we were not entitled to any direct or indirect payments from JPMorgan Chase Bank, N.A. for the year ended December 31, 2012,
including any reimbursement of expenses or waiver of fees. In addition, we repaid the depositary US$125,000 out of the previous reimbursement plus out-of-pocket expenses
reasonably incurred by the depositary related to this ratio change.

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PART II

Item 13.    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

Item 14.    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Material Modifications to the Rights of Security Holders

Our board of directors adopted a shareholders rights plan on November 17, 2010 and amended it on June 6, 2012. Under this
rights plan, one right was distributed with respect to each of our ordinary shares outstanding at the closing of business on November 29, 2010. Subject to limited exceptions, these rights will
be exercisable if a person or group becomes an "acquiring person" by acquiring beneficial ownership of 15% or more of our company's ordinary shares or commencing a tender or exchange offer which, if
consummated, could result in a person owning 15% or more of our company's ordinary shares. In addition, if a person or group acquires beneficial ownership of 15% or more of our company's ordinary
shares, each right will generally entitle the holder, other than the acquiring person or group, to acquire ordinary shares of our company (or, in certain circumstances, other securities) having a
market value equal to twice the right's then current exercise price.

Item 15.    CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, has performed an evaluation of the
effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the
period covered by this report). Based on that evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective as of
December 31, 2012.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined under Rule 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of consolidated financial statements in accordance with generally accepted accounting principles and includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of a company's assets, (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that a company's
receipts and expenditures are being made only in accordance with authorizations of a company's management and directors, and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of a company's assets that could have a material effect on the consolidated financial statements.

Because
of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance with respect to the preparation and presentation of
consolidated financial statement and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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As required by Section 404 of the Sarbanes-Oxley Act and related rules as promulgated by the SEC, our company's management assessed the effectiveness of
our internal control over financial reporting as of December 31, 2012 using criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment, our company's management concluded that our internal control over financial reporting was effective as of December 31, 2012.

Our
independent registered public accounting firm, PricewaterhouseCoopers Zhong Tian CPAs Limited Company, has audited the effectiveness of internal control over financial reporting as
of December 31, 2012, as stated in its report, included on page F-2 of our Consolidated Financial Statements.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2012
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 16A.    AUDIT COMMITTEE FINANCIAL EXPERT

Our board of directors has determined that Mr. Conor Chiahung Yang qualifies as an Audit Committee Financial Expert as defined
by the applicable rules of the SEC.

Our
board of directors has determined that Mr. Conor Chiahung Yang is independent as such term is defined under Section 303A of the Corporate Governance Rules of the New
York Stock Exchange and Rule 10A-3 under the Securities Exchange Act of 1934, as amended.

Item 16B.    CODE OF ETHICS

Our board of directors adopted a code of ethics and conduct that is applicable to all of our directors, officers and employees. A copy
of our code of ethics and conduct was filed as an exhibit to our Registration Statement on Form F-1 (File No. 333-164216) originally filed with the SEC on
January 5, 2010, and is also posted on our website at www.century21cn.com.

Item 16C.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth the aggregate fees by categories specified below in connection with certain professional services
rendered by our principal external auditors for the years indicated. We did not pay any other fees to our principal external auditors during the years indicated below.

For the year ended December 31,2011

2012

2012RMB

RMB

US$(in thousands)Audit fees(1)


4,500


4,800


770Audit-related fees(2)


220





Total


4,720


4,800


770


(1)Audit
fees means the aggregate fees in each of the fiscal years listed for professional services rendered by our principal auditors for the audit of our
annual consolidated financial statements or services that are normally provided by the auditors in connection with statutory and regulatory filings or engagements. Services comprising the fees
disclosed under this category also involve principally limited reviews performed on our


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consolidated
financial statements and the audits of the annual financial statements of our subsidiaries and affiliated companies. (2)Audit-related
fees means the aggregate fees in each of the fiscal years listed for assurance and related services by our principal auditors that are
reasonably related to the performance of the audit or review of our financial statements and are not reported under "Audit fees". Services comprising the fees disclosed under the category of
"Audit-related fees" involve principally the performance of services relating to our initial and follow-on public offerings, issuance of comfort letters and rendering of listing advice.


Item 16D.    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

Item 16E.    PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

In August 2010, our board of directors authorized an ADS repurchase program, under which we may repurchase up to US$20.0 million
of our ADSs on the open market from time to time, at prevailing market prices, in negotiated transactions off the market, in block trades, pursuant to a 10b5-1 plan (which allows us to
repurchase the ADSs during periods in which we may be in possession of material non-public information) or otherwise. The timing and extent of any purchases depend upon market conditions,
the trading price of ADSs and other factors, and subject to the restrictions relating to volume, price and timing under applicable law. In 2011, we repurchased 8,002,140 shares of our Class A
ordinary shares for a total purchase price of approximately US$2.5 million (RMB15.7 million). The repurchases were made on the open market at prevailing market prices or in block trades
and subject to restrictions relating to volume, price and timing. The following table sets forth certain information related to purchases made by us of our ADSs under the program, which has been
adjusted to reflect the change of the ratio of our ADS to ordinary share from 1:15 to 1:45, effective on April 16, 2012:

Period

Total
number of
ADSs
purchased

Average price
paid per ADS(1)

Total
number of
ADSs
purchased
as part of
publicly
announced
program

Approximate dollar
value of ADSs
that may yet be
purchased under
the programUS$

RMB(2)



US$

RMB(2)January 2011


82,003


14.75


92.86


403,707


14,983,528


94,304,825February 2011


53,617


13.49


84.88


457,325


14,260,451


89,753,852March 2011


30,735


13.15


82.74


488,059


13,856,430


87,210,983April 2011


11,471


8.72


54.87


499,530


13,756,432


86,581,605


(1)The
average price paid per ADS is calculated using the execution price for each repurchase excluding commissions paid to brokers.(2)The
translations of U.S. dollar amounts into Renminbi amounts have been made at the exchange rate in effect on December 30, 2011, which was US$1.00
to RMB6.2939. See Part I.Item 3. Key InformationSelected Financial DataExchange Rate Information."


Item 16F.    CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT

Not applicable.

102

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Table of Contents

Item 16G.    CORPORATE GOVERNANCE

The following sets forth a summary of the significant ways our corporate governance practices differ from those followed by domestic
companies under the NYSE listing standards set forth in the NYSE Listed Company Manual ("LCM").



Under NYSE LCM Section 303A.01, a listed company is required to have a majority of independent directors on the board of
directors. We are not required under the Companies Law to have a majority of independent directors on our board of directors. Pursuant to the exception granted to foreign private issuers in NYSE LCM
Section 303A.00, we have elected to follow our home country practice.



Under NYSE LCM Section 303A.03, non-management directors of each listed company must meet at regularly scheduled
executive sessions without management. In addition, if the non-management directors include directors that are not
"independent" within the definition set forth in NYSE LCM Section 303A, the listed company should at least once a year schedule an executive session including only independent directors. There
is no requirement under the Companies Law that our non-management directors and independent directors meet in executive sessions and pursuant to the exemption granted to foreign private
issuers in NYSE LCM Section 303A.00, we have elected to follow our home country practice.

Under
NYSE LCM Section 303A.03, a listed company is required to disclose a method for interested parties to communicate directly with the presiding directors of the executive
session or with the non-management directors as a group. We are not required under the Companies Law to adopt such method and pursuant to the exemption granted to foreign private issuers
in NYSE LCM Section 303A.00, we have elected to follow our home country practice.



Under NYSE LCM Section 303A.07, the audit committee must have a minimum of three members. We are not required under the
Companies Law to have a minimum number of members on any committees. Pursuant to the exception granted to foreign private issuers in NYSE LCM Section 303A.00, we have elected to follow our home
country practice.



Under NYSE LCM Section 303A.05, a listed company is required to have a compensation committee composed entirely of independent
directors. We are not required under the Companies Law to have a compensation committee and we do not have a compensation committee. Pursuant to the exception granted to foreign private issuers in
NYSE LCM Section 303A.00, we have elected to follow our home country practice.



Under NYSE LCM Section 303A.04, a listed company is required to have a corporate governance and nominating committee composed
entirely of independent directors. We are not required under the Companies Law to have a corporate governance and nominating committee and we do not have a corporate governance and nominating
committee. Pursuant to the exception granted
to foreign private issuers in NYSE LCM Section 303A.00, we have elected to follow our home country practice.

103

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Under NYSE LCM Section 303A.09, a listed company is required to have corporate governance guidelines addressing the director
qualifications and responsibilities, responsibilities of key board committees, and director compensation. We are not required under the Companies Law to adopt such method and pursuant to the exemption
granted to foreign private issuers in NYSE LCM Section 303A.00, we have elected to follow our home country practice.

Item 16H.    Mine Safety Disclosure

Not applicable.

PART III

Item 17.    FINANCIAL STATEMENTS

Not applicable.

Item 18.    FINANCIAL STATEMENTS

Our consolidated financial statements are included at the end of this annual report.

Item 19.    EXHIBITS

Exhibit
Number

Description of Documents1.1

Amended and Restated Memorandum and Articles of Association of the Registrant (incorporated by reference to Exhibit 99.2 of the Report of Foreign Private Issuer on Form 6-K (file no. 001-34598) filed with
the Securities and Exchange Commission on June 1, 2012).2.1

Registrant's Specimen American Depositary Receipt (included in Exhibit 2.4) (incorporated by reference to Exhibit (a)(2) to our Registration Statement on Form F-6 (file no. 333-164239) filed with
the Securities and Exchange Commission on April 5, 2012, as amended).2.2

Registrant's Specimen Certificate for Class A ordinary shares (incorporated by reference to Exhibit 4.2 to our Registration Statement on Form F-1 (file no. 333-164216) filed with the Securities and
Exchange Commission on January 5, 2010, as amended).2.3

Form of Deposit Agreement among the Registrant, the depositary and holders of the American Depositary Receipts (incorporated by reference to Exhibit 4.3 to our Registration Statement on Form F-1 (file
no. 333-164216) filed with the Securities and Exchange Commission on January 5, 2010, as amended).2.4

Form of Amendment to Deposit Agreement among the Registrant, the depositary and holders of the American Depositary Receipts (incorporated by reference to Exhibit (a)(2) to our Registration Statement on
Form F-6 (file no. 333-164239) filed with the Securities and Exchange Commission on April 5, 2012, as amended).2.5

Registration Rights Agreement, dated as of December 30, 2009, granting registration rights to certain shareholders of the Registrant (incorporated by reference to Exhibit 4.4 to our Registration Statement on
Form F-1 (file no. 333-164216) filed with the Securities and Exchange Commission on January 5, 2010, as amended).


104

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Exhibit
Number

Description of Documents2.6

Rights Agreement, dated as of November 17, 2010, between IFM Investments Ltd, a Cayman corporation, and American Stock Transfer & Trust Company, L.L.C., as Rights Agent (incorporated by reference to
Exhibit 4.1 of the Report of Foreign Private Issuer on Form 6-K (file no. 001-34598) filed with the Securities and Exchange Commission on November 17, 2010).2.7

First Amendment to the Rights Agreement, dated as of June 6, 2012, between IFM Investments Ltd, a Cayman corporation, and American Stock Transfer & Trust Company, L.L.C., as Rights Agent
(incorporated by reference to Exhibit 2.1 of the Report of Foreign Private Issuer on Form 6-K (file no. 001-34598) filed with the Securities and Exchange Commission on June 11, 2012).4.1

Amended and Restated 2006 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to our Registration Statement on Form F-1 (file no. 333-164216) filed with the Securities and Exchange
Commission on January 5, 2010, as amended).4.2

Form of Indemnification Agreement with the Registrant's directors (incorporated by reference to Exhibit 10.2 to our Registration Statement on Form F-1 (file no. 333-164216) filed with the Securities and
Exchange Commission on January 5, 2010, as amended).4.3

Form of Employment Agreement with Donald Zhang, Harry Lu, Kevin Cheng Wei and Weiping Zhang (incorporated by reference to Exhibit 10.3 to our Registration Statement on Form F-1 (file no. 333-164216)
filed with the Securities and Exchange Commission on January 5, 2010, as amended).4.4

English translation of Form of Labor Contract with Sheng Kang (incorporated by reference to Exhibit 10.4 to our Registration Statement on Form F-1 (file no. 333-164216) filed with the Securities and
Exchange Commission on January 5, 2010, as amended).4.5

English translation of Labor Contract with Hau Piu Ip (incorporated by reference to Exhibit 10.6 to our Registration Statement on Form F-1 (file no. 333-164216) filed with the Securities and Exchange
Commission on January 5, 2010, as amended).4.6

Restated CENTURY 21 International Sub-franchise Agreement for the People's Republic of China, dated as of March 22, 2000 (incorporated by reference to Exhibit 10.7 to our Registration Statement on
Form F-1 (file no. 333-164216) filed with the Securities and Exchange Commission on January 5, 2010, as amended).4.7

Restructuring Deed, dated as of April 27, 2012, between IFM Overseas Partners L.P., the Registrant, Donald Zhang, Harry Lu and GL Asia Mauritius II Cayman Ltd. (incorporated by reference to
Exhibit 4.1 of the Report of Foreign Private Issuer on Form 6-K (file no. 001-34598) filed with the Securities and Exchange Commission on June 11, 2012).4.8

Supplemental Deed to the Restructuring Deed, dated as of June 6, 2012, between IFM Overseas Partners L.P., the Registrant, Donald Zhang, Harry Lu and GL Asia Mauritius II Cayman Ltd. (incorporated
by reference to Exhibit 4.2 of the Report of Foreign Private Issuer on Form 6-K (file no. 001-34598) filed with the Securities and Exchange Commission on June 11, 2012).8.1
*
Subsidiaries of the Registrant.


105

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Table of Contents

Exhibit
Number

Description of Documents11.1

Code of Business Conduct and Ethics of the Registrant (incorporated by reference to Exhibit 99.1 to our Registration Statement on Form F-1 (file no. 333-164216) filed with the Securities and Exchange
Commission on January 5, 2010, as amended).12.1
*
CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200212.2
*
CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200213.1
**
CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200213.2
**
CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200215.1
*
Consent of Commerce & Finance Law Offices15.2
*
Consent of PricewaterhouseCoopers Zhong Tian CPAs Limited Company, Independent Registered Public Accounting Firm


*Filed
herewith**Furnished
herewith


106

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Table of Contents

SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing its annual report on Form 20-F and
that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

IFM INVESTMENTS LIMITEDBy:

/s/ DONALD ZHANGName:

Donald ZhangTitle:

Chairman and Chief Executive Officer


Date:
April 25, 2013

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Table of Contents

IFM INVESTMENTS LIMITED  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



PageREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


F-2CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2011 AND 2012


F-3CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012


F-4CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY FOR THE YEARS ENDED DECEMBER 31, 2010, 2011 AND
2012


F-5CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012


F-6NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012


F-7 - F-63


F-1

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Table of Contents

Report of Independent Registered Public  Accounting Firm

To
the Board of Directors and Shareholders of IFM Investments Limited:

In
our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of shareholders' (deficit) equity and of cash flows present fairly, in
all material respects, the financial position of IFM Investments Limited ("the Company") and its subsidiaries (collectively, the "Group") at December 31, 2012 and 2011, and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America.
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's
management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 15 of Form 20-F. Our responsibility is to
express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits (which were integrated audits in 2012 and 2011). We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits
of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.
Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/
PricewaterhouseCoopers Zhong Tian CPAs Limited Company
Beijing, the People's Republic of China
April 25, 2013

F-2

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Table of Contents

IFM INVESTMENTS LIMITED        Consolidated Balance Sheets as of December 31, 2011 and 2012        (in thousands, except par value)

December 31,2011
RMB

2012
RMB

2012
US$(Note 2(c))ASSETSCurrent assets:Cash and cash equivalents


235,450


191,048


30,665Restricted cash


10,997


18,036


2,895Accounts receivable, net


97,090


176,287


28,296Loans receivable, net


37,511


35,229


5,655Amounts due from related parties


71


110


18Prepaid expenses and other current assets


37,369


41,265


6,623Deferred tax assets





4,880


783Total current assets


418,488


466,855


74,935Non-current assets:Equity investment


10,595


13,141


2,109Property and equipment, net


62,513


40,832


6,554Intangible assets, net


95,827


90,253


14,487Goodwill


114,698


103,943


16,684Other non-current assets


22,941


19,644


3,153Total assets


725,062


734,668


117,922LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND SHAREHOLDERS' EQUITYCurrent liabilities:Accounts payable


11,220


14,168


2,274Accrued expenses and other current liabilities


150,502


217,694


34,942Amounts due to related parties


266


272


44Deferred revenue


7,773


8,539


1,371Total current liabilities


169,761


240,673


38,631Long-term deposits payable


12,180


10,541


1,692Contingent consideration payable


44,227


33,774


5,421Deferred tax liabilities


17,543


16,652


2,673Total liabilities


243,711


301,640


48,417Redeemable non-controlling interest


66,181


69,430


11,144Commitments and contingencies (Note 23)Shareholders' equity:Class A ordinary shares (US$0.001 par value, 3,133,000 and 3,133,000 shares authorized, 667,672 and 667,672 shares issued and outstanding as of
December 31, 2011 and 2012, respectively)


4,939


4,939


793Additional paid-in capital


1,033,892


1,035,651


166,233Statutory reserves


5,595


5,595


898Accumulated deficit


(638,380
)

(691,891
)

(111,056
)Total IFM Investments Limited shareholders' equity


406,046


354,294


56,868Non-controlling interests


9,124


9,304


1,493Total shareholders' equity


415,170


363,598


58,361TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND SHAREHOLDERS' EQUITY


725,062


734,668


117,922




The accompanying notes are an integral part of these consolidated financial statements.

