Major cities in China ease homebuying restrictions, prompting a rally in property stocks.

• Effective from Monday, the Guangzhou city government has lifted all restrictions on home purchases, as stated in a notice issued on Sunday.
• The Shanghai government reduced the timeframe for migrant workers to purchase homes in non-central areas with lower tax payments.
• The government of Shenzhen eased purchasing restrictions, enabling buyers to purchase an additional apartment in specific districts.

On Monday, shares of Chinese property developers surged due to the announcement of easing measures by major cities in mainland China, which aimed to improve homebuyer sentiment, following the central bank's policy stimulus.

The Guangzhou city government announced on Sunday that all restrictions on home purchases would be lifted, effective from Monday. Prior to this, migrant families were required to pay taxes or social insurance for at least six months before they could purchase up to two homes, while single individuals were only allowed to buy one apartment.

The Shanghai government has decreased the required tax-paying period from three years to one year and lowered the down-payment ratio for first homes to approximately 15%, while the ratio for second homes is around 25%. This is above the nation's average ratio of 15%. The new rules will take effect starting Tuesday, as stated in a notice issued late Sunday.

The government of Shenzhen has eased purchasing restrictions, enabling buyers to purchase an additional apartment in specific districts. Migrant families with at least two children can now buy two homes instead of one previously.

On Monday morning, the Hang Seng Mainland Properties Index increased by 8.36%, building on the substantial growth of over 30% recorded in the previous week.

Real estate developers such as , , , and climbed 19.1%, 10.95%, 3.58%, and 5.06% and 12.89% on the Hang Seng index.

On Monday, the CSI 300 index in Mainland China surged 6%, following its best week in nearly 16 years on Friday. Additionally, the CSI 300 Real Estate index experienced a jump of over 7%.

Lifting purchase restrictions could boost property sales in first-tier cities, such as Beijing, Shanghai, and Guangzhou, by a larger margin than in other cities, according to Allen Feng, an associate director at Rhodium Group. He noted that similar measures had not been effective in other cities.

Gary Ng, APAC economist at Natixis, believes that the effect of the view is more limited in smaller cities due to the elevated inventory level. He suggests that they are more likely to lead to some stabilization rather than a turnaround.

The government has called for easing measures to stop the decline of the real estate market and promote a stable recovery, as stated in a readout of a high-level meeting chaired by Chinese President Xi Jinping.

The People's Bank of China decreased the interest rates on existing individual mortgages by an average of 0.5 percentage points and lowered the average down-payment ratio for second homes purchases to 15% from 25%.

Beijing's crackdown on the real estate sector's high levels of debt in 2020 led to a multi-year downturn, causing real estate to contribute less than a quarter of China's GDP.

Despite increasing support from Chinese policymakers to alleviate household financial burdens and bolster the struggling real estate market, previous measures have not resulted in significant improvements.

To boost confidence among potential homebuyers and revive demand, China may need to speed up its efforts to finish stalled or abandoned construction projects of pre-sold properties, according to Erica Tay, director of macro research at Maybank Investment Banking Group. Only 4% of the floor space under construction this year has been completed.

The prompt follow-up of fiscal policies is essential, as stated by Nomura analysts Jizhou Dong and his team in a note on Sept. 26. If implemented in a timely manner, these policies will provide a boost to domestic consumption and stabilize the property market.

According to Ng from Natixis, the homebuyer demand will gradually decrease, and the growth of mortgage loans is predicted to stop contracting soon. However, it will take a longer time and larger measures to see a significant overall rebound in the property market.