(Adds media report on policy relaxation; market reaction)
Guangzhou has permitted developers to slash sale prices of homes by as much as 20%, the first among China's four top-tier cities to be allowed such dramatic discounting, as tepid demand plagues even the country's economically most vibrant cities.
Over 200 cities, mostly small and mid-sized cities, have taken steps to boost fragile demand this year, including subsidies, smaller down payments, cuts in mortgage interest rates and allowing bigger mortgages.
But the four tier-one cities - Beijing, Shanghai, Shenzhen and Guangzhou - had resisted major policy changes that could sharply reduce the value of their residential real estate, even as homebuyers persistently stayed away amid a bear market.
Guangzhou, a city of nearly 19 million people, widened developers' permissible discounting in home sale prices to a maximum of 20% from 6%, financial news outlet Yicai reported on Thursday.
Calls to Guangzhou's housing regulator seeking comment went unanswered.
Among the tier-one cities, average home prices in Guangzhou were the weakest in August at 25,000 yuan ($3,580) per square metre versus Shenzhen's 55,000 yuan, according to China Index Academy, one of China's largest independent real estate research firms.
In the first half of this year, only 39,618 new homes were sold in Guangzhou, representing a 35% slide from a year earlier, Yicai said.
"Guangzhou was relatively strict on price setting previously," said Yan Yuejin, research director of Shanghai-based E-house China Research and Development Institute.
"The adjustment on the price limit policy highlights the new change in policy focus, that on top of credit policies, administrative policies are also further relaxing.
"It's an important example/manifest of 'one city one policy'."
Shares of Chinese property developers rallied on Thursday on hopes that cities in the mainland will adopt more such measures, with the Hang Seng Mainland Properties Index in Hong Kong jumping more than 5% while China's CSI Real Estate Index rose more than 4%.
Separately, financial information outlet REDD reported on Thursday, citing two sources, that President Xi Jinping said in a closed-door meeting in late August that reasonable relaxation policies should be implemented as soon as possible to turn around the housing market, although the four top-tier cities would be excluded.
Recent data shows China's property sales continue to decline, with the sector in crisis.
A credit crunch since last year, triggered by tighter debt cap rules, has pushed some major developers into defaulting on bond payments, while some buyers have threatened to stop paying mortgages for unfinished projects that were presold.
S&P Global Ratings said on Thursday that the sector needs up to 800 billion yuan to ensure distressed developers can finish presold homes.
"If falling sales tip more developers into distressed territory, things will get worse," S&P said.
"In our downside scenario, that number could rise as high as 1.8 trillion yuan to 2 trillion yuan." ($1 = 6.9728 Chinese yuan renminbi) (Reporting by Liangping Gao, Clare Jim and Ryan Woo; Editing by Sumeet Chatterjee, Edwina Gibbs and Edmund Klamann)