F-3

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Table of Contents

IFM INVESTMENTS LIMITED        Consolidated Statements of Operations for the years ended December 31, 2010, 2011 and 2012        (in thousands, except per share
and per ADS data)

Years Ended December 31,2010
RMB

2011
RMB

2012
RMB

2012
US$(Note 2(c))Net revenue


530,829


604,559


748,133


120,084Costs and expenses:Commissions and other agent-related costs


(318,872
)

(428,920
)

(455,282
)

(73,078
)Operating costs


(199,670
)

(296,652
)

(175,330
)

(28,142
)Selling, general and administrative expenses


(176,271
)

(218,110
)

(177,475
)

(28,487
)Goodwill impairment losses





(30,614
)

(10,755
)

(1,726
)Net change in fair value (Note 2(q))





25,716


11,989


1,924Total costs and expenses


(694,813
)

(948,580
)

(806,853
)

(129,509
)Loss from operations


(163,984
)

(344,021
)

(58,720
)

(9,425
)Interest income


6,685


5,845


2,324


373Other income


9,350


2,086


6,497


1,043Foreign currency exchange loss


(12,161
)

(5,713
)

(19
)

(3
)Loss before income tax and share of associates' income (loss)


(160,110
)

(341,803
)

(49,918
)

(8,012
)Income tax


(2,985
)

(1,103
)

(2,713
)

(435
)Share of associates' (loss) income


(605
)

2,496


2,547


409Net Loss


(163,700
)

(340,410
)

(50,084
)

(8,038
)Net loss (income) attributable to non-controlling interest


1,462


3,895


(3,427
)

(550
)Net loss attributable to IFM Investments Limited


(162,238
)

(336,515
)

(53,511
)

(8,588
)Accretion of convertible redeemable preferred shares


(1,213
)







Net loss attributable to ordinary shareholders


(163,451
)

(336,515
)

(53,511
)

(8,588
)Net loss per share, basic


(0.25
)

(0.50
)

(0.08
)

(0.01
)Net loss per share, diluted


(0.25
)

(0.50
)

(0.08
)

(0.01
)Net loss per ADS, basic


(11.24
)

(22.66
)

(3.61
)

(0.58
)Net loss per ADS, diluted


(11.24
)

(22.66
)

(3.61
)

(0.58
)Number of shares used in calculating net loss per share, basic


654,637


668,291


667,672


667,672Number of shares used in calculating net loss per share, diluted


654,637


668,291


667,672


667,672Number of ADSs used in calculating net loss per ADS, basic


14,547


14,851


14,837


14,837Number of ADSs used in calculating net loss per ADS, diluted


14,547


14,851


14,837


14,837




The accompanying notes are an integral part of these consolidated financial statements.

F-4

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Table of Contents

IFM INVESTMENTS LIMITED        Consolidated Statements of Shareholders' (Deficit) Equity for the years ended December 31, 2010, 2011 and 2012        (in
thousands)

IFM Investments Limited Shareholders' (Deficit) EquityOrdinary Shares

Treasury stockAdditional
Paid-in
Capital
RMB







Total
Shareholders'
(Deficit) Equity
RMBShares

Amount
RMB

Shares

Amount
RMB

Statutory
Reserves
RMB

Accumulated
Deficit
RMB

Non-controlling
Interests
RMBBalance as of January 1, 2010


260,000


2,152











1,173


(135,205
)

56


(131,824
)Issuance of ordinary shares upon initial public offering


187,312


1,279








535,889











537,168Net loss




















(162,238
)

(1,462
)

(163,700
)Issuance of ordinary shares upon exercise of share options


3,142


21








2,643











2,664Share-based compensation














16,860











16,860Establishment of subsidiaries























35


35Accretion of convertible redeemable preferred shares














(1,213
)










(1,213
)Conversion of convertible redeemable preferred shares


238,842


1,631








517,900











519,531Appropriation to statutory reserves

















4,422


(4,422
)




Share repurchases








(14,477
)

(25,824
)













(25,824
)Balance as of December 31, 2010


689,296


5,083


(14,477
)

(25,824
)

1,072,079


5,595


(301,865
)

(1,371
)

753,697Net loss




















(336,515
)

(2,891
)

(339,406
)Issuance of ordinary shares upon exercise of share options


855


5








578











583Share-based compensation














3,234











3,234Establishment of subsidiaries























13,386


13,386Share repurchases








(8,002
)

(16,324
)













(16,324
)Cancellation of Treasury stock


(22,479
)

(149
)

22,479


42,148


(41,999
)










Balance as of December 31, 2011


667,672


4,939








1,033,892


5,595


(638,380
)

9,124


415,170Net loss




















(53,511
)

180


(53,331
)Share-based compensation (Note 21)














1,759











1,759Balance as of December 31, 2012


667,672


4,939








1,035,651


5,595


(691,891
)

9,304


363,598




The accompanying notes are an integral part of these consolidated financial statements.

F-5

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Table of Contents

IFM INVESTMENTS LIMITED        Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2011 and 2012        (in thousands)

Years Ended December 31,2010

2011

2012

2012RMB

RMB

RMB

US$(Note 2(c))Cash flows from operating activities:Net (Loss)/income


(163,700
)

(340,410
)

(50,084
)

(8,038
)Adjustments to reconcile net (loss)/income to net cash provided by (used in) operating activities:Goodwill impairment





30,614


10,755


1,726Net change in fair value





(25,716
)

(11,989
)

(1,924
)Depreciation and amortization


22,945


34,629


28,246


4,534Allowance for doubtful accounts


9,041


14,343


12,129


1,947Effects of foreign currency exchange loss


12,161


5,713


19


3Share-based compensation


16,860


3,234


3,465


556Deferred tax assets and liabilities


(38
)

(395
)

(5,771
)

(926
)Share of associates' losses (income)


605


(2,496
)

(2,547
)

(409
)Loss on disposal of equipment and leasehold improvement


3,060


16,098


5,598


899Changes in operating assets and liabilities:Accounts receivable


575


(60,834
)

(91,326
)

(14,659
)Loans receivable


218


341


(225
)

(36
)Amount due from related parties


139


1,639


(39
)

(6
)Prepaid expenses and other current assets


(28,289
)

13,727


(3,896
)

(625
)Other non-current assets


(15,797
)

6,284


3,297


529Accounts payable


(3,387
)

1,433


4,478


719Amount due to related parties


(2,243
)

5


6


1Accrued expenses and other current liabilities


27,373


(10,780
)

67,023


10,756Deferred revenue


2,368


(1,259
)

766


123Long-term deposits payable


(349
)

(1,136
)

(1,639
)

(263
)Net cash provided by (used in) operating activities


(118,458
)

(314,966
)

(31,734
)

(5,093
)Cash flows from investing activities:Decrease in Restricted cash


6,056


949


447


72Placement/rollover of matured time deposits


(208,282
)

(139,415
)




Proceeds from maturity of time deposit


88,282


259,415





Purchases of equipment and leasehold improvement


(48,794
)

(37,768
)

(8,119
)

(1,303
)Loan issuance


(16,150
)

(72,070
)

(98,053
)

(15,739
)Receipt of loan principals


3,200


46,950


100,560


16,141Business combinations, net of cash acquired


(8,649
)

(26,587
)




Purchase of equity investment


(6,535
)

(1,900
)




Advance to the escrow account related to the acquisition of subsidiary


(5,000
)







Proceeds from disposal of equity investment


600








Net cash (used in) provided by investing activities


(195,272
)

29,574


(5,165
)

(829
)Cash flows from financing activities:Share repurchases


(26,816
)

(15,332
)




Restricted cashcustomers deposits


(8,343
)

19,216


(7,486
)

(1,202
)Payment of initial public offering costs


(13,572
)

(1,315
)




Proceeds from issuance of ordinary shares upon initial public offering


557,455








Proceeds from issuance of ordinary shares upon exercise of share options


2,664


583





Capital contributions from non-controlling interests


35


2,550





Repayment of advances from related parties


(1,338
)







Net cash (used in) provided by financing activities


510,085


5,702


(7,486
)

(1,202
)Effects of foreign exchange rate changes on cash and cash equivalents


(10,297
)

(5,507
)

(17
)

(3
)Net increase (decrease) in cash and cash equivalents


186,058


(285,197
)

(44,402
)

(7,127
)Cash and cash equivalents at the beginning of the year


334,589


520,647


235,450


37,792Cash and cash equivalents at the end of the year


520,647


235,450


191,048


30,665Supplemental schedule of non-cash activitiesConversion of convertible redeemable preferred shares into ordinary shares


519,531








Consideration payable for business combination


1,587


44,227


33,774


5,421Supplemental disclosure of cash flow informationIncome tax paid


1,405


2,496


594


95Interest paid
















The accompanying notes are an integral part of these consolidated financial statements.

F-6

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Table of Contents

IFM INVESTMENTS LIMITED        Notes to Consolidated Financial Statements        (Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES

a)Organization and principal activities

IFM Investments Limited (the "Company") was incorporated in the Cayman Islands on November 30, 2005, by IFM Holding Company Ltd. ("IFM Holding"), a
Cayman Islands exempt company. In incorporating the Company, IFM Holding contributed all of its equity interests in IFM Company Ltd. ("IFM Co."), a Cayman Islands exempt company, to the
Company. IFM Holding was a wholly-owned subsidiary of Maxpro International Enterprise, Inc. ("Maxpro"), a New York corporation. Maxpro was 100% owned by Mr. Donald Zhang through D&M
Capital Corporation.

On
December 15, 2005, IFM Overseas Partners L.P., a Cayman Islands limited partnership (the "Partnership") was established and IFM Holding and IFM Overseas Limited became
the limited and general partner of the Partnership, respectively. IFM Overseas Limited was 100% owned by Mr. Donald Zhang through Maxpro.

On
August 24, 2006, IFM Holding contributed all of its equity interests in the Company to the Partnership in exchange for 80% ownership therein. On the same date, Mr. Harry
Lu was admitted to the Partnership as a limited partner with a 20% ownership.

Following
the contribution of the Company to the Partnership, on August 24, 2006, Goldman Sachs Strategic Investments (Asia) L.L.C. ("Goldman") committed to invest
US$22.0 million (approximately RMB175.3 million) in the Company in exchange for 200.0 million Series A Preferred Shares.

On
August 18, 2006, the Company adopted an Employee Stock Option Plan (the "ESOP"). 40.0 million ordinary shares were reserved and authorized for issuance under the ESOP.

On
October 19, 2007, the Company issued 105.3 million Series B Preferred Shares to GL Asia Mauritius II Cayman Limited for US$40.0 million (approximately
RMB300.6 million).

On
October 19, 2007, the shareholders of the Company approved to amend the ordinary shares reserved under the ESOP to 85.3 million and the ordinary shares authorized under
the ESOP to 52.5 million.

On
February 21, 2008, the Company issued 6.1 million Series B Preferred Shares to Realogy Corporation ("Realogy") for US$2.3 million (approximately
RMB16.7 million).

On
December 30, 2009, in preparation for the intended Qualified IPO and potential IPO as amended, the shareholders and Board of the Company approved resolutions effecting certain
amendments to the authorised and issued share capital to effect a 10-for-one split of the Company's share capital pursuant to which each ordinary share, Series A and
Series B convertible preferred share of the Company was subdivided into 10 shares at a par value of US$0.001 per share. All share and per share amounts presented in the consolidated financial
statements have been restated on a retroactive basis to reflect the effect of the share split.

On
January 28, 2010, the Company offered 12,487,500 (equivalent to 4,162,500 after the ratio change as described in Note 1(a) under item 18) American Depositary
Shares ("ADS"), representing 187,312,500 ordinary shares at US$7.00 each to public (equivalent of US$21.00 each to after ratio change as described in Note 1(a) under item 18), raising
gross proceeds of RMB557.5 million. The Company's ADS are quoted on New York Stock Exchange ("NYSE").

F-7

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES (Continued)

On
February 2, 2010, upon the closing of the public offering, certain amendments to the authorised and issued share capital became effective as follows:



On
May 9, 2011, Goldman Sachs Strategic Investments (Asia) L.L.C converted all of its 80,502,938 Class B ordinary shares into 80,502,938 Class A ordinary shares.

The
Company changed the ratio of its American depositary shares ("ADSs") to Class A ordinary shares from 1:15 to 1:45 (the "Ratio Change") effective April 16, 2012.
Pursuant to the Ratio Change, the record holders of the Company's ADS as of the effective date were entitled to receive one (1) new ADS, each representing forty-five
(45) shares, in exchange for every three (3) ADSs held by them. No new shares were issued in connection with the Ratio Change. All ADSs and per ADS amounts presented in the consolidated
financial statements have been restated on a retroactive basis to reflect the effect of the Ratio Change.

The
Company's subsidiaries are principally engaged in franchising the CENTURY 21® brand name and operation systems to regional sub-franchisees and outlet stores
(collectively "franchisees") that are independently-owned and operated. The Company provides operational and administrative services, tools and systems to franchisees, which are designed to assist
franchisees in achieving increased revenue and profitability. Specifically, the Company and its subsidiaries operate in the following businesses:



F-8

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES (Continued)



The
Company and its subsidiaries are collectively referred to as the "Group".

b)Reorganization

The Company was established in the Cayman Islands in 2005 and subsequently reorganized on August 24, 2006 to be the holding company of its subsidiaries to
facilitate investments by private equity investors (the "Reorganization"). To complete the Reorganization, entities that were held by Beijing Xinye Jia Yuan Real Estate
Consulting Co., Ltd. ("Xinye"), a wholly-owned foreign enterprise, which were under the common control of Mr. Donald Zhang and Mr. Harry Lu, were transferred to the
Company. These entities held by Xinye were:

Name

Place of
registration /
operation

% of
Ownership
held by
Xinye

Effective date of
transfer to the
Company

Principal activity1

Shanghai Yaye Real Estate Brokerage Co., Ltd. ("IFM SH")

PRC


51
%
Dec 4, 2008

Real estate franchising2

Beijing Aifeite International Franchise Consulting Company Ltd. ("IFM Beijing")

PRC


11
%
Aug 12, 2008

Real estate franchising3

Xiamen Shijitonghe Real Estate Consultant Co., Ltd. ("Xiamen")

PRC


10
%
Dec 26, 2008

Real estate franchising4

Shandong Jinan Sanlian Real Estate Brokerage Co., Ltd. ("Shandong")

PRC


15
%
Dec 4,2006

Real estate franchising5

Shaanxi Lide Industry Investments Co., Ltd. ("Xian")

PRC


10
%
Feb 9, 2009

Real estate franchising


F-9

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES (Continued)

The
above entities were owned by Xinye and were transferred to the Company upon the completion of the Reorganization on February 9, 2009.

Since
Xinye and the Company were under common control of Mr. Donald Zhang and Mr. Harry Lu, the accompanying consolidated financial statements have been prepared as if the
current corporate structure had been in existence throughout the years presented.

c)Major subsidiaries, variable interest entities ("VIE") and equity investments

As of December 31, 2012, the Company's major subsidiaries, VIEs and equity investments are listed below.

Name

Date of
Incorporation

Place of
Incorporation

% of
Ownership
held by the
Company

Relationship
with the
Company

Principal activitySubsidiaries1

IFM Company Ltd. ("IFM Co.")


Oct 4, 1999

Cayman Islands


100
%
Subsidiary

Holding franchise right2

Beijing Aifeite International Franchise Consulting Company Ltd. ("IFM Beijing")


Mar 1, 2000

PRC


100
%
Subsidiary

Real estate franchising3

Genius Nation Investments Ltd. ("Genius")


May 18, 2006

British Virgin Islands


100
%
Subsidiary

Investment holding4

Shanghai Ruifeng Real Estate Investments Consultant Co., Ltd. ("Shanghai Ruifeng")


Sep 28, 2006

PRC


100
%
Subsidiary

Real estate brokerage service5

Beijing Anxin Ruide Real Estate Brokerage Co., Ltd.("Beijing Anxin")


Oct 19, 2006

PRC


100
%
Subsidiary

Real estate brokerage service6

Shanghai Anshijie Real Estate Consultant Co., Ltd. ("Anshijie")


Nov 28, 2006

PRC


100
%
Subsidiary

Investment holding7

Beijing Kaisheng Jinglue Guarantee Co., Ltd., ("MMC BJ")


Aug 13, 2007

PRC


100
%
Subsidiary

Real estate mortgage brokerage service8

Kaisheng Jinglue (Shanghai) Investment Management Co., Ltd. ("MMC SH")


Apr 8, 2008

PRC


100
%
Subsidiary

Real estate mortgage brokerage service9

Beijing IFM International Real Estate Brokerage Co., Ltd. ("IFM BJ Broker")


May 27, 2008

PRC


100
%
Subsidiary

Real estate franchising10

Beijing IFM Investment Managements Limited ("IFM BJ Inv")


Sep 27, 2008

PRC


100
%
Subsidiary

Investment holding11

Shanghai Ruifeng Investment Managements Limited ("Ruifeng Inv")


Nov 20, 2008

PRC


100
%
Subsidiary

Real estate brokerage service


F-10

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES (Continued)

Name

Date of
Incorporation

Place of
Incorporation

% of
Ownership
held by the
Company

Relationship
with the
Company

Principal activity12

Beijing Huachuang Xunjie Technology Co., Ltd. ("Huachuang")


July 16, 2009

PRC


100
%
Subsidiary

Software development and licensing13

Business Vision Management Consultants Limited ("BVMC")


Sep 18, 2009

HK


85
%
Subsidiary

Investment holding14

Beijing Kaicheng Huaxin Investment Consultants Limited ("PRI")


Oct 20, 2009

PRC


70
%
Subsidiary

Primary residential properties market advisory service15

Beijing Xinrui Shijiao Business Managements Consultant Co., Ltd. ("COM")


Jan 4, 2010

PRC


85
%
Subsidiary

Commercial properties market advisory service16

Shenzhen Kaian Investments Guarantee Co., Ltd ("Kaian")


Mar 10, 2010

PRC


100
%
Subsidiary

Real estate mortgage brokerage service17

Tianjin Shiji TianRe Investment Management Company Ltd. ("TianRe Co., Ltd.")


Jul 21, 2010

PRC


75
%
Subsidiary

Fund management18

Beijing Kudiantongfang Technology Co., Ltd. ("Kudian")


Apr 6,2011

PRC


100
%
Subsidiary

Software development and licensing19

GuangZhou Anshijie Real Estate Brokerage Co., Ltd. ("GZASJ")


Jun 10,2011

PRC


100
%
Subsidiary

Real estate brokerage service20

Sichuan Ruichangyuan Investment management Co., Ltd. ("CD Ruichuangyuan")


Jun 20,2011

PRC


100
%
Subsidiary

Investment and management consulting21

Beijing SG Xinrui Real Estate Brokerage Co., Ltd.


