BEIJING (Reuters) - China's eastern metropolis of Hangzhou, among the country's most thriving cities, on Thursday said it will lift all home purchase restrictions to shore up its real estate market, raising the prospect of other cities following suit.

As of May 9, Hangzhou's government will no longer vet the eligibility of potential buyers, the city housing authority said in a notice.

Hangzhou is capital of the wealthy Zhejiang province and boasts some of China's most desirable and expensive real estate. That led local authorities to impose home purchase curbs to deter speculation.

Home demand has sagged across the country since 2021, hitting even China's traditionally hot markets such as Hangzhou, as a debt crisis among property developers and a continued decline in prices chilled buyer sentiment.

Chinese authorities have been ramping up measures to prop up the troubled sector, but many of the policies have been piecemeal in nature or have only a limited, short-term impact.

In Hangzhou, new home prices edged up 1.0% year-on-year in March, the slowest pace in nearly six years, according to the latest data from China's statistics bureau.

In April, the city's new home sales stood at 310,000 square metres, slumping 75% year-on-year, a survey from real estate firm CRIC showed.

On April 30, a meeting of Communist Party leaders called for measures to support the property sector, saying it would improve policies to clear mounting housing inventories.

A day earlier, the southwestern city of Chengdu, home to 21.4 million residents, dropped all home-buying limits.

Hangzhou is the first city to completely abolish purchase restrictions after the meeting, said analyst Yan Yuejin at E-house China Research and Development Institute.

The city's decision will be "very inspiring" for other cities that still have curbs on home purchases, and a wave of cities will see unprecedentedly large-scale policy easing starting in May, Yan said.

The city of 12.5 million people is China's answer to Silicon Valley, being home to technology majors including Alibaba Group ( BABA ) and NetEase. It has been a magnet for tech talent from all over China, further elevating housing demand.

The policy change is to meet that demand and promote the healthy development of the real estate market, the housing authority said.

The initial public reaction on social media platform Weibo was less than enthusiastic.

"What's the point of cancelling the purchase restrictions? Hangzhou's (high) property prices make it unaffordable for us to buy still," one netizen commented after the announcement.

'INEFFECTIVE'

Beijing and Shenzhen have announced easing measures to allow some residents to buy new flats in certain districts.

"Relaxing purchase restrictions has proven ineffective at reviving demand," said Joe Peissel, an economic analyst at Trivium China.

"That's because there are massive excess supplies of housing - both new builds and secondhand units - that weigh on prices and deter buyers from re-entering the market."

Some so-called tier-one cities like Beijing, Shanghai and Shenzhen are still enforcing strict home purchase restrictions.

Analysts do not expect the tier-one cities, which also include Guangzhou, to relax all their purchase restrictions anytime soon.

Guangzhou recently eased restrictions on large flats.

"There is not going be a blanket drop for restrictions in all tier-one cities, but certainly they will continue to be relaxed until there is a sustainable rebound in demand," said Peissel.

"Prices need to fall much further before the property market reaches a new equilibrium and homebuyers have the confidence to re-enter the market," Peissel said.

During the five-day May Day holiday, China's average per-day home sales by floor area plunged 47% from a year earlier, figures from the China Index Academy showed, among the country's largest independent real estate researchers.

The volume of sales was also down around 30% from pre-pandemic levels in 2019 for the same period.