The interest rate cut is set to become another major boon for the sluggish property market and, following the easing of mortgage rules on Sept. 30, will fuel demand, analysts said.
Starting on Nov. 22, Chinese commercial banks adjusted their deposit and lending rates following an announcement on Friday by the People's Bank of China (PBOC).
The central bank lowered the one-year benchmark lending rate by 40 basis points to 5.6 percent and the one-year deposit rate by 25 basis points to 2.75 percent.
These concurrent rate cuts, the first time this has been done since July 2012, are good for mortgage borrowers, UBS chief China economist Wang Tao said in a note.
"The biggest near term beneficiary group will be mortgage borrowers, as mortgage rates will be reduced alongside the benchmark lending rate, helping to support demand," she said.
Chief analyst at Centaline Property, Zhang Dawei, said the housing market, especially in first-tier cities, stood to benefit the most from the rate cuts.
The lending rate cut translates into remarkable discounts for first-time home buyers and will have a strong psychological impact on them, he said.
Zhang explained that as a result of the post-cut benchmark mortgage rate, which stands at 6.15 percent, people with a 20-year mortgage loan of 1 million yuan (162,866 U.S. dollars) will save about 234 yuan each month.
"The rate cut and previous mortgage rule easing are two boons for the housing market, both psychologically and in reality," he said.
The Chinese property market suffered a notable downturn in 2014, with weak market sentiment and confidence, sluggish sales, falling prices, and elevated and rising inventory, all weighing on the industry's outlook and consumers' confidence.
On Sept. 30, the PBOC announced measures to loosen lending rules for mortgages. The rule easing expanded the pool of eligible home buyers and increased the loan ceiling by categorizing second home buyers who had no outstanding home-loans as first-time buyers.
Data, released by property consultancy firm E-House China and published in the Security Times this month, shows that home sales in major Chinese cities rose notably in October from the previous month. In the four first-tier cities -- Beijing, Shanghai, Guangzhou and Shenzhen -- 3.06 million square meters of second homes were sold in October, up 15.2 percent month on month.
Also in October, some of the top 10 Chinese developers started to invest in more land amid the improving market sentiment, E-House China said.
Zhang said China's property market was likely to warm up further on the back of the mortgage rate cut. In the four first-tier cities, especially Beijing, prices of second homes had already reported month-to-month rise in October, Zhang said.
Market sentiment and home buyers' expectations have improved notably. A raft of stimulating policies is likely to cause some panic among potential home buyers in first-tiers cities, he said.
Zhang also maintained that the property market in third- and fourth-tier cities was unlikely to warm up given their high housing inventories.
The housing inventory in 35 Chinese cities hit a 5-year high of 280.13 million square meters by the end of September, up 23.8 percent year on year, according to E-House China.
Liang Hong, chief economist of China International Capital Corp. (CICC), said the interest rate cut would help lower the risk of a dramatic housing market correction.
House sales and prices are likely to stabilize thanks to lower mortgage rates and the mortgage rule easing on Sept. 30, she said.
"But house prices are unlikely to rise remarkably given the high housing inventory," Liang added.