Aug 4,2011

PRC


55
%
Subsidiary

Primary real estate agency service22

City Integrated Residential Services (China) Limited ("CIR")*


Oct 25, 2000

HK


100
%
Subsidiary

Investment holding23

CIR Real Estate Consultant (Shenzhen) Co., Ltd. ("Shenzhen CIR")*


Sep 15, 2005

PRC


100
%
Subsidiary

Real estate brokerage service24

Shanghai Yaye Real Estate Brokerage Co., Ltd. ("IFM SH")*


Sep 29, 2002

PRC


100
%
Subsidiary

Real estate franchising25

Chengdu Yize Real Estate Brokerage Co., Ltd. ("IFM CD")*


Sept 4,2003

PRC


100
%
Subsidiary

Real estate franchising26

Chengdu Yichuan Real Estate Brokerage Co., Ltd. ("Chengdu Yichuan")*


Jun 28, 2006

PRC


100
%
Subsidiary

Real estate brokerage service


F-11

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES (Continued)

Name

Date of
Incorporation

Place of
Incorporation

% of
Ownership
held by the
Company

Relationship
with the
Company

Principal activity27

Sichuan Yidao Real Estate Brokerage Co., Ltd. ("MMC CD")*


Mar 4, 2004

PRC


100
%
Subsidiary

Real estate mortgage brokerage service28

SG International Investments Limited ("Shanggu")*


Jan 25,2011

Cayman Islands


55
%
Subsidiary

Investment holding29

SG Strategic Investments (Hong Kong) Limited ("SG HK")*


Feb 23,2011

HK


55
%
Subsidiary

Investment holding30

Beijing SG New Century Consulting Service Company*


May 19,2011

PRC


55
%
Subsidiary

Primary real estate agency service31

Shenzhen Quancheng Management Services Co.Ltd


Oct 30,2012

PRC


100
%
Subsidiary

Real estate brokerage service32

Sichuan Ruichuan Real Estate Brokerage Co., Ltd. ("Sichuan Ruichuan")*


Nov 23,2011

PRC


100
%
Subsidiary

Real estate brokerage serviceVIEs and VIEs' Subsidiaries1

Beijing Huaxing Tianye Investment Management Co., Ltd ("Huaxing")


Sept 6, 2010

PRC


100
%
VIE

Investment management2

Beijing Kaisheng Chuangfu Investment Co., Ltd ("Chuangfu")


Sept 6, 2010

PRC


100
%
VIE

Investment management3

Beijing Longhe Weiye Real Estate Brokerage Co., Ltd. ("Anxin Inv")


Nov 24,2010

PRC


100
%
VIE

Real estate brokerage service4

Beijing Hui Jin Mortgage Limited Company ("Hui Jin")


Sep 10,2009

PRC


100
%
Subsidiary

Real estate mortgage brokerage service


F-12

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES (Continued)

Name

Date of
Incorporation

Place of
Incorporation

% of
Ownership
held by the
Company

Relationship
with the
Company

Principal activityEquity Investments1

Shaanxi Lide Industry Investments Co., Ltd. ("Xian")


Dec 12, 2006

PRC


10
%
Investment under the equity method

Real estate franchising2

Tianjin Shiji TianRe Equity Investment Fund Management Limited Partnership ("Fund Management Partnership")


July 21, 2010

PRC


75
%
Investment under the equity method

Fund management3

Tianjin Shiji TianRe Equity Fund Limited Partnership ("TianRe Fund I")


Aug 19, 2010

PRC


4.14
%
Investment under the equity method

Fund investment


*The subsidiaries marked with * were acquired by the Group through business combination.


d)Liquidity

The
Group's consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities during the normal
course of operations. The Group incurred net loss of approximately RMB163.7 million for the year ended December 31, 2010, net loss of approximately RMB340.4 million for the year
ended December 31, 2011, and net loss of approximately RMB50.1 million for the year ended December 31, 2012.The net cash used in operating activities was approximately
RMB118.5 million for the year ended December 31, 2010, the net cash used in operating activities was approximately RMB315.0 million for the year ended December 31, 2011,
and the net cash used in operating activities was approximately RMB31.7 million for the year ended December 31, 2012. Accumulated deficit was RMB638.4 million and
RMB691.9 million as of December 31, 2011 and 2012, respectively. The Group assesses its liquidity by considering its ability to generate cash to fund its operations, its ability to
attract investors and its ability to borrow funds on favorable economic terms. Historically, the Group has relied principally on both operational sources of cash, as well as
non-operational sources of financing, from related parties and outside investors, to fund its operations and capital expansion needs. Furthermore, the Company received gross proceeds of
RMB557.5 million from its initial public offering on the New York Stock Exchange on January 28, 2010. Since then, the Group has utilized a significant amount of cash on hand and the
proceeds from initial public offering to open more sales offices in Beijing, Shanghai, Shenzhen and Chengdu as the Group expanded its network of company-owned brokerage services throughout the first
quarter of 2011, and to expand its mortgage management services and primary and commercial services throughout 2011 and 2012. The Group has reduced the number of sales offices significantly from 621
as of December 31, 2010 to 386 as of December 31, 2011, and continue to reduce the number of sales office to 321 as of December 31, 2012. As a result, the Group expects to incur
less fixed costs for company-owned brokerage services with less sales offices and less sales staff. The Group's consolidated financial statements have been prepared on a going concern basis.

F-13

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a)Basis of preparation and consolidation

The
Group's consolidated financial statements include the financial statements of the Company, its subsidiaries and its VIEs for which the Company is the primary beneficiary. All
transactions and balances among the Company, its subsidiaries and its VIEs have been eliminated upon consolidation. The consolidated financial statements have been prepared on a historical cost basis
to reflect the financial position and results of operations of the Group in accordance with accounting principles generally accepted in the United States of America ("US GAAP").

The
Reorganization as described in Note 1(b) above has been accounted for as a reorganization of businesses under common control in a manner similar to a pooling of interests.
Accordingly, the accompanying consolidated financial statements of the Group include the assets and liabilities of the subsidiaries at their historical carrying amounts. In addition, the accompanying
consolidated statements of operations, consolidated balance sheets and consolidated statements of cash flows include the results of operations and cash flows of the Group, as if the current group
structure had been in existence throughout the years presented.

A
subsidiary is an entity in which the Company, directly or indirectly, controls more than one half of the voting powers, or has the power to govern the financial and operating policies,
to appoint or remove the majority of the members of the board of directors, or to cast a majority of votes at the meeting of directors.

A
VIE is an entity in which the Company, or its subsidiary, through contractual agreements, has controlling financial interest of the entity. The Company or its subsidiary is considered
to be the
primary beneficiary if the Company or its subsidiary has the power to direct the activities that most significantly impact the VIE's economic performance and an obligation to absorb losses or the
right to receive benefits that could potentially be significant to the VIE.

Investments
in business entities, including a limited partnership (see Note 7), in which the Group does not have control but has the ability to exercise significant influence over
operating and financial policies or is the general partner, are accounted for using the equity method.

b)Use of estimates

The
preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenue and expenses and the related disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Significant accounting estimates reflected
in the Group's consolidated financial statements mainly include the useful lives of property and equipment and intangible assets, allowance for doubtful accounts, allowance for loan impairment,
provision for losses associated with the interim financial guarantees, valuation allowance of deferred tax assets, and purchase price allocation relating to business combinations as well as property
and equipment and goodwill and intangible assets impairment assessment. In addition, the Group uses assumptions in the valuation model to estimate the fair value of share options granted. The Group
bases its estimates of the carrying value of certain assets and liabilities on historical experience and on other various factors that they believe to be reasonable under the circumstances, when the
carrying values are not readily available from other sources.

F-14

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

c)Convenience translation

Translations of balances in the consolidated statements of operations, consolidated balance sheets and consolidated statements of cash flows from RMB into United
States dollars ("US$") as of and for the year ended December 31, 2012 are solely for the convenience of the reader and were calculated at the rate of US$1.00 = RMB6.2301, representing
the rate as certified by the H.10 weekly statistical release of the Federal Reserve Board on December 31, 2012. No representation is made that the RMB amounts could have been, or could
be, converted, realized or settled into US$ at that rate on December 31, 2012, or at any other rate.

d)Cash and cash equivalents and cash in bank-time deposits

Cash and cash equivalents consist of cash on hand and demand deposits which are unrestricted as to withdrawal or use, and which have maturities of three months or
less.

Cash
in bank-time deposits consist of time deposits with banks with maturities of more than three months and less than one year.

e)Restricted cash

The restricted cash relates to (i) initial sales deposits received from the property buyers on behalf of the property sellers during the purchase process,
which are deposited into designated bank accounts, (ii) cash deposited into banking institutions as security deposits for the mortgage management services, and (iii) cash proceeds
related to National Advertising Fund (as defined in Note 2(k)) for marketing purposes on behalf of its franchisees. The total amount of restricted cash was approximately RMB11.0 million
and RMB18.0 million as of December 31, 2011 and 2012, respectively.

f)Accounts receivable

Accounts receivable represent amounts recognized as revenue which have yet to be received from customers and franchisees. The Group accrues an allowance for
doubtful accounts for those receivable balances which are unlikely to be collected based on management's analysis and estimates. Accounts receivable are stated net of the allowance for doubtful
accounts.

g)Property and equipment

Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated on a
straight-line basis over the following estimated useful lives:

Computers and software

5 yearsFurniture, fixtures and equipment

5 yearsVehicles

5 yearsLeasehold improvements

Shorter of lease term or estimated useful lives of assets


F-15

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Repairs
and maintenance expenditures, which are not considered improvements and do not extend the useful life of the property and equipment, are expensed as incurred. Gains and losses
from the disposal of property and equipment are included in income (loss) from operations.

h)Intangible assets

Intangible assets as of December 31, 2011 and 2012 consisted of:



i)Goodwill and indefinite-lived intangible assets

Goodwill represents the excess of costs over fair value of assets of businesses acquired. Any shortfall represents the amount of goodwill impairment. Commencing
on January 1, 2012, the Company adopted the ASU 2011-08 issued by the Financial Accounting Standards Board ("FASB") for the revised guidance on "Testing of Goodwill for
Impairment." Under this guidance, the Company has the option to choose whether it will apply the qualitative assessment first before the quantitative assessment. As permited by this guidance, the
Group bypassed the qualitative assessment for all its reporting units and proceeded directly to step one of the two-step goodwill impairment test. The two-step goodwill
impairment test is performed by the Group annually or more frequently if circumstances indicate impairment may have occurred. The first step compares the fair value of each reporting unit to its
carrying amount. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of a
reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to the carrying value of a reporting unit's goodwill. The implied fair value of goodwill is
determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit.
The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for purposes
of evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. An impairment loss is recognized for any excess in the carrying value of goodwill
over the implied fair value of goodwill.

F-16

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Intangible
assets with an indefinite life are tested for impairment annually or more frequently if events or changes in circumstances indicate that the assets might be impaired. The
impairment test consists of a comparison of the fair value of the intangible assets to its carrying amount. If the carrying amount exceeds the fair value, an impairment loss is recognized equal in
amount to that excess.

The
Group reviews the carrying amounts of goodwill and other indefinite-lived intangible assets at November 30 each year to determine if such assets may be impaired. Goodwill
impairment losses for the years ended December 31, 2010, 2011 and 2012 were nil, RMB30.6 million and RMB10.8 million, respectively. For indefinite-lived intangible assets, there
is no impairment losses incurred for all the years presented.

j)Impairment of long-lived assets

The Group reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
no longer be recoverable. When these events occur, the Group assesses the recoverability of the long-lived assets by comparing the carrying value of the long-lived assets to
the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition where the fair value is lower than the carrying value, measurement of an
impairment loss is recognized in the statements of operations for the difference between the fair value, using the expected future discounted cash flows, and the carrying value of the assets. No
impairment of long-lived assets was recognized for the years presented.

k)Revenue recognition

The Group recognizes revenue where there is persuasive evidence of an arrangement, delivery has occurred, the sales price is fixed or determinable and
collectability is reasonably assured. Revenues are recorded net of sales related taxes and discounts.

Company-Owned Brokerage Services

As an owner-operator of real estate brokerages, the Group assists customers in listing, marketing, selling, leasing and finding
secondary properties and earns brokerage commissions. Brokerage commissions earned are recorded as revenue upon the signing of a real estate sales and purchase agreement between the buyer and the
seller or rental agreement between the tenant
and the landlord. The signing of such agreements is the evidence of recognition of the provision of the Group's services by the customers.

Under
primary property projects, the Group recognizes the commission revenue when the relevant purchase contract between property developers and property buyers become unconditional or
irrevocable, and the services as stipulated in the agency contracts have been rendered by the Group. The Group may also be entitled to earn additional revenue on the agency services if certain sales
and other performance targets are achieved, such as total volume over a pre-determined period. These additional agency service revenues are recognized when the Group has accomplished the
required targets.

F-17

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The staff commissions are recognized concurrently with the associated brokerage commission revenues, which are upon executing the sales and purchase agreement or rental agreement, and
are presented as part of commissions and other agent-related costs in the consolidated statements of operations.

Primary and Commercial Services

The Group provides marketing and sales agency services to real estate developers. The Group recognizes the commission revenue for
residential properties when the relevant purchase contract between property developers and property buyers become unconditional or irrevocable, and the services as stipulated in the agency contracts
have been rendered by the Group. The Group may also be entitled to earn additional revenue on the agency services if certain sales and other performance targets are achieved, such as total volume over
a pre-determined period. These additional agency service revenues are recognized when the Group has accomplished the required targets.

For
the commercial properties, the Group recognizes commission revenue when the relevant purchase contract between the property developer and the property buyer becomes unconditional or
irrevocable, the services as stipulated in the relevant agency contracts have been rendered by the Group, and the purchase amount set forth in the relevant purchase contract has been received by the
property developer. Therefore, the Group recognizes commission revenue in installments in proportion to the purchased amount that has been received by the property developer under the relevant
purchase contract, or in installments as agreed with the developers under the contractual terms.

The
Group provides real estate consulting and agency services to commercial property developers. The Group recognizes revenue on consulting services when it has completed its services.

Mortgage Management Services

The Group provides mortgage management services, many of which are provided in connection with the company-owned brokerage services
business. The Group historically also provides interim financial guarantees to banking institutions in Beijing for a period ranging from approximately one to six months while government-owned property
registries process and release the relevant mortgage pledge documents to the relevant banking institutions. Since the second quarter of 2010, the Group ceased to provide such interim financial
guarantees.

The
mortgage management services income is recognized on a net basis when the mortgage loan funds are disbursed by banks to the customers. The financial guarantee revenue is recognized
when the respective mortgage pledge documents are collateralized by the banking institutions.

The
group also began to offer entrusted and mortgage credit loans, through its partnership arrangement with certain banks, and through the mortgage credit to consumers in the lives of
loans, since the third quarter of 2010. Income for the entrusted and mortgage credit loans is recognized in the income statement over the lives of the loans, based on effective interest rates and
services charges. The Group reviews the carrying amounts of entrusted and mortgage credit loans at each quarter end or more frequently if circumstances indicated impairment may have occurred. The
Group did not incur any impairment losses on the entrusted and mortgage credit loans for the years ended December 31, 2011 and 2012.

F-18

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Franchise Services

The Group recognizes franchise fee revenue as earned. Franchise revenue includes initial franchise fees, which are generally
non-refundable and recognized by the Group as revenue when all services or conditions relating to the initial franchise fee have been performed and the Group has fulfilled all its
commitments and obligations (generally when a franchisee commences its operations under the CENTURY 21® brand). Franchise revenue also consists of recurring franchise fees received from
the Group's franchisees. The recurring franchise fees received are primarily based on the higher of a percentage of the franchisees' monthly gross income or
a fixed minimum monthly amount. The recurring franchise fees are accrued as the underlying franchisee revenue is earned. For the years ended December 31, 2010, 2011 and 2012, the Group's
initial franchise fees were RMB1.3 million, RMB10.3 million and RMB5.4 million, respectively.

The
Group also collects marketing fees from its franchisees and utilizes such fees to fund advertising campaigns on behalf of its franchisees (known as National Advertising Fund, or
NAF). The NAF collected from the franchisees are restricted cash and correspond to the policy on restricted cash (see Note 2(e)). Management fee income of NAF, which is 15% of marketing fees
collected from franchisees, is recognized in proportion to the NAF spent during the reporting periods.

l)Loans receivable and allowance for loans receivable

Loans are reported at their outstanding principal balances net of any unearned income and unamortized deferred fees and costs. Loan origination fees and certain
direct origination costs are deferred and recognized as adjustments to income over the lives of the related loans. Based on management's initial intent and ability with regard to those loans, all the
loans are held-for-investment and are classified as Loans, net of unearned income on the Consolidated Balance Sheets, and the related cash flows are included within the cash
flows from investing activities category in the Consolidated Statement of Cash Flows on the lines Providing loans and Receipt of loan principals.

As
a general policy, interest accrual ceases when monthly interest payments are 90 days contractually past due.

Allowance
for loan impairment represents management's best estimate of probable impairment inherent in the portfolio, as well as probable impairment related to large individually
evaluated impaired attribution of the allowance is made for analytical purposes only, and the entire allowance is available to absorb probable loan impairment inherent in the overall portfolio.
Additions to the allowance are made through the provision for loan impairment. Loan impairments are deducted from the allowance, and subsequent recoveries are added.

No
impairment of loans receivable was recognized for the years ended December 31, 2011 and 2012.

m)Deferred revenue

Deferred
revenue generally consists of advances of brokerage commissions from customers for company-owned brokerage services and advances received from franchisees for initial franchise
fees

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

paid
prior to the Group fulfilling its obligations as of balance sheet dates and they are recognized and transferred to revenue upon rendering of the services.

n)Advertising expenses

Advertising
costs are expensed as incurred. Advertising-related expenses, including promotional expenses and production costs of marketing materials, amounted to RMB30.8 million,
RMB51.9 million and RMB25.2 million during the years ended December 31, 2010, 2011 and 2012, respectively.

o)Business taxes, value added taxes and related surcharges

The
Group is subject to business tax and related surcharges on the services provided in the PRC. Such tax is levied based on revenue at an applicable rate between 5.6% and 5.65% and is
recorded as a reduction of revenues.

