By Tracy Qu

Chinese property stocks rose in Wednesday trade, a day after a deeper-than-expected cut to a key mortgage reference rate bolstered hopes that authorities are doing more to shore up the ailing sector.

Two key gauges in Hong Kong--the Hang Seng Properties Index and the Hang Seng Mainland Properties Index--extended the previous day's gains, sitting 3.5% and 4.0% higher at the mid-day break. Among individual movers, developer Shimao Group was up 8.3%, China Resources Land added 4.7% and New World Development rose by 5.3%.

On the mainland, real-estate group Poly Developments & Holdings climbed 2.5% on the Shanghai Stock Exchange.

Rising interest rates and weak consumer confidence have severely dented China's real-estate sector, triggering a slew of company defaults on bond payments. The slump in property sales has spilled over into other industries, weighing on the economy.

Authorities have rolled out a string of measures to help turn the tide, including easing home-purchase restrictions to stimulate demand and boosting lending for housing programs.

The latest effort to prop up the economy came on Tuesday, when the central bank said major lenders reduced the five-year loan prime rate--a benchmark for home loans--to a new low of 3.95% from 4.2%. That was the sharpest cut delivered yet, surprising analysts who had expected a smaller reduction.

With investors concerned about the property sector and broader economic growth, "any sign that the authorities are providing some support should be well received," Thomas Mathews, senior markets economist at Capital Economics, told Dow Jones Newswires.

Analysts are still cautious about how much the rate cut will help long term.

HSBC analysts led by Jing Liu and Erin Xin think the property market will benefit from the larger-than-expected rate cut, but that more measures beyond monetary policy are needed.

"Aside from stronger monetary easing, stabilizing the property market will likely mean supporting a dual-housing model by supporting commodity housing demand and building up social housing supply," they said in a report.

Merely cutting the five-year loan prime rate won't be enough to spark a turnaround in a sector mired in several downward spirals, Nomura analysts said in a note. The full effect of the cut is likely to be limited by commercial banks, which can offer smaller discounts on mortgages to protect their profit margins. Many have already been offering sizable discounts.

But "while this cut is is better late than never," they said.

Focus now turns to China's annual National People's Congress meeting in March, which will be closely watched by markets hoping for bigger, broader policy announcements.

Write to Tracy Qu at

(END) Dow Jones Newswires

02-21-24 0101ET