China Property: China’s new mortgage subsidy supports affordability, but its narrow first-home scope limits the near-term demand boost

Overview

Goldman Sachs assesses China’s nationwide mortgage interest subsidy announced on September 29 and effective October 1. It concludes that the measure improves affordability and could support housing prices, but is materially narrower than expected because it applies only to new first-home mortgages rather than existing borrowers.

Core views

The Ministry of Finance, People’s Bank of China and NFRA introduced a nationwide mortgage interest subsidy effective October 1 after similar local initiatives in more than 20 cities. The policy applies to new commercial mortgages for first-home purchases issued during a one-year window, excludes refinancing, and is limited to homes of up to 120 square metres and Rmb1.5mn. It provides a 1% annual interest subsidy for up to five years, with eligible principal capped at Rmb1mn per household; funding is split 90% by the central government and 10% by local governments. Goldman Sachs considers the initiative supportive of affordability and housing pricing, but expects only a modest aggregate demand boost because existing mortgage borrowers are excluded and the subsidy duration is limited. Its repayment scenarios assume a Rmb1.5mn home, a Rmb1mn capped mortgage principal and 67% loan-to-value. A 100bp subsidy lowers the annual mortgage rate from 3% to 2%. With a 30-year tenor, first-five-year monthly repayments fall from Rmb4,216 to Rmb3,696, a Rmb520 or 12% reduction, equivalent to about 10% of projected 2026E household disposable income. With a 40-year tenor, monthly repayment falls to Rmb3,028, a Rmb1,188 or 28% reduction, equivalent to 24% of 2026E disposable income; however, total repayment rises 11% versus the base case. The income comparison uses Goldman Sachs economists’ assumed 5.8% year-on-year household-income growth for 2026E. Goldman Sachs estimates roughly Rmb15bn in annual household mortgage-interest subsidies. The estimate is based on Rmb7.2tn of primary-home sales and Rmb5.6tn of secondary-home sales during October 2026 to September 2027, assumed eligibility rates of 20% and 18%, mortgage usage of 90% and 60%, respectively, and an 80% loan-to-value assumption. The estimate is substantially smaller than the Rmb100bn fund established earlier in 2026 to support domestic demand through interest subsidies, financing guarantees and risk compensation. The report’s price-to-fair-value analysis suggests that a 2% mortgage rate could create room for price appreciation, particularly in lower-tier cities and with longer mortgage durations. Using a 0.5% real mortgage rate, 60% loan-to-value and a 1.5% long-term inflation assumption, the implied average-selling-price gap to fair value ranges from negative 44% to positive 79% depending on city tier and mortgage duration. Longer-tenor scenarios show more favorable implied gaps for Tier-2 and Tier-3 cities, linking lower debt-service burdens to potential affordability-led price support. Goldman Sachs regards the current program as a starting point that could be expanded through a broader definition of first-home eligibility, a higher property-price cap, or a subsidy period beyond five years. It believes any next-round expansion will depend on physical housing-market performance over the coming six to 12 months. Since covered developers’ shares had risen 16% on average from the September 15 low, compared with declines of 1% for MSCI China and 2% for CSI 300, the narrower scope could cause near-term volatility. Nonetheless, the report argues that average 2026E P/B of 0.5x for coverage and 0.6x for stronger SOEs already reflect slower ROE improvement after the 828 policy and a slower property-price recovery. It retains Buy ratings on CR Land, COLI, Jinmao and Greentown, and Sell ratings on Seazen and Vanke A/H.

Analysis framework

Goldman Sachs first compares the policy’s eligibility, subsidy size, loan cap and funding structure with its prior expectations. It then models household repayment savings under alternative mortgage tenors, estimates the aggregate fiscal benefit using housing-sales and mortgage assumptions, and evaluates potential price effects through a real-mortgage-rate-versus-rental-yield fair-value framework. Finally, it places the policy in the context of recent developer share-price performance, valuation multiples and existing company ratings.

Methodology notes

• Industry AnalysisSupply-demand framework

  Housing affordability and demand-impact analysis

  The report links lower mortgage payments to buyer affordability and potential housing demand, while limiting the expected effect because only a restricted group of new first-home buyers qualifies.

