Chinese property stocks surge after 3 major cities relax restrictions on homebuying

Chinese property stocks got some positive news on Monday as three major cities announced easing of home-purchase restrictions.

The Hang Seng Mainland Properties Index soared 7% in Chinese trading. The climb was led by real-estate developers like Hong Kong-listed Longfor Group Holdings and Hang Lung Properties, which were up roughly 10% and 12%, respectively.

The surge comes after the cities of Shanghai, Shenzhen, and Guangzhou loosened homebuying restrictions, and after nation’s central bank said it will allow refinancing of mortgages. The moves are part of China’s new stimulus package meant to reinvigorate its slowing economy and weak property sector.

In Guangzhou, policymakers eliminated all restrictions on homebuying, removing evaluations of buyer eligibility and limitations on the number of properties owned.

The Sunday move made the port city the first major city to ease restrictions following the national government’s pledge last week to make the property sector “stop declining.”

Previously, Guangzhou required migrant families to pay taxes or social insurance for at least six months before purchasing a maximum of two homes.

Shanghai and Shenzhen, meanwhile, also said they would ease restrictions for non-local buyers. Shanghai decreased the required tax-paying period from three years to one year, and Shenzhen increased the number of homes migrant families can buy from one home to two.

Shanghai and Shenzhen also announced plans to decrease the minimum downpayment ratios for first homes to no lower than 15%.

Shenzhen also allowed local buyers to purchase more properties, allowing purchases of one more apartment in some districts, compared to previous restrictions of a maximum of two homes for families and one for individuals.

The central bank, meanwhile, announced plans to refinance existing mortgages, with homeowners able to renegotiate terms with their lenders starting November 1. That brings lower costs for $5.3 trillion in mortgages.

The moves come after leaders in Beijing unveiled aggressive stimulus measures to support China’s struggling economy in a rare move last week.

China’s economy has faced weak consumer demand in recent months, and continues to face headwinds from its struggling property sector, which has seen slowing property sales, high vacancy rates in its existing supply, and huge developer defaults.

With the sector accounting for nearly a third of the country’s GDP, recovering it is crucial for the country to hit its “around 5%” year-end growth target, which analysts have previously said is unlikely.

The newest policies are a good start at easing those headwinds, but analysts warn that the policies could take time to actually see an impact.

“It may take time and could still prove challenging to turn around residents’ bearish views with existing policies,” Morgan Stanley analyst Stephen Cheung wrote in a Sunday note.

The new policies helped fuel a broader stock market rally, with mainland China’s benchmark CSI 300 closing 8.5% higher on Monday in its biggest daily gain since 2008.