China will cut mortgage rates and allow local authorities to turn unsold homes from developers into affordable housing, in a series of drastic measures by Beijing aimed at propping up the country’s faltering property market.

The People’s Bank of China said it would scrap the minimum rate of interest and reduce down-payment ratios to 15% for first-time buyers and 25% for second homes. It will also create a 300bn yuan (£32.8bn) facility to support local state-owned companies to buy homes at reasonable prices, it said in a series of statements on Friday.

The announcement is China’s biggest effort yet to restore confidence in its ailing property market after data released on Friday showed month-on-month house prices were falling at the steepest rate in a decade despite previous efforts to curb losses.

In a speech, the Chinese vice-premier He Lifeng said that local governments, developers and financial institutions had to take responsibility for the property sector since it “related to the interest of the masses and the big issue of economic development”.

The measures follow previous attempts by the Chinese government to stabilise the property market in a crisis that began when Evergrande, which was the second largest property developer by sales, declared itself to be in default in 2021. Evergrande filed for bankruptcy in New York in August. In January, a court in Hong Kong ordered the company to be wound up, reigniting fears of a credit crunch as unpaid debts rippled out to other companies and lenders.

Markets were buoyed up by Friday’s announcement, with real estate stocks up 9% on China’s CSI 300 index.

Since 2021, several large property developers have defaulted on debts. Also on Friday, another struggling Chinese developer, Country Garden, had a hearing in a Hong Kong court over its potential liquidation adjourned to 11 June.

Previous attempts to get the Chinese property market moving have struggled. In the first quarter, the average interest rate on newly granted mortgages fell to 3.69%, the lowest since records began in 2009, but a lift in the number of people buying houses did not follow.

Some analysts were sceptical that lowering rates could stimulate demand for property. “The impact of lowering mortgage rates would be limited because there’s still a lack of demand and that’s why we need government to be the buyer as a last resort,” said Larry Hu, the chief China economist at Macquarie.

At its peak, the property sector contributed roughly a quarter of the growth of the Chinese economy. Halted construction work and defaults among developers have put about 5 million people at risk of unemployment and spilled over into protests.

More than 1,770 demonstrations relating to housing were measured by Freedom House’s China Dissent Monitor project between June 2022 and October 2023. Two-thirds were protests by homeowners and buyers facing delays, alleged fraud and shoddy workmanship, but some came from construction workers demanding unpaid wages.

Analysts said at least 7tn yuan in central funding support would be needed to swiftly bring inventory of unsold housing back to normal levels, far more than the 300bn yuan facility announced by the government. “The likely scenario is a faster recovery in large city property markets over the next year or so, but with the rebound in smaller cities trailing behind over several years,” said Duncan Wrigley, the chief China economist at the analysts Pantheon Macroeconomics.

In April, new home sales dropped 0.6% compared with the previous month, after a 0.3% fall in March, while existing home sales dropped 0.9%, the steepest decline since September 2014, according to data released on Friday.

Retail sales growth came in at 2.3% in April on Friday, lower than expected. Only industrial production data surpassed expectations, driven in part by the transition to digital manufacturing, suggesting China is still some way off hitting its growth target of 5% in 2024, analysts said.