• Valuation methodsPB valuation

  2026E price-to-book valuation comparison

  Goldman Sachs compares developers’ 2026E P/B multiples and argues that prevailing valuation already reflects slower expected ROE improvement and housing-price recovery.

• Other

  Real mortgage rate versus rental yield price-to-fair-value framework

  The report estimates housing-price gaps to fair value by combining real mortgage rates, loan-to-value assumptions, mortgage durations and observed rental yields.

Asset mapping & comparison

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

• CR Land (1109.HK)

  Covered developer with a retained Buy rating.

  Strengths

  Retained Buy rating.

  Comparison

  Included among stronger developers supported by Goldman Sachs’ valuation comparison.

  Risks

  Near-term share-price volatility if policy support remains narrower than expected.

• COLI / cou (0688.HK)

  Covered developer with a retained Buy rating.

  Strengths

  Retained Buy rating.

  Comparison

  Classified as a central SOE in the valuation comparison.

  Risks

  Near-term share-price volatility if policy support remains narrower than expected.

• Jinmao (0817.HK)

  Covered developer with a retained Buy rating.

  Strengths

  Retained Buy rating.

  Comparison

  Classified as a central SOE in the valuation comparison.

  Risks

  Near-term share-price volatility if policy support remains narrower than expected.

• Greentown (3900.HK)

  Covered developer with a retained Buy rating.

  Strengths

  Retained Buy rating.

  Comparison

  Included in Goldman Sachs’ developer valuation comparison.

  Risks

  Near-term share-price volatility if policy support remains narrower than expected.

• Seazen (1030.HK)

  Covered developer with a retained Sell rating.

  Weaknesses

  Retained Sell rating.

  Comparison

  Included among other developers in the valuation comparison.

  Risks

  Near-term policy support may prove too limited to materially improve demand.

• Vanke (A/H) (00002.SZ, 2202.HK)

  Covered developer with retained Sell ratings on both A and H shares.

  Weaknesses

  Retained Sell ratings.

  Comparison

  Included among other developers in the valuation comparison.

  Risks

  Near-term policy support may prove too limited to materially improve demand.

Key data

• Policy effective date1 October 2026Nationwide mortgage interest subsidy following the September 29 joint announcement.
• Interest subsidy1% per year for up to 5 yearsApplies to eligible new first-home commercial mortgages.
• Eligible loan principal capRmb1mn per householdProperty price is capped at Rmb1.5mn and gross floor area at 120sqm.
• Base-case monthly repayment savingRmb520; -12%30-year mortgage scenario, reducing payments from Rmb4,216 to Rmb3,696 in the first five years.
• Longer-tenor monthly repayment savingRmb1,188; -28%40-year mortgage scenario, reducing payments to Rmb3,028.
• Estimated annual household subsidyRmb15bnGoldman Sachs estimate based on eligible primary and secondary home transactions and mortgage usage assumptions.
• Covered developers’ share-price move+16% on average since 15 SeptemberCompared with -1% for MSCI China and -2% for CSI 300.
• Coverage valuation0.5x average 2026E P/B; 0.6x for stronger SOEsGoldman Sachs considers this valuation to reflect slower ROE improvement and property-price recovery.

Impact & implications

The report says the measure can improve affordability and potentially support average selling prices, especially in lower-tier cities and longer-tenor mortgage scenarios, but is not broad enough to deliver the larger consumption or housing-demand effect previously anticipated. A more durable valuation recovery would require stronger sales and further evidence of local implementation of the 828 policy.

Risks

• The policy’s restriction to new first-home mortgages, exclusion of existing borrowers and five-year subsidy duration limit the expected demand and consumption impact.
• Near-term developer share-price volatility is possible because recent share-price gains reflected expectations for broader policy stimulus.

What to watch

• Fourth-quarter housing sales performance; Goldman Sachs describes September sales as encouraging so far.
• Further local-government announcements on execution of the 828 policy.
• Physical housing-market performance over the next six to 12 months, which Goldman Sachs sees as key to any expansion of the subsidy program.