China property: UBS sees China’s new mortgage subsidy as below expectations due to its RMB1.5 million home-value cap

Overview

UBS assesses China’s newly announced residential mortgage-interest subsidy and concludes that its relatively low RMB1.5 million home-price eligibility cap makes the policy less supportive than investors may have expected. The firm expects a modest demand effect concentrated in specific city tiers and transaction types.

Core views

On 29 September, the Ministry of Finance, the People’s Bank of China and the National Financial Regulatory Administration announced a residential mortgage-subsidy programme effective 1 October 2026 for an initial one-year period. UBS argues that the measure is likely to fall short of investor expectations, chiefly because only homes priced at or below RMB1.5 million qualify. The programme is restricted to newly originated commercial mortgages for first-home purchases, properties with gross floor area of no more than 120 square metres, and purchases within the price cap. Eligible households receive an annual interest subsidy equal to 1 percentage point of outstanding loan principal for up to five years. The eligible principal is capped at RMB1 million per household, producing a maximum cumulative subsidy of RMB50,000. The central and local governments will bear 90% and 10% of the cost, respectively. UBS illustrates the economic effect using a RMB1.5 million home, a RMB1 million mortgage, a 20-year tenor and a 3.05% mortgage rate. Total lifetime interest expense would be RMB337,000; the maximum RMB50,000 subsidy would therefore offset about 15% of cumulative interest costs, but only 2.7% of total homeownership cost, defined as the purchase price plus interest. Holding affordability constant, UBS estimates this could increase housing demand by roughly 2.7%, explaining why it sees the aggregate stimulus as limited rather than transformative. The firm expects benefits to be unevenly distributed. Lower-tier cities should see greater support for new-home sales because transaction values there are more likely to meet the RMB1.5 million threshold. In Tier-2 cities, the policy should primarily support existing-home transactions. UBS identifies KE Holdings as a principal beneficiary through its non-Lianjia existing-home business and some Tier-2-city Lianjia business; these activities accounted for an estimated 20% of its 2025 profit contribution.

Analysis framework

UBS evaluates the policy’s eligibility rules, then quantifies the maximum household saving against lifetime mortgage interest and total ownership cost. It translates the resulting affordability improvement into an estimated demand sensitivity and maps the likely effect across city tiers and transaction channels.

Methodology notes

• Industry AnalysisSupply-demand framework

  Affordability-based housing-demand sensitivity analysis

  UBS compares the subsidy with the total cost of buying a home and, holding affordability constant, estimates the resulting potential increase in housing demand.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• KE Holdings

  UBS expects its non-Lianjia existing-home business and certain Tier-2-city Lianjia business to benefit from increased eligible existing-home transactions.

  Strengths

  Relevant businesses accounted for an estimated 20% of 2025 profit contribution.

  Weaknesses

  The policy’s low property-value cap limits the addressable transaction base.

  Risks

  The expected benefit depends on policy eligibility translating into stronger Tier-2 existing-home transaction activity.

Key data

• Programme effective date1 October 2026Initial implementation period is one year.
• Eligible property-value capRMB1.5 millionA key reason UBS considers the policy below expectations.
• Maximum eligible loan principalRMB1 million per householdUsed to calculate the subsidy cap.
• Maximum cumulative subsidyRMB50,000Based on a 1 percentage-point annual subsidy for up to five years.
• Illustrative lifetime mortgage interestRMB337,000Assumes a RMB1 million, 20-year mortgage at a 3.05% rate.
• Estimated demand uplift~2.7%UBS estimate holding affordability constant.
• KE Holdings relevant 2025 profit contribution~20%UBS estimate for its non-Lianjia and certain Tier-2 Lianjia existing-home businesses.

Impact & implications

UBS expects the subsidy to provide targeted rather than broad support: lower-tier-city new-home sales should benefit most where prices fall under the cap, while Tier-2 existing-home transactions may support KE Holdings’ relevant brokerage activities.

Risks

• UBS identifies demand-restricting government administrative policies and mortgage-lending constraints as downside risks for China’s property market.
• Tight financing conditions for Chinese developers are a downside risk.
• Residential growth in China’s economy may be weaker than expected.
• Policy loosening that effectively returns residential sales, investment and prices to positive year-on-year growth is an upside risk.
• Large-scale developer asset disposals at fair prices could ease liquidity pressure and represent an upside risk.