(Bloomberg) -- A major city in China has eased a key restriction on housing purchases, paving the way for more cities to follow suit and prop up demand as the property slump in the world’s second-biggest economy drags on. 

Wuhan, China’s eighth-most populous city, will allow local families to buy an additional home in areas with purchasing caps, according to a local government statement. The city in central China where Covid-19 cases first emerged more than three years ago, supports “reasonable” home purchases, according to the statement.

With a population of 13 million, Wuhan is the first major city to clearly allow homeowners to buy additional units, easing a ban put in place in many metropolitan areas to prevent speculation. 

“It’s now much more likely that others will follow, most significantly other big cities,” said Chang Shu, chief Asia economist at Bloomberg Economics. “With a more supportive stance from the central government, local governments have been taking steps to shore up their housing markets.” 

Read a Bloomberg Economics analysis of China’s property rescue

China’s more than year-long housing downturn is persisting even as local authorities cut mortgage rates and ease down-payment requirements to entice buyers. The 100 biggest real estate developers saw new home sales drop by a third in January from a year earlier, according to preliminary data from China Real Estate Information Corp. 

In a 16-point statement, the Wuhan government said it would modify the restriction on homebuyer eligibility based on home prices and inventory, drawing from the central bank, which is allowing cities to remove a mortgage rate floor. 

Last month, the People’s Bank of China said cities are eligible to remove minimum interest rates on loans for first home purchases if prices drop month-on-month and year-on-year for three consecutive months. 

A Bloomberg Intelligence gauge of Chinese property developer shares rose 2.5% on Tuesday morning, extending a rally that began late last year when the government ramped up support for the industry. The index has climbed 65% since Oct. 31. 

“Restrictions centering around how many apartments a family can buy used to be the least flexible policy lever in China,” said Yan Yuejin, research director at E-house China Research & Development Institute. “The easing by the Wuhan government has strong implications, showing that even such hard rules could be made more flexible.”  

Yet market watchers are skeptical that such moves will bring China’s housing market back to its pre-Covid heyday, especially now that the population is declining. Goldman Sachs Group Inc. analysts are expecting an L-shaped recovery, projecting home sales will fall 8% this year, according to a Monday note. 

Easing at the local level will probably help stabilize housing markets in big cities, but not lower-tier cities, Bloomberg Economics’ Chang said. “The big underlying problem for smaller cities hasn’t gone away, and won’t for years — housing supply far exceeds demand, especially in smaller cities.” 

(Updates with more analyst comments, stock market moves)

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