Beijing has eased mortgage rules and urged local governments to buy unsold houses in some of policy makers' boldest moves yet to revive the property sector.

Financial regulators said Friday that they will remove the mortgage rate floors for first and second homes, according to an official notice. The People's Bank of China also lowered the minimum downpayment ratios for first-time homebuyers to 15% and to 25% for second-home purchases.

Chinese Vice Premier He Lifeng also said Friday that authorities in cities with excess home inventories should buy unsold property and turn it into affordable housing, the state-run Xinhua News Agency said.

He called on local governments to recycle idle land parcels held by property developers to ease their financial strain, and urged them to keep increasing the supply of affordable housing, renovating so-called shantytowns and developing urban infrastructure.

The latest measures seemed to be initially well-received by the market.

Share of Chinese property developers rose in Hong Kong after the news. The Hang Seng Mainland Properties Index, which tracks Chinese developers listed in Hong Kong, rose 3.9% in afternoon trading. Sunac China and Agile Group were among the top gainers, rising 20% and 27%, respectively. Longfor, China Vanke, Shimao and CIFI Holdings were up more than 5% each.

Friday's policy announcements, coupled with other recent measures, indicate the central government's determination to address property market issues in China, said Raymond Cheng, head of China and Hong Kong research at CGS International Securities.

Rescuing the property sector is no easy task and doubts remain about how effective the policy measures will be.

Economists at Nomura estimate that in April, China still had 20 million to 30 million units of pre-sold homes that have yet to be delivered. The economists calculate that completing these units will require about CNY3 trillion-CNY4 trillion.

Official data released earlier Friday adds to the sense of urgency to tackle the real-estate slump. The figures showed that new-home prices in China's major cities fell at the steepest pace in nearly ten years in April on a monthly basis, while property investment and home sales also slid.

The downbeat data suggest that the effect of Beijing's previous rounds of property rescue efforts have so far been limited. At its peak, the sector represented roughly one quarter of China's economic output.

Official figures released Friday also showed China's consumption and investment slowed unexpectedly in April, while industrial output beat expectations as the property slump continued to weigh down growth.

While economists have generally welcomed Beijing's latest property easing moves, they caution that the measures won't help the cyclical and structural problems in the housing market as China's urbanization process slows and the population shrinks.

Authorities should avoid an oversimplified policy style of "stimulating when the market is too cold and restricting when it is overheating," said Bruce Pang, a China economist at JLL. Relying solely on monetary policy is unlikely to solve all the property sectors' problems, said Pang.

Given local governments' strained finances and piling debts, a key question economists are asking is where local authorities will find the money to carry out Beijing's plan to buy unsold homes. It is also unclear what scale of such purchases is needed to really move the needle.

"If the market response to today's measures is warm, home sales could bottom by the end of the year, especially in top-tier cities," said Maybank economist Erica Tay.

"If the response is muted, there isn't much policy room left...The authorities will need to make judicious use of the bullets they have left," she said.

It seems that the path to property-sector stabilization will be long and winding, and require careful policy calibration, analyst say.

"The race to rescue the property sector is a marathon not a sprint," JLL's Pang said.


--Jiahui Huang contributed to this report


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(END) Dow Jones Newswires

05-17-24 0314ET