On
November 16, 2011, the PRC Ministry of Finance and the State Administration of Taxation jointly issued the Implementation Measures on the Pilot Progress of Replacing the
Business Tax with a Value-Added Tax in Transport and some Modern Service Industries. On July 31, 2012, the PRC Ministry of Finance and the State Administration of Taxation jointly issued the
Notice on expanding the Pilot Progress of Replacing the Business Tax with a Value-Added Tax to Beijing and other 8 provinces and cities. According to the VAT pilot progress rules, The VAT pilot
rules change the charge of sales tax from business tax to VAT for certain service industries, including consulting service and advertising industries, in Shanghai, Beijing and Shenzhen. Some of our
subsidiaries located in Beijing, fall within the pilot arrangements and are recognized as VAT general taxpayers at the rate of 6% and stopped paying business tax from September 1, 2012 onward.

p)Foreign currency translation

The
functional currency of the Company and its subsidiaries is RMB. Transactions denominated in currencies other than RMB are translated into RMB at the exchange rates prevailing at the
dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into RMB using the applicable exchange rates at the balance sheet dates. The resulting
exchange differences are included in the consolidated statements of operations.

q)Fair value measurements

The
Group's financial instruments include cash and cash equivalents, restricted cash, accounts receivable, amounts due from/to related parties, loans receivable, prepaid and other
current assets, equity investments, non-current assets, accounts payable, financial guarantees, accrued expenses, other liabilities and long-term deposits payable. The carrying
amounts of these financial instruments approximate their fair values. A three-tier hierarchy is established which prioritizes the inputs used in the valuation methodologies in measuring
fair value:



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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



The
fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The
following table sets forth the financial instruments, measured at fair value, by level within the fair value hierarchy as of December 31, 2011 and 2012.

Fair value measurement at reporting date
usingItems

As of
December 31,
2011

Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)Contingent consideration payable


44,227,000








44,227,000Total


44,227,000








44,227,000




Fair value measurement at reporting date
usingItems

As of
December 31,
2012

Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)Cash equivalents


106,000,000





106,000,000


Contingent consideration payable


33,773,915








33,773,915Total


139,773,915





106,000,000


33,773,915


Cash Equivalents

The Company's cash equivalents mainly consist of time deposits placed with banks with an original maturity of three months or less. The
fair value of time deposits is determined based on the pervasive interest rates in the market, which are also the interest rates as stated in the contracts with the banks. The Company classifies the
valuation techniques that use the pervasive interest rates input as Level 2 of fair value measurements. This is because there generally are no quoted prices in active markets for identical time
deposits at the reporting date. Hence, in order to determine the fair value, the Company must use observable inputs other than quoted prices in active markets for identical assets and liabilities,
quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term
of the assets or liabilities.

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Contingent consideration payable

The following summarizes the Group's contingent consideration payable as of December 31, 2012 (in RMB thousands):

Balance as of December 31, 2011


44,227Purchases, sales, issuances, and settlements (net)


Total gains or losses for the period


(10,453
)Balance as of December 31, 2012


33,774


Contingent
consideration payable arose from the acquisition of SG International Investments Limited ("Shanggu") (note 2(u) and 9) and were valued based on estimated
outcomes of the contingency and their probabilities. The Group classifies the valuation techniques that use these inputs as Level 3.

The
Group determined the fair value of the contingent consideration liability based on a probability-weighted cash flow analysis. This fair value measurement is based on significant
inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. The fair value of the contingent consideration liability associated with those
future earn-out payments was based on several factors including:



The
following are other financial instruments not measured at fair value in the balance sheets but for which the fair value is estimated for disclosure purposes.

The
following summarizes the net change in fair value recorded for the years ended December 31, 2011 and 2012:

Years ended December 31,2011

2012Net change in fair value in contingent consideration


25,716


10,453Net change in fair value in post-employees' options





1,536Total net change in fair value


25,716


11,989


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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Short-Term Receivables, Loan receivables and Payables

Accounts receivable, loan receivables and prepaid and other current assets are financial assets with carrying values that approximate
fair value due to their short term nature. Accounts payable, accrued expenses and other current liabilities are financial liabilities with carrying values that approximate fair value due to their
short term nature. The Company estimated fair values of short-term receivables and payables using the discounted cash flow method. The Company classifies the valuation technique as
Level 3 of fair value measurement, as it uses estimated cash flow input which is unobservable in the market.

Other non-current assets and Long-term deposits payable

Other non-current assets are financial assets with carrying values that approximate fair value due to the change in fair
value after considering the discount rate, being immaterial. Long-term deposits payable are financial liabilities with carrying values that approximate fair value due to the change in fair
value after considering the discount rate, being immaterial. The Company estimated fair values of prepaid non-current assets and long-term accounts payable using the discounted
cash flow method. The Company classifies the valuation technique as Level 3 of fair value measurement, as it uses estimated cash flow input which is unobservable in the market.

Assets Measured at Fair Value on a Nonrecurring Basis

The following table sets forth assets measured at fair value on a nonrecurring basis by level within the fair value hierarchy as of
December 31, 2012:

Fair value measurement at reporting date
usingItems

As of
December 31,
2012

Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)Goodwill


103,942,191








103,942,191Total


103,942,191








103,942,191


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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Goodwill

Goodwill represents the excess of the purchase price over the fair value of identifiable assets and liabilities acquired as a result of
the Company's acquisition of interests in its subsidiaries. In 2012, the goodwill impairment loss was RMB10.8 million (US$1.7 million). See Note 10Goodwill.

r)Share-based compensation

The
Company issues share options granted under a share incentive plan. 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. For options that were granted with
performance conditions which vest subsequent to our initial public offering, share-based compensation expenses would be recognized upon the offering using the graded-vesting method. Share-based
compensation for the remaining options granted with service conditions are recognized using straight-line method, net of a forfeiture rate, over the requisite service period of the award,
which is the vesting term, based on the fair value of the award on the grant date. Share-based compensation expense is charged to additional paid-in capital section in the consolidated
balance sheets. In determining the fair value of share options granted, the Black-Scholes valuation model is applied.

s)Business combinations

The
Company accounts for business combinations using the acquisition method and accordingly, the identifiable assets acquired, the liabilities assumed, and any non controlling interest
in the acquiree are recorded at their acquisition date fair values. Goodwill represents the excess of the purchase price over the fair value of net assets, including the amount assigned to
identifiable intangible assets. The primary drivers that generate goodwill are the value of synergies between the acquired entities and the Company and the acquired assembled workforce, neither of
which qualifies as an identifiable intangible asset. Identifiable intangible assets with finite lives are amortized over their useful lives. Acquisition-related costs, including advisory, legal,
accounting, valuation and other costs, are expensed in the periods in which the costs are incurred. The results of operations of acquired businesses are included in the Consolidated Financial
Statements from the acquisition date.

t)Equity investments

For
the investments in business entities accounted for using the equity method, the Group's share of the post-acquisition profits or losses is recognized in the consolidated
statements of operations and its share of post-acquisition movements in reserves is recognized in reserves. When the Group's share of losses in a business entity equals or exceeds its
interest in this entity, the Group does not recognize further losses, unless the Group has incurred obligations or made payments on behalf of the business entity.

The
Group reviews such for impairment whenever events or changes in business circumstances indicate that the carrying value of the investment may not be fully recoverable. Investments
identified as having an indication of impairment are subject to further analysis to determine if the impairment is other-than-temporary and this analysis requires estimating
the fair value of the investments. The fair

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

value
determination, particularly for investments in privately-held companies, requires significant judgment to determine appropriate estimates and assumptions. Changes in these estimates
and assumptions could affect the calculation of the fair value of the investments and the determination of whether any identified impairment is other-than-temporary. The three
equity method investments as of December 31, 2010, 2011 and 2012 were Xian, Fund Management Partnership and TianRe Fund I (see Note 7). Xiamen was disposed of in the year ended
December 31, 2010. No impairment losses were recorded for the year ended December 31, 2010, 2011 and 2012.

u)Non-controlling interests

In
September 2009, the Group established a majority-owned subsidiary, namely BVMC, in which the Group owned an 85% equity interest. In October 2009, the Group established a
majority-owned subsidiary, namely PRI, in which the Group owned a 70% equity interest.

On
June 14, 2011, the Company initially acquired 55% of the equity interest of Shanggu and will acquire another 35% between 2014 and 2019 at the seller's option which the Company
does not control, which is considered a put right. The portion of the non-controlling interest that can be put to the Company is accounted for as a mandatorily redeemable security because
redemption is outside of the Company's control and is reported in the mezzanine equity section as redeemable non-controlling interest. The exercise price of this put right is calculated
using a formula based on the future net profits of Shanggu. The fair value of the non-controlling interest was calculated using a combination of a discounted cash flow model and market
comparables of similar transactions and companies. Before June 30, 2014 when the non-controlling interest is not currently redeemable and it is probable that it will become
redeemable, any subsequent changes in the redemption value will be recognized immediately as they occur with the carrying amount adjusted to the redemption value at the end of each reporting period.
Subsequent to June 30, 2014, when the non-controlling interest is currently redeemable, its carrying amount will be adjusted to the maximum redemption value as of the balance sheet
date for each period end. In the calculation of the Group's net income (loss) per share (notes 2(z) and 9(b)). these adjustments to redemption value are calculated after allocating the net
income or loss attributable to this non-controlling interest. These periodic adjustments are reflected only to the extent of any excess of the redemption value over fair value.

On
July 21, 2010, TianRe Co., Ltd. was established with 65% of its equity interests owned by the Company. On November 15, 2011, Beijing IFM Investment
Managements Limited, Everising Investment Management Company Ltd. and an ex-employee entered into a share purchase agreement whereby the ex-employee transferred his 10% stake in
TianRe Co., Ltd to the Company through IFM BJ Inv for total consideration of RMB1.9 million. The remaining 25% is owned by Everising Investment Management
Company Ltd. ("Everising"), a third party investment advisory firm.

As
of December 31, 2012, non-controlling interests are comprised of 15% of the net assets of BVMC held by Mr. Cai Yuxiang, 30% of the net assets of PRI held by
Ms. Fang Na, 25% of the net assets of TianRe Co., Ltd. held by Everising and 45% of the net assets of Shanggu held by Mr. Wu Jiang, of which 35% is redeemable.

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

v)Income tax

Income
taxes are accounted for using an asset and liability approach which requires the recognition of income taxes payable or refundable for the current year and deferred tax
liabilities and assets for the future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Deferred income taxes are determined based on the
differences between the accounting basis and the tax basis of assets and liabilities and are measured using the currently enacted tax rates and laws. Deferred tax assets are reduced by a valuation
allowance, if based on available evidence, it is considered that it is more likely than not that some portion of or all of the deferred tax assets will not be realized. In making such determination,
the Company considers factors including future reversals of existing taxable temporary differences, future profitability, and tax planning strategies. If events were to occur in the future that would
allow the Company to realize more of its deferred tax assets than the presently recorded net amount, an adjustment would be made to the deferred tax assets that would increase income for the period
when those events occurred. If events were to occur in the future that would require the Company to realize less of its deferred tax assets than the presently recorded net amount, an adjustment would
be made to the valuation allowance against deferred tax assets that would decrease income for the period when those events occurred. Significant management judgment is required in determining income
tax expense and deferred tax assets and liabilities.

The
Company's deferred tax assets relate to net operating losses and temporary differences between accounting basis and tax basis for the Company China-based subsidiaries and VIEs, which
are subject to corporate income tax in the PRC under the PRC Corporate Income Tax Law (the "CIT Law").

PRC Withholding Tax on Dividends

The CIT Law imposes a 10% withholding income tax for dividends distributed by foreign invested enterprises to their immediate holding
companies outside mainland China. A lower withholding tax rate will be applied if there is a tax treaty between mainland China and the jurisdiction of the foreign holding company. A holding company in
Hong Kong, for example, will be subject to a 5% withholding tax rate under the Arrangement Between the PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and
Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital (the "China-HK Tax Arrangement") if such holding company is considered a non-PRC resident enterprise
and holds at least 25% of the equity interests in the PRC foreign invested enterprise distributing the dividends, subject to approval of the PRC local tax authority. However, if the Hong Kong holding
company is not considered to be the beneficial owner of such dividends under applicable PRC tax regulations, such dividend may remain subject to a withholding tax rate of 10%.

Uncertain Tax Positions

The guidance on accounting for uncertainties in income taxes prescribes a more likely than not threshold for financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. Guidance was also provided on derecognition of income tax assets and liabilities, classification of current
and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.
Significant judgment is required in evaluating the Group's uncertain tax positions and

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

determining
its provision for income taxes. The Group did not recognize any significant interest and penalties associated with uncertain tax positions for the years ended December 31, 2010,
2011 and 2012. As of December 31, 2012, the Group did not have any significant unrecognized uncertain tax positions.

w)Guarantees

For
certain guarantees a guarantor is required to recognize a liability for the fair value of the obligation undertaken in issuing the guarantee. For the periods prior to 2011 covered by
these financial statements, the Group provided interim guarantee services to banking institutions for the mortgage services it refers to banks as part of its mortgage management services in Beijing.
An interim guarantee covers the period beginning when the bank disburses the mortgage loan to the property buyer and ending when the mortgage registration certificate is issued to the bank by the
applicable property registry, which generally takes one to six months. Since the second quarter of 2010, the Group no longer offers interim guarantee services in Beijing due to regulatory changes.

x)Statutory reserves

The
Company's subsidiaries in the PRC are required to make appropriations to certain non-distributable reserve funds. In accordance with the laws applicable to China's
Foreign Investment.

Enterprises,
the subsidiaries registered as wholly-owned foreign enterprises or sino-jointly invested companies under PRC law are required to make appropriations from its
after-tax profits as determined under the Accounting Standards for Business Enterprises and the "Accounting System for Business Enterprises" as promulgated by the State of the People's
Republic of China ("PRC GAAP") to non-distributable reserve fund, including a general reserve, an enterprise expansion fund and a staff welfare and bonus fund. The appropriation to the
general reserve fund must be at least 10% of their after tax profits as determined under PRC GAAP. Appropriation is not required if the reserve fund has reached 50% of the registered capital of the
respective company. Appropriations to the enterprise expansion fund and staff welfare and bonus fund are at the discretion of the boards of directors of the related subsidiaries. In addition, in
accordance with the China Company Laws, the subsidiaries of the Company registered as China domestic companies must make appropriations from its after-tax profits as determined under the
PRC GAAP to non-distributable reserve funds including a statutory surplus fund, a statutory public welfare fund and a discretionary surplus fund. The appropriation to the statutory surplus
fund must be at least 10% of the after-tax profits as determined under PRC GAAP. Appropriation is not required if the surplus fund has reached 50% of the registered capital of the
respective company. Appropriation to the statutory public welfare fund and discretionary surplus fund is made at the discretion of the respective company.

The
use of the general reserve fund, statutory surplus fund and discretionary surplus fund are restricted to the offsetting of losses or increase in registered capital of the respective
company. The enterprise expansion fund can be used to expand production or to increase registered capital. The staff bonus and welfare fund is available to fund payments of special bonus to staff and
for collective welfare benefits. The statutory public welfare fund is restricted to capital expenditures for the welfare of employees.

Other
statutory reserves are not transferable to the Company in the form of cash dividends, loans or advances and are therefore not available for distribution except in liquidation.

F-27

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

For the year ended December 31, 2010, appropriations of RMB4,422,426 to the general reserve funds and statutory surplus funds ("statutory reserve funds") were made. No statutory
reserve fund appropriations were made for the year ended December 31, 2011 and 2012, as either the surplus fund has reached 50% of the registered capital of the respective companies which had
an accumulated after tax profits, or the companies had an accumulated after tax losses. No other reserve funds were made for all the years presented.

y)Operating lease

Leases
where substantially all the risks and rewards of ownership of assets remain with the lessor are accounted for as operating leases. Payments made under operating leases net of any
incentives received from the lessor are expensed on a straight-line basis over the terms of the underlying lease.

z)Net income (loss) per share and per ADS

Basic
net income (loss) per share is computed by dividing net income (loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the
period using the two-class method. Under the two-class method, net income is allocated between ordinary shares and other participating securities based on their participating
rights to the extent that each class may share income for the period, whereas net loss is allocated to ordinary shares because other participating securities are not contractually obligated to share
the loss of the Group. The Group's convertible redeemable preferred shares are participating securities. These preferred shares were converted on February 2, 2010 (see Note 18) and were
no longer outstanding as of December 31, 2011 and 2012. Diluted net income (loss) per share is calculated by dividing net income
(loss) attributable to ordinary shareholders as adjusted for the effect of dilutive ordinary equivalent shares, if any, by the weighted average number of ordinary and dilutive ordinary equivalent
shares outstanding during the period. Ordinary share equivalents consist of the ordinary shares issuable upon the exercise of share options (using the treasury stock method) and the conversion of the
convertible redeemable preferred shares (using the if-converted method). Ordinary shares equivalents are not included in the denominator of the diluted net income (loss) per share
calculation when inclusion of such shares would be anti-dilutive. Basic and diluted net income (loss) per ADS has been computed by multiplying the net income (loss) per share by 45, which
is the number of shares represented by each ADS.

The
change in the carrying value of the redeemable NCI is reflected in the Group's net income (loss) per share and per ADS using the two-class method at the consolidated
level. Periodic adjustments to recognize changes in redemption value are reflected in the Group's net income (loss) per share and per ADS only to the extent of any excess of the redemption value over
initial fair value.

aa)Comprehensive Income

Comprehensive
income is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from
investments from owners and distributions to owners.

For
the years ended December 31, 2010, 2011 and 2012, there was no comprehensive income for the Group.

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

bb)Recent accounting pronouncements with impact on the financial statements of the Company

In
July 2012, the FASB issued revised guidance on "Testing Indefinite-Lived Intangible Assets for Impairment." The revised guidance applies to all entities, both public and nonpublic,
that have indefinite-lived intangible assets, other than goodwill, reported in their financial statements. Under the revised guidance, an entity has the option first to assess qualitative factors to
determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events
and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then
the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform a
quantitative impairment test by comparing the fair value with the carrying amount in accordance with Subtopic 350-30. An entity also has the option to bypass a qualitative
assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative
assessment in any subsequent period. In conducting a qualitative assessment, an entity should consider the extent to which relevant events and circumstances, both individually and in the aggregate,
could have affected the significant inputs used to determine the fair value of the indefinite-lived intangible asset since the last assessment. An entity also should consider whether there have been
changes to the carrying amount of the indefinite-lived intangible asset when evaluating whether it is more likely than not that the indefinite-lived intangible asset is impaired. An entity should
consider positive and mitigating events and circumstances that could affect its determination of whether it is more likely than not that the indefinite-lived intangible asset is impaired. The
amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim
impairment tests performed as of a date before July 27, 2012, if a public entity's financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic
entities, have not yet been made available for issuance. The Company does not expect any material impact on its consolidated finical statements when adopting this guidance on January 1, 2013.

