The Ministry of Finance announced on Sept. 29 that the subsidy program will begin Oct. 1, according to state media China Central Television. Eligible buyers can receive an annual mortgage-interest subsidy equivalent to 1 percentage point for as long as five years, with the subsidy applying to up to 1 million yuan ($150,000) in mortgage principal.
The policy applies to purchases of both new and existing homes, but only to first-time homebuyers purchasing properties no larger than 120 square meters (1,292 square feet) and priced at no more than 1.5 million yuan ($224,000).
For a qualifying 1 million yuan long-term commercial mortgage, the maximum subsidy could reduce a borrower’s interest costs by nearly 50,000 yuan.
However, the measure may have limited impact because many of the homes covered by the price cap are outside China’s largest and most populous cities, while concerns over housing prices and household finances continue to weigh on demand.
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Davy Jun Huang, a U.S.-based economist and former columnist for Chinese state media outlet CNTV, told The Epoch Times that the problem facing China’s housing market is not a lack of money available for mortgages but insufficient effective demand from potential buyers.
“The policy therefore represents a shift from simply making borrowing cheaper to having the government directly absorb part of the cost,” Huang said.
Sun Kuo-hsiang, a professor of international affairs and business at Taiwan’s Nanhua University, told The Epoch Times the shift reflects a broader change in the factors influencing Chinese households’ homebuying decisions. These factors include expected income, employment, and future property values.
“If residents expect that home prices may continue to fall, or worry that their future income may decline, they may still choose to save and wait even if mortgage rates fall,” Sun said.
Policy Aimed at Smaller Cities
The 1.5 million yuan price ceiling is likely to sharply limit the program’s reach in China’s largest metropolitan areas.
A report on Chinese news portal Sina said that qualifying properties are concentrated primarily in smaller cities outside major metropolitan areas.
“The 1.5 million yuan housing-price threshold is difficult to cover housing in Beijing, Shanghai, Guangzhou, and Shenzhen,” Huang said. “The cities that truly affect China’s real estate market are often these core cities.”
He said the policy mainly targets smaller cities, where population inflows are generally weaker and housing inventories are relatively high. Lowering the cost of purchasing a home may not be enough to change residents’ expectations about future prices in those markets, he said.
Xu Zhen, a senior professional in China’s capital markets, told The Epoch Times the main beneficiaries would likely be households with a pressing need to buy homes in smaller cities.
However, if property prices continue to fall, the resulting decline in a home’s value could exceed the interest savings provided by the subsidy, Xu said.
It May Not Be Enough
China’s property market has been under prolonged pressure despite a series of measures designed to make home purchases cheaper and easier.
The latest subsidy addresses one part of the cost of homeownership—mortgage interest. However, for households worried about the value of the property itself or their ability to make payments over decades, the savings may be too small to change their decision.
Sun said the subsidy could have some effect on households that have already decided to buy but are waiting for a better price or timing.
For households that have been holding off because they are uncertain about the economy, however, a subsidy of up to 50,000 yuan may not be enough to change their plans, he said.
“The government is subsidizing interest, but what residents may care more about is housing prices and the future asset value of the property,” Huang said.
The Ministry of Finance said the government had previously focused mainly on supporting the supply side of the housing market, including land reserves and local-government purchases of existing commercial housing. The latest measure represents an effort to provide support from the demand side by helping residents with basic housing needs.
However, the policy’s relatively narrow eligibility criteria underscore the challenge facing China’s property market—reducing the cost of a mortgage may help some households that are already ready to buy, while doing little to address broader concerns about housing values, incomes, and employment.
Xiao Bin and Luo Ya contributed to this report.
