China applies thin bandage to real estate market

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A visitor looks at a model of a new apartment complex at a showroom of Evergrande Real Estate Group in Wuhan, Hubei province, November 9, 2013. REUTERS/Stringer/File Photo CHINA OUT. NO COMMERCIAL OR EDITORIAL SALES IN CHINA - S1AETZIGQLAA

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HONG KONG, Aug 17 (Reuters Breakingviews) - Beijing is trying to limit collateral damage to some of its better-behaved private property developers. As home prices slide, the government plans to guarantee new domestic fixed-income issues by half a dozen homebuilders, including Longfor (0960.HK) and Country Garden (2007.HK), Reuters reported citing sources. It will also lobby state-owned investors to purchase the bonds. Real estate shares are rallying in response.

The move comes two days after Longfor defended itself against rumours about its financial health. Unlike indebted peers which are busily defaulting, Longfor does not cross any of Beijing’s “red lines” on leverage, and has little debt coming due this year. It enjoys an investment grade rating from all global agencies, so it still has access to financing. On the other hand Country Garden, the country’s biggest developer by sales, was downgraded by Fitch Ratings this week.

Lowering the cost of bond funding might temporarily insulate this small group from the current market travails, and even let them snap up distressed assets from rivals. But that’s hardly enough to revive weak demand for housing, to which nobody is immune. In July home sales fell 40% for the country’s top 100 developers, per data provider CRIC, but Longfor did even worse, reporting a 60% slump in contracted sales. Bandages can treat the bleeding but not the pain. (By Yawen Chen)

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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own. )

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