3. CERTAIN RISKS

a)Significant risks and uncertainties

The Group operates in a dynamic and high risk real estate industry and is susceptible to fluctuations in the real estate market in the PRC, and the property
market in the PRC is at an early stage of development and is volatile, which could have a material adverse effect on the Group's business, financial condition and results of operations.

b)PRC regulations

The Chinese market in which the Group operates poses certain macro-economic and regulatory risk and uncertainties. These uncertainties extend to the ability of
the Group to conduct business in the real estate sector in the PRC. Though the PRC has, since 1978, implemented a wide range of market-oriented economic reforms, continued reforms and progress towards
a full market-oriented economy are uncertain. In addition, the real estate industry remains highly regulated. Restrictions are currently in place and are unclear with respect to which segments of this
industry foreign owned entities, like the

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

3. CERTAIN RISKS (Continued)

Group
may operate. The Chinese government may issue from time to time new laws or new interpretations on existing laws to regulate areas such as real estate. Regulatory risk also encompasses the
interpretation by the tax authorities of current tax laws and the Group's legal structure and scope of operations in the PRC, which could be subjected to further restrictions which could result in
severe limits to the Group's ability to conduct business in the PRC.

The
real estate market in the PRC is typically affected by changes in government policies regarding the real estate industry, the financial market and other related areas. The PRC
government has in the past adopted various administrative measures to restrain what it perceived as unsustainable growth in the real estate market, particularly when the real estate market in China
has experienced rapid and significant growth. The PRC real estate market could experience a prolonged downturn in the future, which could have a material adverse impact on the Group's business,
financial condition and results of operations.

c)Concentration of credit risk

Financial instruments that potentially expose the Group to concentrations of credit risk consist primarily of cash and cash equivalents, cash in
bank-time deposits, restricted cash and accounts receivable.

The
Group's cash and cash equivalents, cash in bank-time deposits and restricted cash are deposited with several major financial institutions in the PRC. The Group has not
experienced any
losses on its deposits of cash and cash equivalent, cash in bank-time deposits, and its restricted cash.

The
Group is exposed to counterparty credit risk in the event of non-performance by counterparties to various agreements and sales transactions. The Group manages such risk
by evaluating the financial position and creditworthiness of such counterparties. As of December 31, 2011 and 2012, there were no significant concentrations of credit risk with any individual
counterparty or group of counterparties. Concentrations of credit risk associated with receivables are considered minimal due to the Group's diverse customer base.

d)Foreign currency risk

The RMB is not freely convertible into foreign currencies. The State Administration for Foreign Exchange, under the authority of the People's Bank of China,
controls the conversion of RMB into other currencies. Cash and cash equivalents of the Group denominated in US$ included aggregate amounts of US$7.1 million and US$0.7 million, as of
December 31, 2011 and 2012, respectively.

F-30

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

4. ACCOUNTS RECEIVABLE

The following summarizes the Group's accounts receivable as of December 31, 2011 and 2012 (in RMB thousands):

December 31,2011

2012Accounts receivable


112,626


193,620Less: Allowance for doubtful accounts


(15,536
)

(17,333
)97,090


176,287


The
following table sets out the movements of the allowance for doubtful accounts for the years ended December 31, 2010, 2011 and 2012 (in RMB thousands):

Years ended December 31,2010

2011

2012Balance at beginning of the year


(8,252
)

(10,367
)

(15,536
)Charged to costs and expenses


(9,041
)

(14,343
)

(12,129
)Write-off of receivable balances and corresponding provisions


6,926


9,174


10,332Balance at end of the year


(10,367
)

(15,536
)

(17,333
)


5. LOANS RECEIVABLE

The Group adopted the accounting guidance on disclosures about the credit quality of loan receivables and the allowance for credit losses as of December 31, 2010. This guidance
requires information to be disclosed at disaggregated levels, defined as portfolio segments and classes.

Based
upon the analysis of credit losses and risk factors, since the Group offers entrusted and mortgage credit loans to qualified consumers with the terms ranging from two to twelve
months, which are secured by mortgage properties, at an average loan-to-value ratio of approximately 50%,these are considered as the portfolio segmentsentrusted
and mortgage loans.

The
Group further evaluated the portfolio by the class of the loan receivables, which is defined as a level of information (below a portfolio segment). Considering the initial
measurement attribute and a similar method for assessing and monitoring credit risk, the Group determined that the portfolio segment is the proper and lowest level of disaggregation to determine the
allowance for credit losses for such.

These
pools of loans are evaluated for loss exposure based upon historical loss rates for each of these classes of loans, adjusted for qualitative factors. These qualitative risk factors
include:



F-31

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

5. LOANS RECEIVABLE (Continued)



The
Group performs regular assessments on any potential losses associated with its entrusted and mortgage credit loans. Factors considered by management in determining impairment include
payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls
generally are not
classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record and the amount of the shortfall in relation to
the principal and interest owed. No impairment of loans receivable was recognized for the years ended December 31, 2011 and 2012.

The
following summarizes the Group's loans receivable as of December 31, 2011 and December 31, 2012 (in RMB thousands):

December 31,2011

2012Loans receivable


37,511


35,229Less: impairment





37,511


35,229


F-32

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

6. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following (in RMB thousands):

December 31,2011

2012Prepaid rental


19,149


20,542Staff advances and deposits


4,016


7,701Prepayments to suppliers


4,859


2,615Others


9,345


10,407Total


37,369


41,265


7. EQUITY INVESTMENTS

The following sets forth the changes in the Group's equity investments:

Xiamen

Xian

Fund
Management
Partnership

TotalBalance as of December 31, 2010





276


5,934


6,210Investments








1,890


1,890Share of associates' income (losses)





(82
)

2,577


2,495Balance as of December 31, 2011





194


10,401


10,595Investments











Share of associates' (losses) income





(39
)

2,585


2,546Balance as of December 31, 2012





155


12,986


13,141


On
July 21, 2010, TianRe Co. Ltd. was established with 65% of its equity interests owned by the Company. The remaining 25% and 10% equity interests were owned by
Everising and an ex-employee of the company respectively. TianRe Co. Ltd. is the general partner of Fund Management Partnership, a limited partnership established on August 11,
2010. The Company, through its subsidiary, is also a 64.35% limited partner in the Fund Management Partnership, while Everising and the ex-employee were 24.75% and 9.9% limited partners, respectively.
The partners in the Fund Management Partnership have invested a total of RMB10.0 million in the partnership; of this RMB10.0 million, the Company's investment amounted to
RMB6.5 million.

On
August 19, 2010, TianRe Fund I was established with the Fund Management Partnership as the general partner holding 5.52% in TianRe Fund I and certain third party limited
partners holding the remaining 94.48% interest. On October 22, 2010, the Fund Management Partnership invested RMB10.0 million in TianRe Fund I. TianRe Fund I has also raised
RMB171.1 million from third party individual investors as limited partners through collaboration with a state-owned bank. TianRe Fund I has a term of two and half years with a one year
additional extension.

On
November 15, 2011, TianRe Co. Ltd., Everising Investment Management Company Ltd. and an ex-employee entered into a share purchase agreement whereby the
ex-employee transferred his 10% stake in TianRe Co. Ltd. and 9.9% stake in Fund Management Partnership to IFM BJ Inv for total

F-33

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

7. EQUITY INVESTMENTS (Continued)

consideration
of RMB1.9 million, which is considered fair value as it is determined based upon the present value of the estimated future earnings generated by the companies. This was accounted
for as equity investment and recorded at its fair value.

As
of December 31, 2011 and 2012, the company owned 75% of the equity interests of TianRe Co., Ltd. and the remaining 25% equity interests were owned by Everising.
The Company's wholly-owned subsidiary, IFM BJ Inv is a 75% limited partner in the Fund Management Partnership, with Everising as the other limited partner holding the remaining 25% equity interest.

Fund
Management Partnership does not have to be consolidated by the Company under either the VIE model, because Fund Management Partnership does not possess all the characteristics to be
a VIE, or the voting interest model because the limited partners have substantive participating rights. The Company uses the equity method to account for its investment in Fund Management Partnership.
And as Fund Management Partnership controls TianRe Fund-I as general partner, thus the Company uses the equity method to account for its investment in TianRe Fund-I.

8. PROPERTY AND EQUIPMENT, NET

Property and equipment, net, consisted of the following (in RMB thousands):

December 31,2011

2012Computers and software


42,586


41,250Furniture, fixtures and equipment


28,729


26,653Vehicles


6,928


6,124Leasehold improvements


51,271


45,331129,514


119,358Less: accumulated depreciation and amortization


(67,001
)

(78,526
)Property and equipment, net


62,513


40,832


For
the years ended December 31, 2010 , 2011 and 2012, depreciation and amortization expenses for property and equipment amounted to RMB20.9 million, RMB29.9 million
and RMB22.7 million, respectively.

The
Group assessed the recoverability of the property and equipment by comparing the carrying value of the property and equipment to the estimated undiscounted future cash flows expected
to result from the use of the assets and their eventual disposition. Where the fair value is lower than the carrying value, an impairment loss is recognized in the statements of operations for the
difference between the fair value, using the expected future discounted cash flows, and the carrying value of the assets. No impairment of long-lived assets was recognized for the years
ended December 31, 2010, 2011 and 2012.

F-34

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

9. BUSINESS COMBINATIONS

For Company-owned Brokerage Services, Franchise services and Mortgage Management Services

a)    On
December 31, 2010, as a part of the Group's business strategy to continue to develop company owned brokerage services, the Group acquired 100% of the equity
interest in IFM CD, Chengdu Yichuan and MMC CD from Sichuan Yixing Property Development Limited ("Yixing") and a natural person, Lihong. Prior to the acquisition, Yixing was a regional
sub-franchisor in Chengdu. The Company made an initial payment of RMB15.0 million in December 2010 with the remaining purchase consideration of RMB1.6 million paid in August
2011.The total purchase consideration of RMB16.6 million was allocated to net tangible assets and intangible assets acquired at the date of acquisition and goodwill as follows (in RMB
thousands):

Amount

Estimated
Useful lifeNet tangible assets acquiredCash acquired


6,351Other tangible assets acquired


772Liabilities assumed


(6,896
)Intangible assets acquired:Sub-franchisee base


2,044

2.9 yearsCENTURY 21® franchise rights


6,990

12.3 yearsGoodwill


7,326Total purchase consideration


16,587


In
accordance with the original franchise agreement between Yixing and the Company, the contractual period was 20 years between May 2003 and May 2023 with no specific renewal or
extension provisions. The Group considered this entity specific factor and determined that the estimated useful life of the reacquired franchise rights is the remaining contractual period which is
12.3 years from January 2011 to
May 2023. Therefore, these rights are recognized as intangible assets and are amortized over the remaining contractual life of 12.3 years.

Sub-franchisee
base represents the customer relationship and franchise agreements with existing sub-franchisees. In accordance with the franchise agreements,
there are no specific renewal or extension provisions. The Group considered this entity specific factor and determined that the estimated useful life of the sub-franchisee base is the
average remaining contractual period with existing sub-franchisees which is 2.9 years.

Goodwill
represents the expected but unidentifiable business growth and networking effect, as a result of synergy from the acquisition. It is recognized by the excess of the purchase
price over the fair value of net tangible assets and intangible assets the goodwill arising on this acquisition is classified within the franchise services segment. The Group did not incur any
impairment loss on the goodwill arising from this acquisition for all the years presented. Based on the assessment on the acquired company's financial performance made by the Group, the acquired
company is not considered material to the Group. Thus management believes the presentation of the pro forma financial information with regard to a summary of the results of operations of the Group for
the business combination is not necessary.

F-35

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

9. BUSINESS COMBINATIONS (Continued)

The
Group did not record any goodwill impairment loss for IFM CD, Chengdu Yichuan and MMC CD for the years ended December 31, 2011 and 2012.

For Primary and Commercial Services

(b)   On
June 14, 2011, the Company completed its acquisition of SG International Investments Limited ("Shanggu") which is a business engaged in primary real estate
agency services and will allow the Company to enlarge its market share. The Company initially acquired 55% of the equity interest of Shanggu and will acquire another 35% between 2014 and 2019 at the
seller's option which the Company does not control,, which is considered a put right (note 2(u)). The exercise price of this put right is calculated using a formula based on the future net
profits of Shanggu. Pursuant to the acquisition agreement, the total initial purchase consideration is estimated to be approximately RMB94.9 million which is based on projected future net
income between Jun 30, 2012 and June 30, 2013. The Company made an initial acquisition payment of approximately RMB25.0 million in July 2011 with the remaining purchase consideration of
the first 55% of equity stake payable between 2012 and 2015. The contingent payment was recognized as a liability on the acquisition date based on its fair value, which was estimated to be
approximately RMB69.9 million based on the projected future net income of Shanggu between July 2011 and June 2013. The contingent consideration payable will be marked to its fair value each
reporting period through earnings. The Company re-measured the fair value of the contingent consideration and reduced the corresponding liability which resulted in a gain of
RMB25.7 million and RMB10.5 million for the year ended December 31, 2011 and 2012 into its consolidated statements of operations.

Amount

Estimated
Useful lifeNet tangible assets acquired


Intangible assets acquired:Brand name


45,214

IndefiniteCustomer relationships


13,811

7 yearsGoodwill


128,705Redeemable non-controlling interest


(67,185
)Non-controlling interest


(10,846
)Deferred tax liabilities


(14,756
)Total purchase consideration


94,943Including: Initial acquisition payment in cash


25,000Contingent consideration


69,943


There
were no tangible assets and liabilities acquired in the Shanggu acquisition as Shanggu had no assets or liabilities other than its brand name, customer relationships, management
team and its operational processes.

The
Group has determined that the brand name acquired in Shanggu acquisition has the continued ability to generate cash flows indefinitely. There are no legal, regulatory, contractual,
economic or other factors limiting the useful life of the brand name. Consequently, the carrying amount of the brand name is not amortized but is tested for impairment annually on November 30,
or

F-36

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

9. BUSINESS COMBINATIONS (Continued)

whenever
events or changes in circumstances indicate that the carrying value of the brand name may not be recoverable. Such impairment test consists of a comparison of the fair value of the brand name
with its carrying amount, and an impairment loss is recognized if and when the carrying amount of the brand name exceeds its fair value. The indefinite-live intangible asset is reassessed
each reporting period to determine whether events or circumstance continue to support an indefinite useful life.

The
amortizable intangible assets have estimated useful lives of 7 years. Goodwill represents unidentifiable intangible assets, which is calculated as the excess of the purchase
price over the estimated fair value of the net tangible and intangible assets acquired and is not deductible for tax purposes. The goodwill is attributable to the significant synergies expected to
arise after the Company's acquisition of Shanggu. The Group has recorded an impairment loss on Shanggu business of RMB26.2 million (US$4.2 million) and RMB10.8 million
(US$1.7 million) for the year ended December 31, 2011 and 2012.

The
following summarizes the Group's redeemable non-controlling interest as of December 31, 2011 and 2012 (in RMB thousands):

Balance as of December 31, 2010


Purchases, sales, issuances, and settlements (net)


67,185Total losses for the period


(1,004
)Balance as of December 31, 2011


66,181Purchases, sales, issuances, and settlements (net)Total gain for the period


3,249Balance as of December 31, 2012


69,430


By
December 31, 2011, the Company and the non-controlling interest shareholder, Mr. Wu Jiang, had made an additional capital contribution of
RMB2.8 million and RMB2.4 million respectively to Shanggu in accordance with their voting interests at the time.

Subsequent
to the acquisition, Shanggu had generated RMB15.5 million and RMB64.7 million in revenue from its primary agent service business for the years ended
December 31, 2011 and 2012, respectively. The net loss incurred was RMB2.9 million for the year 2011, and the net income generated was RMB9.3 million for the year 2012.

F-37

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

10. GOODWILL

The following summarizes the changes in goodwill allocated to the Group's reportable segments (Note 26) as of December 31, 2011 and 2012 (in RMB thousands):

Company-Owned
Brokerage Services

Franchise
Services

Primary and
Commercial
Services

TotalBalance as of January 1, 2011


7,911


8,696





16,607Acquisitions








128,705


128,705Impairments


(4,374
)




(26,240
)

(30,614
)Balance as of December 31, 2011


3,537


8,696


102,465


114,698Acquisitions











Impairments








(10,755
)

(10,755
)Balance as of December 31, 2012


3,537


8,696


91,710


103,943


Goodwill
impairment losses for the year ended December 31, 2012 were RMB10.8 million (US$1.7 million) from SG International Investments Limited (Note 9(b)),
as a result of the shortfall in the results of operations of our Shanggu business unit.

The
goodwill impairment loss was determined using the two-step method described in note 2(i) and the fair values of the respective reporting units were determined
using the discounted cash flow approach. The discounted cash flows were based on assumptions consistent with the strategic plan used to manage the underlying business. The Company made adjustments to
the cash flows and discount rate to reflect the significantly lower fair value of the reporting units implied by the Company's share price after allowing for share price volatility. The valuation,
incorporating these adjustments, was based on a nine year cash flow model with a long term growth rate of 3%, a discount rate of 17.5% and a terminal value based primarily on the discount and growth
rates.

