China applies a thin bandage to the property market

Visitors look at a model of a new apartment complex at Evergrande Real Estate Group’s showroom in Wuhan, Hubei Province, November 9, 2013. REUTERS/Stringer/File Photo CHINA OUT. No commercial or editorial sales in China – S1AETZIGQLAA

HONG KONG, Aug 17 (Reuters Breakingviews) – Beijing is trying to limit collateral damage to some well-behaved private property developers. The government plans to guarantee new domestic bond issuances by six of his homebuilders, including Longfor (0960.HK) and Country Garden (2007.HK), amid falling house prices, Reuters said. It was reported citing sources. It will also encourage state-owned investors to buy bonds. Real estate stocks are rising as a result.

The move comes two days after Longfor defended itself against rumors about its financial health. Unlike its default-ridden peers, Longfor has not crossed Beijing’s “red line” on leverage and has very little debt due this year. Funding remains available as we are rated investment grade by all institutions worldwide. Meanwhile, Country Garden, the nation’s largest developer by revenue, was downgraded by Fitch Ratings this week.

Lowering the cost of debt financing could temporarily insulate this small group from the current market predicament, and may even allow it to buy distressed assets from competitors. But that alone will not be enough to revive weak housing demand. Home sales for the nation’s top 100 developers fell 40% in July, according to data provider CRIC, but Longfor reported a worse, contract sales drop of 60%. Bandages can treat bleeding, but not pain. (Yawen Chen)

follow @Breakingviews on Twitter

Capital Calls – A more concise insight into global finance:

Walmart Whiplash Is Common Read More

Elliott’s exit from SoftBank may be premature Read more

New Philips CEO can take inspiration from old CEO Read more

Tencent storms the pantry before the Lean Tech era Read more

Adam Neumann’s Startup Leases WeWork Model Read More

Illumina’s Grail Quest looks more and more unholy Read more

Edited by Pete Sweeney and Thomas Shum

Our standards: Thomson Reuters Trust Principles.

Opinions expressed are those of the author. They do not reflect Reuters News’ commitment to integrity, independence and freedom from bias under its Trust Principles.