The central bank said on Thursday that for cities where the selling prices of new homes fall month-on-month and year-on-year for three consecutive months, the floor on mortgage rates can be lowered or abolished for first-time home buyers in phases.

China is also planning to relax restrictions on borrowing for property developers by dialing back the "three red lines" policy, Bloomberg News reported on Friday.

The property sector, which accounts for a quarter of China's economy, was badly hit last year as many developers were unable to finish building projects that led to mortgage boycotts by some buyers. Lockdowns and movement control measures to control the spread of COVID-19 also hurt buyer sentiment.

Hong Kong's Hang Seng Mainland Properties Index firmed 2.3% in mid-afternoon trade, after jumping close to 4% shortly after the market open.

As of 0709 GMT, Logan Group gained more than 10%, while top leader Country Garden rose 6.6%. That compared with a flat broader market.

"Positive news of state help have mostly been priced-in in the short term after many share prices more than doubled in the past month," said CGS-CIMB analyst Will Chu. "For the sector to re-rate, the market will need to see a meaningful contract sales improvement in March."

China's deeply troubled property sector is set to see home sales fall for the second straight year in 2023, but the pace of declines will ease helped by policy support measures and the lifting of the government's strict anti-COVID policies.

Property sales are expected to slip by a median of 8% this year, a Reuters survey of eight economists and analysts showed, compared with a slump of around 25% in 2022, as economic activity, household income and consumer confidence are seen rebounding in the second half.

The housing authorities vowed on Thursday to give strong support to first-time home buyers by allowing smaller down payments and cutting mortgage interest rates.

Ni Hong, head of China's housing regulator, told state broadcaster CCTV that "reasonable" support needs to be given to buyers of second homes although not for the purchase of three homes or more.

THREE RED LINES

To help cash-strapped developers, Beijing may allow some property firms to add more leverage by easing borrowing caps, and push back the grace period for meeting debt targets set by the "three red lines" policy, Bloomberg reported on Friday.

Markets raised questions about the policy, introduced in late 2020, after developers who met all three debt ratio requirements also defaulted, including Kaisa Group and Yuzhou Group.

Sources have told Reuters banks have been disregarding the policy since the debt crisis and were reluctant to lend to even developers who have passed the three red lines due to concerns about the impact of such exposure on their balance sheets.

"A healthy balance sheet doesn't necessarily mean good liquidity in companies," said CGS-CIMB's Chu. "Regulators want to send a signal that the policy will not be so strict anymore because it's not good for the economy and market."