11. INTANGIBLE ASSETS, NET

The following summarizes the Group's intangible assets as of December 31, 2011 and 2012 (in RMB thousands):

CENTURY 21®
franchise
rights

Customer
relationships

Real estate
listing
databases

Trademark

Sub-franchisee
base

Brand
name

Mortgage
credit
license

TotalCost


48,747


949


541


403


2,044








52,684Accumulated amortization


(17,120
)

(357
)

(219
)

(100
)










(17,796
)Balance as of January 1, 2011


31,627


592


322


303


2,044








34,888Additions





13,811











45,214


6,666


65,691Amortization


(2,348
)

(1,248
)

(54
)

(40
)

(704
)




(358
)

(4,752
)Balance as of December 31, 2011


29,279


13,155


268


263


1,340


45,214


6,308


95,827Additions























Amortization


(2,348
)

(2,070
)

(54
)

(40
)

(704
)




(358
)

(5,574
)Balance as of December 31, 2012


26,931


11,085


214


223


636


45,214


5,950


90,253


F-38

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

11. INTANGIBLE ASSETS, NET (Continued)

The franchise rights acquired from Realogy entitled the Group to use and sub-franchise the CENTURY 21® brand in China. The franchise rights for China acquired
from Realogy have a contractual period of 25 years with a specific renewal clause for another 25 years upon payment by the Company of US$4.5 million. The Group considered its
historical experience in renewing or extending similar franchise agreements when determining the estimated useful life of the franchise rights acquired from Realogy. Given the lack of historical
experience of the Group in renewing or extending similar arrangements with Realogy as the franchise relationship was first entered into with Realogy in 2000 for 25 years, the Group considered
assumptions that market participants would use about the renewal or extension provisions. Since it is uncertain whether market participants would pay this US$4.5 million for the renewal of
franchise rights in the future, the Group considered this entity-specific factor and determined that the estimated useful life of the franchise rights acquired from Realogy is the contractual period
of 25 years, over which the recognized intangible assets are being amortized. The Group has determined that the customer relationship acquired from Shanggu acquisition has a useful life of
7 years and is amortized on a straight-line basis. The brand name arose from the acquisition of Shanggu and is an indefinite-lived intangible asset and is not amortized but is
tested for impairment annually or whenever events or circumstances indicate that impairment may have occurred.

The
Group has recorded approximately RMB2.0 million, RMB4.8 million and RMB5.6 million of amortization for intangible assets for the years ended December 31,
2010, 2011 and 2012, respectively.

Based
on the Group's intangible assets subject to amortization, the annual estimated amortization expense related to the above intangible assets is as follows (in RMB thousands):

2013


5,5042014


4,8692015


4,8692016


4,8692017


4,869Thereafter


20,059Total


45,039


Management
has assessed the intangible assets for the year ended December 31, 2012 for any impairment and no impairment was recognized.

F-39

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

12. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following (in RMB thousands):

December 31,2011

2012Salaries, commissions and welfare payable


83,460


129,855Taxes payable


22,803


40,877Royalty fees payable


1,225


1,435Third party deposits


10,544


16,491Professional fees payable


7,431


4,065Other current liabilities


25,039


24,971Total


150,502


217,694


Royalty
fees payable relate to the Master Franchise Agreement entered into with Realogy. The royalty fees are determined based on the Group's franchise revenue for the periods.

13. DEFERRED REVENUE

Cash received in advance on contracts is deferred and recognized when the services are rendered. The deferred revenue is primarily related to advances received from customers relating to
brokerage commissions and initial franchise fees received from franchisees. The deferred revenue as of December 31, 2011 and 2012 were RMB7.8 million and RMB8.5 million,
respectively.

14. LONG-TERM DEPOSITS PAYABLE

The Group receives security deposits from franchisees which are recorded as long-term deposits payable. These deposits are refundable at the end of the franchise agreement
period if the franchisees do not breach the franchise agreements. The long-term deposits payable as of December 31, 2011 and 2012 were RMB12.2 million, and
RMB10.5 million respectively.

15. INCOME TAXES

Taxation in the Cayman Islands and the British Virgin Islands

Neither the Cayman Islands nor the British Virgin Islands currently levies taxes on individuals or corporations based upon profits,
income, gains or appreciation. Additionally, upon payments of dividends by the Company to its shareholders, no Cayman Islands or BVI withholding tax will be imposed.

The
Company and IFM Co. are tax-exempted companies incorporated in the Cayman Islands. Genius is a tax-exempted company incorporated in the British Virgin
Islands.

Taxation in Hong Kong

CIR is subject to income tax rate 16.5% in 2010, 2011 and 2012.

BVMC
is subject to income tax rate of 16.5% in 2010, 2011 and 2012.

F-40

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

15. INCOME TAXES (Continued)

PRC Corporate Income Tax

On March 16, 2007, the National People's Congress of PRC enacted the Corporate Income Tax Law, under which Foreign Investment
Enterprises and domestic companies would be subject to CIT at a uniform rate of 25%. This became effective on January 1, 2008. In accordance with the CIT Law, there will be a transition period
for enterprises which currently receive preferential tax treatments granted by relevant tax authorities. Enterprises that are subject to a corporate income tax rate lower than 25% may continue to
enjoy the lower rate and gradually transition to the new tax rate within five years after the effective date of the CIT Law.

As
Shanghai Ruifeng and Anshijie are both registered in Shanghai Pu Dong New Area, and Shenzhen CIR is registered in Shenzhen special economic zone, they are subject to the preferential
income tax rate of 15% according to the Foreign Investment and Foreign Enterprise Income Tax Law before 2008. From January 1, 2008 onwards, the income tax rate is to be increased progressively
from 18% to 25% from 2008 to 2012, respectively. Accordingly, they are subject to income tax rate of 22%, 24% and 25% in 2010, 2011 and 2012, respectively.

In
October 2009, Huachuang, obtained a Software Enterprise Certification which entitled it to exemption from corporate income tax in 2009 and 2010.

In
September 2011, Kudian obtained a Software Enterprise Certification which entitles it to exemption from CIT for the first two years in which it has taxable income and a 50% reduction
in CIT for each of the following three years. 2011 is the first year with taxable income. For the years ended December 31, 2011 and 2012, Kudian is exempted for the income tax provision.

The
provision for income tax is as follows (in RMB thousands):

Years ended
December 31,2010

2011

2012Income tax provision:Current


3,023


1,498


8,484Deferred


(38
)

(395
)

(5,771
)Total


2,985


1,103


2,713


F-41

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

15. INCOME TAXES (Continued)

The
following table presents the tax impact of significant temporary differences between the tax and financial statement bases of assets and liabilities that gave rise to deferred tax
assets and liabilities as of December 31, 2011 and 2012 (in RMB thousands):

December 31,2011

2012CurrentDeferred tax assets:Allowance for doubtful accounts


3,395


4,333Deferred revenue


814


838Accrued expense and payroll


22,944


35,050Advertising expense


1,359


861Net operating loss carry forwards





Total deferred tax assets


28,512


41,082Less: valuation allowance


(28,512
)

(36,202
)


4,880Non-currentDeferred tax assets:Net operating loss carry forwards


118,550


126,341Intangible assets and property and equipment


5,810


5,599Total deferred tax assets


124,360


131,940Less: valuation allowance


(124,360
)

(131,940
)


Deferred tax liabilities:Intangible assets and property and equipment


(17,543
)

(16,652
)Net deferred tax liabilities


(17,543
)

(16,652
)


The
Group made full valuation allowance against net deferred tax assets of other entities except for Shanggu as of December 31, 2012. The Group evaluates a variety of factors in
determining the amount of valuation allowance, including the Group's limited operating history, accumulated deficit, existence of taxable temporary differences and expected reversal periods. For
Shanggu, the deferred tax assets was resulted from commission payable, we assessed Shanggu has entered many sales framework contracts with real estate developers, which would guarantee a sufficient
taxable income in 2013 based on detailed analysis. Considering the positive evidences above, and there were no significant negative evidence, we concluded that the deferred tax assets are more likely
than not to be realized in 2013 and the valuation allowance is hence not needed for Shanggu.

F-42

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

15. INCOME TAXES (Continued)

The
following table sets forth the movements of the valuation allowance for net deferred tax assets for the years presented (in RMB thousands):

Years ended December 31,2010

2011

2012Balance at beginning of the year


(22,540
)

(62,628
)

(152,872
)Write-back/(provision) for the year


(40,088
)

(90,244
)

(15,270
)Balance at end of the year


(62,628
)

(152,872
)

(168,142
)


The
Group had total net operating losses carried forward as of December 31, 2010, 2011 and 2012 amounting to RMB127.6 million, RMB481.7 million and
RMB518.4 million respectively, which will be expired from 2013 to 2017.

The
combined effects of the CIT exemption and tax rate reductions for the year ended December 31, 2010, were to decrease net loss by RMB9.1 million and basic and diluted
net loss per share by RMB0.01. The combined effects of the CIT exemption and tax rate reductions for the year ended December 31, 2011, were to decrease net loss by RMB4.5 million and
basic and diluted net loss per share by RMB0.01. The combined effects of the CIT exemption and tax rate reductions for the year ended December 31, 2012, were to decrease net loss by
RMB5.1 million and basic and diluted net loss per share by RMB0.01.

A
reconciliation of income tax at the statutory income tax rate to the Group's effective tax rate is as follows:

Years ended December 31,2010

2011

2012Statutory income tax rates


(25.0
)%

(25.0
)%

(25.0
)%Effect of preferential tax rate


2.6
%

(1.0
)%

(6.2
)%Effect of income tax rate changes


(1.2
)%

(0.6
)%

0.0
%Changes in valuation allowance


24.9
%

26.6
%

31.2
%Others


0.5
%

0.4
%

5.7
%Effective tax rate


1.8
%

0.4
%

5.7
%


On
December 6, 2007, the State Council issued the detailed implementation regulations of the new PRC Corporate tax law. Pursuant to the regulations, a 10% withholding income tax
will be levied on dividends declared on or after January 1, 2008 by foreign investment enterprises to their foreign enterprise shareholders unless the enterprise investor is deemed as a PRC Tax
Resident Enterprise ("TRE").

The
Company's subsidiaries have determined that they have no present plan to declare and pay any dividend on their shares in the foreseeable future. The Group plans to continue to
reinvest its subsidiaries' undistributed earnings in their operations in China in the foreseeable future. As of December 31, 2011 and 2012, the cumulative undistributed earnings of
RMB53,408,412 and RMB67,541,081 are included in consolidated retained earnings on the balance sheets, respectively. An

F-43

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

15. INCOME TAXES (Continued)

estimated
RMB5,340,841 and RMB6,754,108 in withholding taxes would be due if these earnings were remitted as dividends as of December 31, 2011 and 2012.

16. OTHER INCOME

Other income for the year ended December 31, 2012 was RMB6.5 million, mainly representing a tax refund from the local government of the Group's operating entities located
in Shanghai.

17. NET INCOME (LOSS) PER SHARE AND PER ADS

The following table sets forth the computation of basic and diluted net income (loss) per ordinary share and ADS for the years ended December 31, 2010 ,2011 and 2012 (in RMB
thousands, except per share and per ADS data):

2010

2011

2012Numerator:Net income (loss) attributable to IFM Investments Limited


(162,238
)

(336,515
)

(53,511
)Accretion of Series A Preferred Shares


(381
)




Accretion of Series B Preferred Shares


(832
)




Income allocated to participating preferred shareholders








Numerator for basic and diluted net income (loss) per share


(163,451
)

(336,515
)

(53,511
)Denominator:Weighted-average sharesbasic


654,637


668,291


667,672Potentially dilutive shares:Preferred shares*








Options*








Weighted averages sharesdiluted


654,637


668,291


667,672Net income (loss) per sharebasic


(0.25
)

(0.50
)

(0.08
)Net income (loss) per sharediluted


(0.25
)

(0.50
)

(0.08
)Net income (loss) per ADSbasic


(11.24
)

(22.66
)

(3.61
)Net income (loss) per ADSdiluted


(11.24
)

(22.66
)

(3.61
)


For
the years ended December 31, 2010, 2011 and 2012, 43.3million, 40.5 million and 39.1 million shares of stock options were not included in diluted EPS under the
if-converted method, respectively, because to do so would have been anti-dilutive.

F-44

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

18. CONVERTIBLE REDEEMABLE PREFERRED SHARES

The Group has determined that the convertible redeemable preferred shares (as described in Note 1(a)) should not be classified as liabilities since the preferred shares are
contingently redeemable and that conversion and redemption features embedded in the convertible redeemable preferred shares are not required to be bifurcated and accounted for as a derivative since
the embedded features do not permit or require net settlement and therefore do not meet the definition of a derivative. Since the conversion price of the convertible redeemable preferred shares
exceeded the fair value of the Group's ordinary shares on the date of issuance of the Preferred Shares, no portion of the proceeds from the issuance was accounted for as attributable to the conversion
feature.

The
key terms of the Series A and Series B Preferred Shares were as follows:

Dividend rights

The holders of the Series A and Series B Preferred Shares are entitled to participate in non-cumulative
dividend of 8% of the original issue price per annum, when and as declared by the Board of Directors. As long as Preferred Shares are outstanding, the Company may not pay any dividend to ordinary
shareholders until all dividends declared and payable to the preferred shareholders have been paid. In the event the Company shall declare a dividend to the holders of ordinary shares, then in each
such case, the holders of Preferred Shares shall be entitled to a proportionate share of such dividend on an as-converted basis.

Redemption rights

In the event that a qualified initial public offering does not occur within six years of the Series A issuance date or five
years of the Series B issuance date, the holders of Series A and Series B Preferred Shares may redeem any or all of Series A and Series B Preferred Shares at a
redemption price equal to 115% of the original preferred shares issuance price per share plus all declared but unpaid dividends adjusted for share splits, share dividends, recapitalizations and other
adjustments.

The
carrying value of the convertible redeemable preferred shares was accreted from its carrying value on the date of issuance to the redemption value using effective interest method
over the period from date of issuance to the earliest redemption date. The accretion was recorded against retained earnings, or in the absence of retained earnings, by charges against additional
paid-in capital. Once additional paid-in capital has been exhausted, additional charges should be recorded by increasing the accumulated deficit.

Liquidation preferences

In the event of a liquidation, dissolution or winding up of the Company, available assets and funds of the Company are first
distributed to the holders of Series A and Series B Preferred Shares at their original issuance price per share multiplied by 115% plus any declared but unpaid dividends adjusted for
share splits, share dividends, recapitalizations, and other adjustments. In the event that available assets and funds are insufficient to permit payment to the holders of the Series A and
Series B Preferred Shares, the assets and funds will be distributed ratably to the Series A and Series B Preferred Shares holders based on their proportional share ownership.
After the distribution to the holders of Series A and Series B Preferred Shares are made, any remaining legally available assets and funds shall

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

18. CONVERTIBLE REDEEMABLE PREFERRED SHARES (Continued)

be
distributed to the holders of ordinary shares and Series A and Series B Preferred Shares pro rata on an as-converted basis.

Voting rights

The holder of each Series A and Series B Preferred Shares shall be entitled to such number of votes as equals the whole
number of ordinary shares into which such holder's collective Series A and Series B Preferred Shares are convertible immediately after the close of business on the record date of the
determination of the Company's shareholders entitled to vote or, if no such record date is established, at the date such vote is taken or any written consent of the Company's shareholders is first
solicited. The holders of Series A and Series B Preferred Shares shall vote together with the holders of ordinary shares, and not as a separate class or series, on all matters put before
the members.

Conversion rights

Each of the convertible preferred shares is convertible into the number of fully-paid ordinary shares as determined by
dividing the original issue price applicable to such convertible preferred shares by the conversion price in effect at that time. The conversion price of Series A and Series B Preferred
Shares shall initially be the original issue price of such Series A and Series B Preferred Shares and shall be adjusted in accordance with conversion provision contained in the Company's
Articles of Association.

With
respect to the Series A Preferred Shares, these conversion provisions include certain performance-based adjustments related to certain targets of net profits after tax for
the years ended December 31, 2007, 2008 and 2009 or the completion of a Qualified IPO prior to December 31, 2009. Depending on whether the pre-determined targets are met, the
conversion price of the Series A Preferred Shares may be adjusted such that the Series A Preferred Shareholders' percentage ownership on an as-converted basis would decrease.

"Qualified
IPO" shall mean a firm commitment, underwritten registered public offering by the Company of its Ordinary Shares on an internationally recognized, major stock exchange
acceptable to the preferred share holders (including, for example, the New York Stock Exchange or the NASDAQ), with a valuation of the Company, as a result of such public offering, of not less than
US$400 million and with gross proceeds to the Company of at least US$100 million.

The
pre-determined target was not met for the year ended December 31, 2008. In the event there is any adjustment to the Series A Preferred Share conversion
price, the Series B conversion price will also be adjusted such that the Series B Preferred Shareholders' percentage ownership on an as-converted basis immediately following
such adjustment remains the same as the shareholding immediately prior to the adjustment to the Series A Preferred Share conversion price.

On
October 22, 2009, a special resolution of the Board was made to amend the Third Amended and Restated Articles of Association of the Company with respect to the
performance-based adjustments to the Series A Preferred Shares. The change in fair value to the Series A Preferred Shares as a result of this modification was immaterial.

F-46

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

18. CONVERTIBLE REDEEMABLE PREFERRED SHARES (Continued)

On
January 27, 2010, the shareholders and Board of the Company approved resolutions deeming their proposed offering (the "Proposed IPO") to be a Qualified IPO. As a result of this
resolution, the terms of Series A Preferred Shares performance-based adjustments were modified such that they were effective upon the Proposed IPO as well as a Qualified IPO. This modification
resulted in compensation expense of RMB4,914,648 (US$720,000) on the modification date.

On
February 2, 2010, all of the issued and outstanding 200,000,000 Series A Preferred Shares and 111,367,270 Series B Preferred Shares were converted into
238,842,277 Class A Ordinary Shares in accordance with the conversion terms; and re-designated all of the then issued and outstanding ordinary shares into Class A Ordinary
Shares on a one to one basis and further re-designated 80,502,938 of the then issued and outstanding Class A Ordinary Shares registered in the name of Goldman Sachs Strategic
Investments (Asia) L.L.C. into 80,502,938 Class B Ordinary Shares.

19. TREASURY STOCK

In August 2010, the Group's Board of Directors authorized an ADS repurchase program to repurchase
up to US$20 million of the Company's ADSs (each ADS represents 45 ordinary shares). The Company completed repurchases of 22,478,850 shares of its Class A ordinary shares for
approximately US$6.3 million (approximately RMB39.7million) as of December 31, 2011.

The
Company cancelled all shares repurchased as of December 31, 2011.

