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China mulls relaxing property curbs: how far will it go?

Amid reports that some local governments in China are considering relaxing house ownership restrictions, analysts have tipped the real estate sector as one to watch.

China's CSI property sub index, which tracks property prices in both mainland China and Hong Kong, spiked as much as 4 percent on Wednesday to its highest level since mid-December, as seven property firms hit their 10 percent daily limit. China Resources Land rose over 4 percent and Country Garden Holdings jumped 7.5 percent.

Read MoreUrbanization plan could further cool China property

Analysts told CNBC that an easing of property restrictions could spark a sentiment shift in some of the affected cities, and possibly across China's entire property market.

"In Wenzhou, the city that has seen prices decline for the last two years, the local government has rescinded the home purchase restrictions which are essentially [designed to] keep investor purchasers out of the market," said Michael Klibaner, head of China research at Jones Lang LaSalle in Shanghai.

"I think the rumor circulating is that Hangzhou and a few other cities have also applied to have the same home-purchase restriction policies lifted as well," he added.

Bloomberg via Getty Images | Getty Images

Klibaner and James MacDonald, head of research at China Savills Research, said Hangzhou and Changzhou on China's Yangtze River Delta were cities to watch.

The recent round of curbs on China's red-hot property market have been in place since 2011, as local governments tried to stem speculative buying and banks made it harder for home buyers and small developers to obtain loans.

Property restrictions appear to be having some impact: new home prices rose 8.7 percent in February for the month, compared to January's 9.6 percent rise.

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Recent slack in the Chinese economy, underscored by a string of negative data points in recent months, could make it easier for policy makers to start relaxing the curbs. Exports in February fell 18 percent year on year, for example, undershooting analysts' expectations.

Broader easing?

If rules for specific cities are relaxed, this could act as a prelude to a broader easing of restrictions across China, said Kian Teck, deputy head of research at Singapore-based investment research house Voyage Research.

"The relaxation came at a time where home sales are slow and the recent default of Zhejiang Xingrun exerted pressure on the interest rates of China real estate companies," he said, referring to the collapse of a Chinese property development firm in mid-March.

Read MoreIs China's property sector facing a day of reckoning?

"The strategy is probably to do it in certain cities to monitor the impact on the market before they [policymakers] carry it out across the entire country," he added.

Jones Lang LaSalle's Klibaner said investors shouldn't expect a nationwide lifting of restrictions just yet.

"I think it's likely to be limited to just a couple of cities that have seen persistent price declines. It would be a mistake by the central government to broadly rescind the home restriction policies," Klibaner said.

"Because if you were to really think about it, that would be an admission of failure, that the market can function without investor demand in the market," he added.

Read MoreChina real estate to slow—the question is how much

MacDonald at China Savills Research was also skeptical that authorities would relax property restrictions across China.

"Five years ago, a lot of these policies were nationwide, because the markets were not looked at as being individual. I think that now the policies seem to be a lot more adaptable to the local markets because every market has very different characteristics," he added.

MacDonald said: "I think there's been a change in approach from controlling the property market to potentially loosening restrictions if the economic fundamentals continue to soften."

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.