Asianfin--China is contemplating the removal of significant restrictions on home purchases as previous measures have failed to revive the struggling housing market, according to sources familiar with the discussions.

Regulators are drafting a proposal that would enable major cities like Shanghai and Beijing to ease restrictions for non-local buyers—those without a Hukou residence permit. Many smaller cities have already eliminated such barriers.

The government may also eliminate the distinction between first- and second-home purchases, which could facilitate smaller down payments and lower mortgage rates for second properties, the sources added.

Policymakers face increasing pressure to address a housing slump that has persisted for four years, impacting the world’s second-largest economy and causing widespread job losses. Banks such as UBS and Bank of America predict that China will fall short of its roughly 5% growth target for the year.

Additionally, authorities are considering new measures to support the sluggish stock market, though specifics were not disclosed. The CSI 300 Index has declined about 7% this year, making it one of the worst-performing indices globally.

These proposals will require approval from senior leaders and may undergo changes, according to the sources. The Ministry of Housing did not respond immediately to Bloomberg's requests for comment.

A Bloomberg Intelligence index tracking Chinese developer stocks saw gains on Friday, rising as much as 2.5% by noon, despite banks maintaining their benchmark lending rates for home loans earlier that day, which dampened expectations for further monetary stimulus.

Despite various measures to support the market, China’s real estate crisis shows no signs of abating. Home sales and prices continued to decline in August as the effects of previous easing efforts faded and buyers awaited lower prices.

The government has granted local authorities more flexibility in exploring strategies to stabilize the market. In June, the State Council urged officials to devise new policies to absorb existing housing stock, raising expectations for additional funding after a package of measures was announced in May, including reduced down-payment requirements.

Authorities are also aiming to lower borrowing costs. Reports indicate that officials are considering allowing homeowners to refinance up to $5.4 trillion in mortgages, with potential rate cuts from some banks as soon as this month.

Historically, mega cities have maintained restrictions on home purchases for non-Hukou holders unless they have paid income taxes and made social security contributions for several years, a key mechanism for controlling prices.

The Hukou system, a crucial residency permit, regulates population movement and grants access to housing, healthcare, and education resources in cities. Easing home eligibility for non-locals in top-tier cities may divert demand from lower-tier cities and exacerbate economic disparities.

Cities like Beijing and Shenzhen have upheld this ban while implementing support measures in recent months. In May, Shanghai reduced the required duration of tax payments for homebuyers without a Hukou from five years to three.

China's largest cities have historically aimed to manage population growth. Following the COVID-19 pandemic and citywide lockdowns, the State Council reiterated its commitment to "slimming down" ultra-large cities.

Meanwhile, the Beijing municipal government plans to eliminate the distinction between ordinary and luxury homes at an appropriate time, as reported by Beijing Daily on Friday.