20. SHAREHOLDER RIGHTS PLAN

On November 17, 2010, the Company adopted a shareholder rights plan (the "Rights Plan") designed to protect the best interests of the Company and its shareholders. Subject to
limited exceptions, these rights will be exercisable if a person or group becomes an "acquiring person" by acquiring beneficial ownership of 15% or more of the Company's ordinary shares or commencing
a tender or exchange offer which, if consummated, could result in a person owning 15% or more of the Company's ordinary shares (the "Triggering Event"). In addition, if a person or group acquires
beneficial ownership of 15% or more of the Company's ordinary shares, each right will generally entitle the holder, other than the acquiring person or group, to acquire ordinary shares of the Company
(or, in certain circumstances, other securities) having a market value equal to twice the right's then current exercise price.

The
Company measures the rights based on their fair values. Considering the occurrence of the Triggering Event is remote, the grant date fair value of the rights is immaterial. There
would be no impact on either basic or diluted EPS until the occurrence of the event triggering the ability to exercise the rights.

21. SHARE-BASED COMPENSATION

On August 18, 2006, and as amended and restated on October 19, 2007 and February 1, 2008, the Company adopted the 2006 Stock Incentive Plan and the Amended and
Restated 2006 Stock Incentive Plan (the "Plan") under which 52.5 million shares have been authorized for issuance and 85.3 million shares have been reserved for issuance. In accordance
with the Plan, if there is an adjustment to the then-in effect Series A Preferred Share conversion price, the number of shares reserved for issuance

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

21. SHARE-BASED COMPENSATION (Continued)

under
the Plan shall be increased or decreased to such number of shares representing 8.41% of the equity interest of the Company, on a fully-diluted basis.

In
2007, two batches of share options were granted under the Plan. For share-based award granted with performance conditions (Batch A), one-third (1/3) of the
option shall become vested and exercisable on the 181st day following the date of an IPO and the remaining two-thirds (2/3) of the share options shall become vested
and exercisable on the first anniversary of an IPO. For share-based award granted with service conditions (Batch B), one-fourth (1/4) of the option shall vest and become
exercisable on the first anniversary of the effective date of the employment and the remaining three-fourths (3/4) shall vest quarterly over the following eight quarters.

In
2008, two batches of share options were granted under the Plan based on service conditions. For Batch C, one-third (1/3) of the share options shall vest and
become exercisable on each of the first, second and third anniversary dates of the Effective Date of the Option Agreement. Under Batch D, one-third (1/3) of the share
options shall vest and become exercisable on each of the first, second and third anniversary dates of the date of Employment of Optionee.

On
February 2, 2009, the Company granted share options for 200,000 shares to a certain employee. One-third (1/3) of the share options should vest and
become exercisable on each of the first, second and third anniversary dates of the date of employment of the option holder.

On
July 20, 2009, the Company granted 700,000 share options to certain employees. One-third (1/3) of the share options should vest and become
exercisable on each of the first, second and third anniversary dates of the date of employment of option holders.

On
August 20, 2009, the Company granted 2,500,000 share options to certain employees. Of the total 2,500,000 share options granted, 1,500,000 share options should vest
one-half (1/2) of the option on the first anniversary of the effective date of the employment agreement between the option holders and the Company, with the remaining share
options vesting on each of the following four calendar quarters. The remaining 1,000,000 share options should vest one-third (1/3) of the share options on each of the first,
second and third anniversary dates of the date of employment of the option holders.

On
October 22, 2009, a special resolution of the Board was made to amend the Third Amended and Restated Articles of Association of the Company with respect to the
performance-based adjustments to the Series A Preferred Shares, which resulted in a modification to the Company's share options. This modification made each share option exercisable into 0.87
ordinary shares upon the completion of an IPO (modified as "Proposed IPO" on January 27, 2010) prior to March 31, 2010. This modification does not result in any incremental fair value
because the terms of the share options included such anti-dilution provisions.

On
July 12, 2010, the Company granted 2,500,000 share options to certain employees. One-third (1/3) of the share options shall vest and become
exercisable on each of the first, second and third anniversary dates of the Effective Date of this Option Agreement.

On
December 16, 2010, the Company granted 2,750,000 share options to certain employees. One-half (1/2) of the share options shall vest and become
exercisable on the first anniversary date of the Effective Date of this Option Agreement, with the remaining share options vesting on each of the following four quarters.

F-48

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

21. SHARE-BASED COMPENSATION (Continued)

The
exercise price for the purchase of share options upon the exercise of all or any portion of the share options shall be the Fair Market Value per share on the date of grant as
determined by the Administrator in its sole discretion. Before the IPO, the Fair Market Value was provided by an independent third-party valuer at each of the share options' grant date. After the IPO,
the Fair Market Value was determined based on the company's share price on the grant date. The term of the share options is five years from the grant date.

On
September 1, 2012 and October 23, 2012, the Company separately granted 500,000 and 400,000 share options to certain employees. One-third (1/3)
of the share options shall vest and become exercisable on each of the first, second and third anniversary dates of the Effective Date of this Option Agreement.

The
Board approved that the expiration dates of all outstanding and unexercised stock options granted under respective stock option agreements pursuant to the Company's amended and
restated 2006 stock incentive plan are hereby extended to the fifth anniversary as of July 9, 2012. And the Board also resolved that the exercise prices of all outstanding and unexercised stock
options granted under respective stock option agreements pursuant to the Company's amended and restated 2006 stock incentive plan are hereby amended to US$1.18 per ADS, representing 100% of the
30-trading day volume weighted average price per ADS as of the date hereof, except that the exercise price of the outstanding and unexercised stock options granted to Donald Zhang is
hereby amended to US$1.30 per ADS, representing 110% of 30-trading day volume weighted average price per ADS as of July 9, 2012. Accordingly, the incremental fair value of
RMB1,930,000 was recorded as expenses in the consolidated statements of operation for the year ended December 31, 2012.

Valuation Assumptions:The Company estimated the fair value of share options using Black-Scholes Option Pricing valuation model. The
fair value of
each option grant is estimated on the date of grant with the following assumptions:

Years ended December 31,2010

2011

2012Expected volatility

64.5% - 65.5%




58.8% - 60.3%Risk-free interest rate

1.62% - 2.43%




1.17% - 1.27%Dividend yield

0.00%




0.00%Expected term (in years)

3.2 - 3.5




3.5Weighted average fair value of the underlying shares on the date of option grants (US$)

0.27




0.03


Expected Term:Due to insufficient historical information, giving consideration to the contractual terms of the share-based awards, the
Company
adopted the simplified method for estimating the expected term to represent the period that the Company's share-based awards are expected to be outstanding.

Expected Volatility:The fair value of share-based payments made through the years ended December 31, 2010 and 2012 was valued
using the
Black-Scholes Option Pricing valuation method with a volatility factor based on the historical stock prices of comparable companies.

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

21. SHARE-BASED COMPENSATION (Continued)

Expected Dividend:The Black-Scholes Option Pricing valuation model calls for a single expected dividend yield as an input. The Company
has never
declared or paid any cash dividends on its capital stock, and the Company does not anticipate any dividend payments on its ordinary shares in the foreseeable future.

Risk-Free Interest Rate:The Company bases the risk-free interest rate used in the Black-Scholes Option Pricing valuation
method on the implied yield currently available on China Treasury Bonds constant maturities with an approximate equivalent remaining term.

Estimated Pre-vesting Forfeitures:When estimating forfeitures, the Company considers both voluntary and company termination behavior.

The
following table summarizes the Group's share options activities for the years ended December 31, 2010, 2011 and 2012:

Share options OutstandingShare options
available

Number of Share
options

Weighted Average
Exercise Price (US$)Balance as of December 31, 2008


10,576,880


41,900,000


0.12Share options granted


(3,400,000
)

3,400,000


0.32Share options cancelled/forfeited


1,500,000


(1,500,000
)

0.11Balance as of December 31, 2009


8,676,880


43,800,000


0.13Share options granted


(5,250,000
)

5,250,000


0.27Share options cancelled/forfeited


2,150,000


(2,150,000
)

0.14Share options exercised





(3,599,143
)

0.11Balance as of December 31, 2010


5,576,880


43,300,857


0.15Share options granted








Share options cancelled/forfeited


1,840,536


(1,840,536
)

0.18Share options exercised





(977,582
)

0.09Balance as of December 31, 2011


7,417,416


40,482,739


0.15Share options granted


(900,000
)

900,000


0.03Share options cancelled/forfeited


2,300,000


(2,300,000
)

0.14Balance as of December 31, 2012


8,817,416


39,082,739


0.02


The
weighted-average grant date fair value of options granted for the years ended December 31, 2010 and 2012 was US$0.13 and US$0.01 per option, respectively and no options were
granted in year

F-50

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

21. SHARE-BASED COMPENSATION (Continued)

2011.The
following table summarizes the weighted average remaining contractual life and exercise price for the share options outstanding and exercisable as of December 31, 2012:

Share options Outstanding

Share options ExercisableRange of Exercise Prices (US$)

Number of
options
outstanding

Weighted
Average
Remaining
Contractual
Life
(In years)

Weighted
Average
Exercise
Price
(US$)

Number of
options
outstanding

Weighted
Average
Remaining
Contractual
Life
(In years)

Weighted
Average
Exercise
Price
US($)$0.023


22,182,739


4.52


0.02


21,816,073


4.52


0.02$0.025


16,000,000


4.52


0.03


15,950,000


4.52


0.02$0.026


400,000


4.81


0.03








$0.034


500,000


4.67


0.03








39,082,739


4.53


0.02


37,766,073


4.52


0.02


There
were 37,741,073 and 37,766,073 share options exercisable as of December 31, 2011 and 2012, respectively. The total fair value of options vested are US$2,302,923 and
US$302,691 (approximately RMB14,494,367 and RMB1,885,795) as of December 31, 2011 and 2012, respectively. As of December 31, 2012, the intrinsic value of outstanding and exercisable
share options were US$450,020 and US$440,355, respectively, which is calculated as the difference between the company's closing stock price as of December 31, 2011 and the exercise price of the
share option.

Share-based
compensation expense for share-based awards granted with performance conditions is recognized using the graded-vesting method. The Company recognized compensation expense of
US$1.4 million (approximately RMB9.5 million) from the IPO date, January 28, 2010, over the remaining vesting period of one year as the performance condition in the options was
considered met. Share-based compensation expenses for share-based awards which are based on service conditions are recognized using the straight-line attribution approach.

On
November 21, 2011, the Company agreed with an ex-employee that, subject to compliance of certain non-competition undertakings, this ex-employee's option agreement
will remain effective as if he were an employee of the Company, including the terms regarding any option re-pricing or any extension of the exercise period from time to time. The Company
accounted for this modification of the options on November 21, 2011 in accordance with the relevant stock compensation guidance. On July 9, 2012, the Group approved additional
modification to the employees' outstanding options as of July 9, 2012 by decreasing the exercise prices to the current market value and extending the expiration date to fifth anniversary of the
modification date. As a result, this ex-employee's option was modified concurrently and have been classified as liability and measured at fair value. Accordingly a liability of RMB1,705,239 was
reclassified from additional paid in capital as other current liabilities in the consolidated balance sheet, and a decrease in fair value of RMB1,535,865 has been recorded, the liability is RMB169,374
as of December 31, 2012.

For
the years ended December 31, 2010, 2011 and 2012, the Company recognized share-based compensation of approximately RMB16,860,000, RMB3,234,000 and RMB3,465,000, respectively.
The

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

21. SHARE-BASED COMPENSATION (Continued)

amount
of share based compensation was included in "Selling, general and administrative expenses in the Company's consolidated statements of operations

As
of December 31, 2012, there was US$45,642(approximately RMB284,354) of total unrecognized compensation cost related to non-vested share-based compensation granted
under the plan. The cost is expected to be recognized over a weighted average period of 1.09 years.

22. EMPLOYEE BENEFIT PLANS

The Group participates in a government-mandated multi-employer defined contribution plan pursuant to which certain retirement, medical and other welfare benefits are provided to
employees. PRC labor regulations require the companies to pay to the local labor bureau a monthly contribution at a stated contribution rate based on the monthly basic compensation of qualified
employees. The relevant labor bureau is responsible for meeting all retirement benefit obligations; the Group has no further commitments beyond its monthly contribution. Employees of the Company
located in the PRC are covered by the retirement schemes defined by local practice and regulations, which are essentially defined contribution schemes. The PRC government is directly responsible for
the payments of the benefits to these employees.

The
total contributions for such employee benefits were approximately RMB34.4 million, RMB56.5 million and RMB45.1 million for the years ended December 31,
2010, 2011 and 2012, respectively. Amounts accrued and included in salaries, commissions and welfare payable in the accompanying balance sheets were approximately RMB9.9 million,
RMB7.9 million and RMB8.0 million as of December 31, 2010, 2011 and 2012, respectively.

23. COMMITMENTS AND CONTINGENCIES

a)Contractual obligations with franchisees

The Group establishes franchise arrangements with franchisees in the PRC to grant trademark of "CENTURY 21®" for a contractual period and receives
recurring franchise fees throughout the period. The Group is obligated to provide ongoing support to franchisees for the operation of "CENTURY 21®" system and provide operational
guidance and training to franchisees.

b)Operating lease commitments

The Group has operating lease agreements principally for its administrative offices and real estate brokerage stores. These leases expire by 2015 and are
renewable upon negotiation. Rental expenses under operating leases for the years ended December 31, 2010 ,2011 and 2012 were RMB127.3 million, RMB180.8 million and
RMB114.0 million, respectively.

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

23. COMMITMENTS AND CONTINGENCIES (Continued)

Future
minimum lease payments under these non-cancellable operating lease agreements as of December 31, 2012 are as follows (in RMB thousands):

For the year ending December 31,2013


99,7482014


57,4292015


43,6552016


10,1012017


5,1352018


1,059Total


217,127


c)Minimum Service Fees

The Group is required to pay annual minimum service fees to Realogy for the licensing of the CENTURY 21® brand to 2025. The minimum service fees is
the greater of the minimum of US$100,000 (approximately RMB623,010) or an amount calculated by multiplying US$500 (approximately RMB3,115) by the number of sales offices in the Group's CENTURY
21® franchise network. The minimum service fees for future years are as follows (in RMB thousands):

2013


6232014


6232015


6232016


6232017


623Thereafter


4,517Total


7,632


d)Litigation

From time to time, the Group is involved in claims and legal proceedings that arise in the ordinary course of business. Based on currently available information,
management does not believe that the ultimate outcome of these unresolved matters, individually and in the aggregate, is likely to have a material adverse effect on the Group's financial position or
results of operations. However, litigation is
subject to inherent uncertainties and the Group's view of these matters may change in the future. When an unfavorable outcome to occur, there exists the possibility of a material adverse impact on the
Group's financial position and results of operations for the periods in which the unfavorable outcome occurs, and potentially in future periods.

e)Contingent Consideration payable

The contingent consideration payable arose from the Company's business acquisition of SG International Investments Limited in the second quarter of 2011 and is
measured at fair value. The contingent consideration payable as of December 31, 2012 was RMB33.8 million (US$5.4 million).

F-53

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

23. COMMITMENTS AND CONTINGENCIES (Continued)

f)Long-term Deposits Payable

The Group receives security deposits from franchisees which are recorded as long-term deposits payable. These deposits are refundable at the end of
the franchise agreement period if the franchisees do not breach the franchise agreements. The long-term deposits payable as of December 31, 2012 were RMB10.5 million
(US$1.7 million).

24. RELATED PARTY TRANSACTIONS

The table below sets forth the related parties and their relationships with the Group:

Related parties

Relationships with the GroupXian

Investment under the equity methodFund Management Partnership

Investment under the equity methodTianRe Fund I

Investment under the equity method


As
of December 31, 2012, the company owned 75% of the equity interests of TianRe Co., Ltd. and the remaining 25% equity interests were owned by Everising. The
Company's wholly-owned subsidiary, IFM BJ Inv is a 75% limited partner in the Fund Management Partnership, with Everising as the other limited partner holding the remaining 25% equity interest.

Refer
to Note 7 for the related party transactions of the equity interests in TianRe Co., Ltd. and Fund Management Partnership. As of December 31, 2011 and
2012, the amounts due from/to related parties consisted of the following (in RMB thousands):

December 31,2011

2012Amounts due from related partiesFund Management Partnership


21


109Xian


50


Other





1Total amounts due from related parties


71


110Amounts due to related partiesFund Management Partnership


16


22Xian


250


250Total amounts due to related parties


266


272


25. VARIABLE INTEREST ENTITIES

To comply with PRC laws and regulations, the Company conducts certain business in the PRC through its VIEs. On September 6, 2010, the Company established two entities in Beijing,
China, Huaxing and Chuangfu which are VIEs consolidated by the Company ("VIEs"). On January 25, 2011, the Company, through its VIEs, acquired a company based in Beijing with a license to offer
mortgage credit loans with properties as collateral.

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

25. VARIABLE INTEREST ENTITIES (Continued)

The
Group adopted the US GAAP guidance on consolidating VIEs which require certain VIEs to be consolidated by the primary beneficiary of the entity. Management evaluated the
relationships among MMC BJ, the VIEs, and their shareholders and concluded that MMC BJ is the primary beneficiary of the VIEs as MMC BJ is entitled to substantially all the economic risks and rewards
of the VIEs, and has the power to direct the activities that most significantly impact the VIEs. As a result, these VIEs' results of operations, assets and liabilities have been included in the
Group's consolidated financial statements.

On
November 24, 2010, the Company established Beijing Longhe Weiye Real Estate Brokerage Co., Ltd. to expand the Group's real estate brokerage service in Beijing.

For
all these VIE entities, as of December 31, 2012, the total assets of the consolidated VIEs were RMB65.2 million, mainly comprising investment in associates and prepaid
expenses and other current assets. As of December 31, 2012, the total liabilities of the consolidated VIEs were RMB0.6 million, mainly comprising accrued expenses and other current
liabilities. There are no VIEs where the Company has a variable interest but is not the primary beneficiary.

For
all these VIE entities, for the years ended December 31, 2012, the net revenue of the consolidated VIEs was RMB4.3 million and net income of the consolidated VIEs was
RMB0.8 million and for the years ended December 31, 2011, the net revenue of the consolidated VIEs was RMB0.7 million and the net loss of the consolidated VIEs was
RMB1.9 million. All intercompany transactions and balances within the VIEs were eliminated upon consolidation.

