(Bloomberg) -- Shares of Chinese property developers extended a rally after Beijing announced forceful measures to shore up the beleaguered property market. 

A Bloomberg Intelligence gauge of Chinese real estate stocks surged as much as 9.9% following the mid-Friday announcement. The index has risen more than 20% this week, the most since November 2022. Longfor Group Holdings Ltd. shares closed 11% higher in Hong Kong, while China Vanke Co. and Sunac China Holdings Ltd. jumped 19% and 26%, respectively. 

Authorities removed the mortgage rate floor and cut the minimum down-payment ratio for individual homebuyers in efforts to boost property demand. Local governments were encouraged to acquire homes to convert them into affordable housing, in one of the strongest policies yet to lift the country’s plummeting real estate sector.

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“The lowering of down-payment ratio is beyond market expectations, while scrapping the minimum mortgage rate is well expected by the market,” said Shujin Chen, head of China financial and property research at Jefferies Hong Kong Ltd. “Investors are more willing to chase property stocks on speculation of a series of upcoming supportive policies before the Third Plenary Session in July,” she said.

Policymakers are speeding up efforts to revive demand for homes and address a glut in supply as the nation’s property crisis deepens. The sector has been the biggest drag to the economy, and its recovery was seen as crucial for the stock market rebound to continue. 

New-home prices in 70 Chinese cities, excluding state-subsidized housing, slid 0.58% in April from March, the steepest decline in a decade. China’s home sales plummeted about 47% in the first fourth months of this year, while unsold inventory is hovering at an eight-year high. 

While the policies are encouraging, Jefferies’ Chen said fundamental challenges remain if the market continues to expect a downward trend in home prices. 

While China Vanke Co. was the second most traded stock on the mainland on Friday, short interest of its Hong Kong-listed shares was hovering around the highest in more than a year, showing some investors remain skeptical about the recent rally.

The new measures suggest that the central government is serious and determined to address the property market crisis, Raymond Cheng, head of China property research at CGS International Securities HK Ltd., wrote in a note. 

--With assistance from John Cheng and April Ma.

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