China's last-ditch attempt to revive housing sector may involve easing many strict 'limitations'

China is considering lifting some of the strictest remaining limits on home purchases in a last-ditch effort to revive its struggling real estate sector.

The potential measures would allow non-local buyers in major cities like Beijing and Shanghai to purchase homes more easily, removing barriers tied to the “Hukou” residence permit system, according to the sources, Bloomberg reported, citing sources familiar with the discussions.

Authorities are also exploring the possibility of ending distinctions between first- and second-home purchases, potentially reducing down payments and offering lower mortgage rates on second properties.

The proposed changes are part of a broader effort by policymakers to reverse a housing slump that has persisted for four years, hampering China’s economic growth and leading to widespread job losses.

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Housing crisis drags on economy

The housing market downturn continues to weigh heavily on China’s economy, with real estate sales and prices continuing to slide in August despite a series of government measures aimed at stabilising the sector.

Economists at UBS Group AG and Bank of America Corp. now predict that China will miss its growth target of around 5 per cent for the year.

In response, Beijing has granted local governments greater flexibility to implement policies that would absorb excess housing stock, and the central government is pushing to reduce borrowing costs.

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This includes proposals to allow homeowners to refinance up to $5.4 trillion worth of mortgages, with some banks expected to roll out rate cuts soon, according to Bloomberg.

Mega cities face potential changes

Until now, major cities like Shanghai and Beijing have largely refrained from relaxing housing restrictions for non-local buyers without Hukou permits unless they had paid income taxes and contributed to social security for several years.

The Hukou system, a powerful tool for controlling population movements, limits access to housing, education, and medical services in these cities.

However, easing home purchase restrictions in top-tier cities could create new economic imbalances by drawing demand away from smaller cities, experts warn.

At the same time, Beijing is reportedly considering scrapping the distinction between ordinary and luxury homes, according to local media reports. The proposals would need approval from senior leaders and are subject to change, according to the sources.