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China property stocks jump on hopes curbs will be relaxed

Chinese real estate developers rallied sharply on Friday after official data showed house prices rose at their slowest pace so far this year.

China real estate stocks Poly Real Estate and China Vanke initially eased after the data was released, but later rebounded and were up nearly 6 percent and near 4 percent, respectively, by mid-morning in Asia. Meanwhile Beijing North Star rose 1.2 percent and Gemdale rose 0.6 percent.

Analysts told CNBC investors took the as an encouraging sign that policy makers would likely ease restrictions on the sector.

"If the Chinese economy is really going to grow 7.5 percent, which is the government's target, then they will likely relax further these home purchase restrictions to stabilize the economy and help them achieve the target," said Francis Cheung, head of China and Hong Kong strategy, at research house CLSA.

Read MoreAre China's property vacancies a danger sign?

Average new home prices in China's 70 major cities rose 4.2 percent on year, slower than May's 5.6 percent rise, according to Reuters' calculations based on data released by the National Bureau of Statistics (NBS).

On a month-on-month basis home prices fell 0.5 percent, marking their second consecutive monthly drop after May's 0.2 percent decline.

China's house prices increased at double digit rates throughout most of last year, but began cooling towards the end of 2013 as government tightening measures started to take effect. However, many industry watchers have grown concerned that a too sharp slowdown in the property sector could spell bad news for China's overall economic growth.

Read MoreChina property bubble popping? Not so fast

"The data today shows that there are more cities that are correcting – and things aren't great, so this will help indicate that they [the government] need to do more to stabilize the property market," added Cheung.

Huangpu District, Shanghai
Alan Copson | Photographer's Choice RF | Getty Images
Huangpu District, Shanghai

Zhou How, China economist at ANZ, said expectations that property curbs could be eased further are positive for Chinese developers.

"The market is pricing in policy changes which will help the developers to reduce their unsold inventories in many cities. This has lifted market sentiment in the short term," he added.

How added that easing prices in the Chinese property market were mainly due to cyclical reasons rather than changes to fundamental demand, which he expects to remain robust.

Read MoreWhy China property isn't facing Armageddon

"It will take a while to see the market bottom out…but on the other hand we don't think this is due to any fundamental change in China's property demand. The urbanization process will continue over the next 10 to 15 years," he added.

China's economy expanded 7.5 percent in the second quarter, above expectations for a 7.4 percent rise and in line with the government's annual target, data released earlier this week showed. However, average annual growth for 2014 remains below Beijing's 7.5 annual percent target.

The Chinese government has already taken steps to allow some second and third-tier cities to adjust home buying curbs – although curbs in Beijing, Shanghai, Guangzhou and Shenzhen remain in place.

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