Highlights

• The market is again abuzz with rumours of a nationwide mortgage-interest subsidy. With mortgage balance contraction having accelerated sharply in 2026, we see a marginally higher possibility of mortgage rate subsidy. A 100bp one-year subsidy scheme covering new first-home loans would cost about Rmb23b a year, which is 0.1% of annual fiscal income.
   
• We remain cautious about recent rumours that the government has provided window guidance for banks to extend loans to Vanke.
   
• A potential mortgage-interest subsidy is worth watching out for. However, share prices could correct if the subsidy comes later or is smaller in scale than expected. Maintain UNDERWEIGHT. Our top picks are COLI and CR Mixc.

Analysis

• Market again abuzz with rumours of a nationwide mortgage-interest subsidy. There has been market speculation during the past week that the government may introduce a nationwide mortgage-interest subsidy before end-Sep 26. Rumours suggest that combined central and local subsidies could cut effective mortgage rates for first-time buyers of new homes by 40-100bp. Including this latest round, similar rumours have surfaced at least three times since Nov 25.
   
• Mortgage rate subsidies have been adopted by a growing number of cities to stabilise their housing markets, but tight local finances limit the size of packages. So far, around 20 cities have introduced their own mortgage rate subsidy schemes. Many of the schemes mainly target homebuyers who sell their existing homes and use mortgage financing to purchase new homes. The interest subsidy is generally capped at around Rmb25,000–50,000 per buyer. However, the rollout of these policies has so far been relatively limited across cities, with total subsidy budgets ranging from only Rmb100m to Rmb200m per city. This may be mainly because the subsidies are funded and implemented by local governments, and are thus constrained by the tight financing of local governments.