For
all these VIE entities, as of December 31, 2011 and 2012, the consolidated cash flow consisted of the following (in RMB thousands):

2011
RMB

2012
RMBNet cash provided by (used in) operating activities


44,149


(24,636
)Net cash provided by (used in) investing activities


(12,258
)

3,657Net cash provided by financing activities:


500


38,000Net (decrease) increase in cash and cash equivalents


32,391


17,021


The
net cash provided by operating activities in 2011 and the cash used in operating activities in 2012 were mainly resulted from the transactions with other subsidiaries within the
Group. The net cash provided by financing activities were the capital injection of RMB38.0 million to comply with the capital requirement in PRC for the holding company of a mortgage credit
company.

Under
contractual agreements with the Group, those employees of the Group who are shareholders of the VIEs are required to transfer their ownership in these entities to the Group, if
permitted by PRC laws and regulations, or, if not so permitted, to designees of the Group at any time to repay the loans outstanding. The VIEs conferred an exclusive and irrevocable right to the
Company that the Company can purchase all or part of the shares of the acquired company at a price of RMB1.0 at its own discretion under the Chinese law. Those employees of the Group who are
shareholders of the VIEs have pledged their shares in the VIEs as collateral for the loans. As of December 31, 2012, the aggregate amount of these loans was RMB80.5 million
(US$12.9 million).

F-55

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

25. VARIABLE INTEREST ENTITIES (Continued)

In
accordance with the VIE agreements, the Company has power to direct activities of the VIEs, and can have assets transferred out of the VIEs and their subsidiaries without any
restrictions. Therefore, the Company considers that there is no asset in the consolidated VIEs that can be used only to settle obligations of the consolidated VIEs except for registered capitals and
PRC statutory reserves of the VIEs and the VIEs' subsidiaries amounting to RMB42.5 million (US$6.8 million) and RMB80.5 million (US$12.9 million) as of December 31,
2011 and 2012, respectively. As all the consolidated VIEs are incorporated as limited liability companies under the PRC Company Law, creditors of the VIEs do not have recourse to the general credit of
the Company for any of the liabilities of the consolidated VIEs. Accordingly, the creditors of all the liabilities of Company's consolidated VIEs do not have recourse to the Company's general credit.
Currently there is no contractual arrangement that could require the Company to provide additional financial support to the consolidated VIEs. As the Company will conduct certain business in the PRC
through the VIEs, the Company may provide such support on a discretionary basis in the future, which could expose the Company to a loss.

Agreements between consolidated VIEs and Nominee Shareholders

Loan agreementsbetween MMC BJ and the respective shareholders of Huaxing and Chuangfu:
These loan agreements provide for loans to the shareholders of Huaxing and Chuangfu(hereinafter "VIEs Shareholders") to acquire the equity interests in Beijing Huijin Co., Ltd.
(hereinafter "Huijin") through Huaxing and Chuangfu. The loans are interest free. MMC BJ and any third party(s) designated by it have the right, exercisable on their own will and at any time when it
becomes legal to do so under PRC law, to purchase from Huaxing and Chuangfu all or any part of their equity interests in Huijin (hereinafter "Exclusive Purchase Right") and the purchase price will be
used to repay the loans. The shareholders cannot repay the loans by other means except acquiring the written consent of MMC BJ in advance. The VIEs Shareholders guarantee, where MMC BJ or any third
party(s) designated by it exercise Exclusive Purchase Right, they will make shareholder decisions to ensure that Huaxing and Chuangfu waive their first refusal on the equity of Huijin. The VIEs
Shareholders also guarantee that all their equity interests in Huaxing and Chuangfu and all equity interests of Huijin held by Huaxing and Chuangfu will be pledged to MMC BJ as security to the
relevant debts and without MMC BJ prior written consent, VIEs Shareholders shall not (1) sell, transfer, pledge or dispose by any other means their equity or any interests in Huijin;
(2) take any actions/negative act which may have major influences on the assets, business or responsibility of Huijin.

Exclusive consulting and service agreementbetween Huaxing and Chuangfu on one side and MMC BJ on the other side: Under this
agreement, MMC BJ provides exclusive technical consultation and relevant service to Huaxing and Chuangfu in exchange for consulting service fees based on the net profit of Huaxing and Chuangfu. The
term of this agreement is 20 years and may be extended for 20 years automatically, unless MMC BJ gives disagreement of such extension in writing three months prior to
the expiration of this agreement. Under this agreement, Huaxing and Chuangfu need to consult MMC BJ's advice before making any important decisions on business and operation which may influence the
exclusive cooperation of Huaxing and Chuangfu and MMC BJ under this agreement. Huaxing and Chuangfu promise to follow the reasonable instructions given by MMC BJ.

F-56

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

25. VARIABLE INTEREST ENTITIES (Continued)

Equity pledge agreementamong MMC BJ, Huaxing and Chuangfu, and the respective shareholders of Huaxing and Chuangfu(the "Guarantor"):
Under this agreement the shareholders pledge to MMC BJ their equity interests in Huaxing and Chuangfu, and Huaxing and Chuangfu pledge to MMC BJ their equity interests in Huijin to
secure the performance of their obligations under Loan Agreements and Exclusive consulting and service agreement. The Guarantor confirms that they will waive their respective right of first refusal of
the pledged equity interests under this agreement when MMC BJ exercising the Pledge and they will not transfer all or any part of the equity interests of Huaxing, Chuangfu and Huijin to any
third party, place the existence of any pledge, guarantee or other security interest on such equity interests during the term of pledge, except for the consent adopted by MMC BJ and Guarantor. The
Guarantor hereby irrevocably grants MMC BJ an irrevocable and exclusive right to purchase, or designate one or more persons (the "Designee") to purchase the equity interests in Huijin then held
by Huaxing and/or Chuangfu in part or in whole at MMC BJ and Designee 's sole and absolute discretion to the extent permitted by Chinese laws and at the price of 1 RMB Yuan. Unless MMC
BJ waives Exclusive Purchase Right in writing , such right will exist permanently. The Guarantor further guarantee that without MMC BJ's prior written consent, other than normal business operation,
the Guarantor shall not make any shareholders' decisions on disposal of the assets, business income or its beneficial interest of Huaxing, Chuangfu and Huijin; Without MMC BJ's prior written consent,
the Guarantor shall not make any shareholders' decisions to permit Huaxing, Chuangfu and Huijin to bear any indebtedness, especially the loan. The Guarantor irrevocably grants MMC BJ exercising the
whole shareholders' rights of Huaxing, Chuangfu and Huijin, appoint or impel MMC BJ to appoint the nominees of MMC BJ as the directors, senior manager and financial officer of Huaxing, Chuangfu and
Huijin. The term of this agreement will not end until the obligations secured by the pledge are all fully fulfilled.

26. SEGMENT INFORMATION

The reportable segments represent the Group's operating segments for which separate financial information is available and which is utilized on a regular basis by its chief operating
decision maker ("CODM") to assess performance and to allocate resources. In identifying its reportable segments, the Group also considers the nature of services provided by its operating segments. The
Group's CODM has been identified as the Chairman and Vice Chairman, who review the consolidated and segment results when making decisions about allocation of resources and assessing performance of the
Group.

Management
has determined that the Group operates in four reportable segments: Company-owned Brokerage Services, Franchise Services, Mortgage Management Services and Primary and
Commercial Services.

The
Mortgage Management Services business grew substantially in 2008 and accordingly had its revenue, costs and expenses reviewed separately by the CODM starting from 2008.

Primary
and Commercial Services grew substantially in 2010 and accordingly had its revenue, costs and expenses reviewed separately by the CODM starting from 2010. All segment data for
all prior years presented have been restated to reflect the Primary and Commercial Services segment as a separate segment.

F-57

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

26. SEGMENT INFORMATION (Continued)

Management
evaluates the operating results of each of its reportable segments based upon (1) revenue from external customers, (2) commissions and other agent-related costs,
(3) operating costs, (4) selling, general and administrative expense, (5) income (loss) from operations and (6) net income (loss), each of which is presented in the Group's
Consolidated Statements of Operations.

As
the asset information is not included in the reporting package reviewed by the CODM nor in any other public reports, the disclosure of the asset information by segment is not
necessary.

The
following tables summarize the selected revenue and expenses information for each reportable segment for the years ended December 31, 2010, 2011 and 2012:

Year ended December 31, 2010
(in RMB thousands)Company-
Owned
Brokerage
Services

Franchise
Services

Mortgage
Management
Services

Primary and
Commercial
Services

Non-allocated

TotalRevenue from external customers


482,371


17,011


24,381


7,066





530,829Commissions and other agent-related costs


(307,153
)

(759
)

(6,550
)

(4,410
)




(318,872
)Operating costs


(187,298
)

(7,260
)

(1,827
)

(3,106
)

(179
)

(199,670
)Selling, general and administrative expenses


(80,560
)

(13,446
)

(9,759
)

(5,067
)

(67,439
)

(176,271
)(Loss) income from operations


(92,640
)

(4,454
)

6,245


(5,517
)

(67,618
)

(163,984
)Net (loss) income


(83,952
)

(5,597
)

5,026


(5,517
)

(73,660
)

(163,700
)




Year ended December 31, 2011
(in RMB thousands)Company-
Owned
Brokerage
Services

Franchise
Services

Mortgage
Management
Services

Primary and
Commercial
Services

Non-allocated

TotalRevenue from external customers


513,375


23,546


22,903


44,735





604,559Commissions and other agent-related costs


(394,865
)

(1,490
)

(6,786
)

(25,779
)




(428,920
)Operating costs


(271,562
)

(8,873
)

(1,672
)

(14,352
)

(193
)

(296,652
)Selling, general and administrative expenses


(107,843
)

(15,492
)

(10,696
)

(17,052
)

(67,027
)

(218,110
)Goodwill impairment


(4,374
)







(26,240
)




(30,614
)Net change in fair value











25,716





25,716(Loss) income from operations


(265,269
)

(2,309
)

3,749


(12,972
)

(67,220
)

(344,021
)Net (loss) income


(264,722
)

(2,311
)

3,620


(12,972
)

(64,025
)

(340,410
)


F-58

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

26. SEGMENT INFORMATION (Continued)



Year ended December 31, 2012
(in RMB thousands)Company-
Owned
Brokerage
Services

Franchise
Services

Mortgage
Management
Services

Primary and
Commercial
Services

Non-allocated

TotalRevenue from external customers


623,927


13,405


25,686


85,115





748,133Commissions and other agent-related costs


(394,089
)

(1,221
)

(6,981
)

(52,991
)




(455,282
)Operating costs


(156,460
)

(6,125
)

(1,432
)

(11,313
)




(175,330
)Selling, general and administrative expenses


(85,970
)

(7,993
)

(10,873
)

(12,049
)

(60,590
)

(177,475
)Goodwill impairment











(10,755
)




(10,755
)Net change in fair value











10,453


1,536


11,989(Loss) income from operations


(12,592
)

(1,934
)

6,400


8,460


(59,054
)

(58,720
)Net (loss) income


(6,405
)

(1,930
)

6,128


5,435


(53,312
)

(50,084
)


All
of the Group's revenues from external customers are generated in the PRC.

27. SUBSEQUENT EVENTS

On February 26, 2013, the General office of the State Council issued the Notice on Keeping on Enhancing the Regulation and Control of Real Estate Market, or the February Notice.
According to the February Notice, the households who have purchased one house or who are non-residents and unable to provide proof of tax or social security payment for required years are
prohibited from purchasing any house in relevant administrative region. Homeowners who sell their houses will be levied an income tax as high as 20% of the profit they make in the relevant
transaction. As of April 19, 2013, some major cities in China, including Beijing, Shanghai, Chengdu and other major cities in China have respectively promulgated local measures to restrict
housing purchases. As a real estate services provider, we are significantly affected by these government policies and regulatory measures as we primarily generate revenues based on the successful
property transactions to which we provide real estate sales agency and consultancy services.

28. RESTRICTED NET ASSETS

Relevant PRC laws and regulations permit payments of dividends by the Company's PRC subsidiaries only out of their retained earnings, if any, as determined in accordance with PRC
accounting standards and regulations. In addition, the PRC subsidiaries are required to annually appropriate 10% of net after-tax income to the general reserve fund or statutory surplus
fund (see Note 2(x)) prior to payment of any dividends, unless such reserve funds have reached 50% of its respective registered capital. As a result of these and other restrictions under PRC
laws and regulations, the PRC subsidiaries are restricted in their ability, which restricted portion amounted to approximately RMB712.5 million and RMB764.3 million as of
December 31, 2011 and 2012, respectively. Even though the Company currently does not require any such dividends, loans or advances from the PRC subsidiaries for working capital and other
funding purposes, the Company may

F-59

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

28. RESTRICTED NET ASSETS (Continued)

in
the future require additional cash resources from the PRC subsidiaries due to changes in business conditions, to fund future acquisitions and development, or merely to declare and pay dividends to
make distributions to shareholders.

29. ADDITIONAL INFORMATIONCONDENSED FINANCIAL STATEMENTS

The Company performed a test on the restricted net assets of consolidated subsidiaries and VIE in accordance with Securities and Exchange Commission Regulation S-X
Rule 4-08 (e) (3), "General Notes to Financial Statements" and concluded the restricted net assets exceed 25% of the consolidated net assets of the Company as of
December 31, 2012. Therefore the separate condensed financial statements of the Company should be presented with the Company's investments in its subsidiary under the equity method of
accounting

The
Company was incorporated in the Cayman Islands on November 30, 2005, by IFM Holding Company Ltd., a Cayman Islands exempt company. IFM Holding was a wholly-owned
subsidiary of Maxpro International Enterprise, Inc. ("Maxpro"), a New York corporation. Maxpro was 100% owned by Mr. Donald Zhang through D&M Capital Corporation.

The
subsidiaries did not pay any dividend to the Company for the years presented. Certain information and footnote disclosures generally included in financial statements prepared in
accordance with US GAAP have been condensed and omitted. The footnote disclosures contain supplemental information relating to the operations of the Company, as such, these statements should be
read in conjunction with the notes to the consolidated financial statements of the Company.

The
Company did not have significant capital and other commitments, long-term obligations, or guarantees as of December 31, 2012.

Operating
expenses for the Company for the years ended December 31, 2010, 2011 and 2012 included share-based compensation as a result of the options granted to employees of the
Company in 2010, 2011 and 2012. Total share-based compensation for the years ended December 31, 2010, 2011 and 2012 were approximately RMB16,860,000, RMB3,234,000 and RMB3,465,000 respectively.

F-60

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

29. ADDITIONAL INFORMATIONCONDENSED FINANCIAL STATEMENTS (Continued)

Financial information of parent company  Condensed Balance Sheets  (in thousands, except par value)

December 31,2011
RMB

2012
RMB

2012
US$(Note 2(c))ASSETSCurrent assets:Cash and cash equivalents


34,080


21,453


3,443Restricted cash








Amounts due from subsidiaries, associates and related parties


124,964


118,009


18,942Prepaid expenses and other current assets


1,906


1,057


170Total current assets


160,950


140,519


22,555Non-current assets:Long-term investments


265,656


225,859


36,253Total assets


426,606


366,378


58,808LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities:Accrued expenses and other current liabilities


5,915


2,376


382Amounts due to subsidiaries, associates and related parties


14,645


9,708


1,558Total liabilities


20,560


12,084


1,940Shareholders' equity:Class A ordinary shares (US$0.001 par value, 3,133,000 and 3,133,000 shares authorized, 667,672 and 667,672 shares issued and outstanding as of
December 31, 2011and 2012, respectively)


4,939


4,939


793Treasury stock








Additional paid-in capital


1,033,892


1,035,651


166,233Statutory reserves


5,595


5,595


898Accumulated deficit


(638,380
)

(691,891
)

(111,056
)Total shareholders' equity


406,046


354,294


56,868Total liabilities and shareholders' equity


426,606


366,378


58,808


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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

29. ADDITIONAL INFORMATIONCONDENSED FINANCIAL STATEMENTS (Continued)

Financial information of parent company  Condensed Statements of Operations  (in thousands)

Years Ended December 31,2010
RMB

2011
RMB

2012
RMB

2012
US$(Note 2(c))Costs and expenses:Selling, general and administrative expenses


(24,903
)

(5,611
)

(15,263
)

(2,450
)Net change in fair value








1,536


247Total costs and expenses


(24,903
)

(5,611
)

(13,727
)

(2,203
)Loss from operations


(24,903
)

(5,611
)

(13,727
)

(2,203
)Interest income


597


212


61


10Foreign currency exchange gain (loss)


(3,350
)

(1,981
)

(48
)

(8
)Loss before share of subsidiaries' and associates' (loss) income


(27,656
)

(7,380
)

(13,714
)

(2,201
)Share of subsidiaries' and associates' income (loss)


(134,582
)

(329,135
)

(39,797
)

(6,387
)Net income (loss)


(162,238
)

(336,515
)

(53,511
)

(8,588
)Accretion of convertible redeemable preferred shares


(1,213
)







Income allocated to participating preferred shareholders











Net income (loss) attributable to ordinary shareholders


(163,451
)

(336,515
)

(53,511
)

(8,588
)


F-62

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Table of Contents

IFM INVESTMENTS LIMITED

Notes to Consolidated Financial Statements (Continued)

(Amounts expressed in Renminbi ("RMB"), unless otherwise stated)

29. ADDITIONAL INFORMATIONCONDENSED FINANCIAL STATEMENTS (Continued)

Condensed Statements of Cash Flows  (in thousands)

Years Ended December 31,2010
RMB

2011
RMB

2012
RMB

2012
US$(Note 2(c))Net cash used in operating activities


(7,800
)

(31,020
)

(12,525
)

(2,010
)Net cash used in investing activities


(410,569
)







Cash flow from financing activities:Share repurchase


(26,816
)

(15,332
)




Payment of initial public offering costs


(13,572
)

(1,315
)




Proceeds from issuance of ordinary shares upon initial public offering


557,455








Proceeds from issuance of ordinary shares upon exercise of share options


2,664


583





Repayments of short-term borrowing to subsidiaries


(25,760
)







Net cash (used in) provided by financing activities


493,971


(16,064
)




Effect of exchange rate changes on cash and cash equivalents


(1,394
)

(1,942
)

(102
)

(16
)Net (decrease) increase in cash and cash equivalents


74,208


(49,026
)

(12,627
)

(2,026
)Cash and cash equivalents at the beginning of year


8,898


83,106


34,080


5,469Cash and cash equivalents at the end of year


83,106


34,080


21,453


3,443


F-63

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