On November 20, reports indicated that Chinese policymakers are considering a new round of stimulus measures for the real estate market, including mortgage interest subsidies, income tax rebates for mortgage holders, and reductions in property transaction taxes. In a research report published on November 21, Goldman Sachs Research analyzed the potential positive impacts of these policies on housing transaction volumes, prices, and household consumption. This article summarizes the report’s key insights across policy background, market effects, consumption stimulus, and banking risks.

**Policy Background and Key Measures** The proposed policy package includes three main tools: mortgage interest subsidies, income tax rebates for mortgage holders, and property transaction tax cuts. Goldman Sachs emphasized that the design details—particularly whether the policies apply only to new buyers or existing mortgage holders—will significantly influence their effectiveness. A 1-percentage-point mortgage interest subsidy assumption was referenced, drawing from a fiscal interest subsidy program for non-mortgage household loans introduced in August this year. This baseline assumption underpins subsequent scenario analyses.

**Potential Impact on the Housing Market: Significant Price Support** If all three stimulus measures are implemented, their combined effect on new home transactions could equate to a 7%-25% reduction in housing prices. Among these, the mortgage interest subsidy (assuming 1 percentage point) would contribute the most, equivalent to a 5%-15% price drop; income tax rebates would account for 1%-7%, and transaction tax cuts for 1%-3%. Crucially, a 1-percentage-point reduction in mortgage rates would narrow the cost gap between buying and renting. According to Goldman Sachs’ earlier framework, current housing prices still have about 10% downside relative to "fair value," but this policy could bring prices closer to that level.

**Transaction Volumes Likely to Rebound** The policy package not only lowers actual homebuying costs to stimulate demand but also improves market sentiment to boost activity. Goldman Sachs identified three challenges in the current real estate market: 1. Accelerated declines in secondary home prices, even in first-tier cities; 2. Slower sales of high-end new homes; 3. Increased supply of defaulted mortgaged properties. The new stimulus is critical to achieving price stabilization in high-tier cities by the second half of 2026; otherwise, downside risks to this forecast are rising.

**Stimulus Effect on Consumption: Scope Determines Magnitude** If the policies extend to existing mortgage holders—not just new buyers—their impact on consumption would expand significantly. Currently, Chinese households’ mortgage debt service (including principal repayments and interest payments) accounts for about 6% of disposable income, comparable to levels in developed economies like the U.S. If existing mortgage holders receive similar interest subsidies and income tax rebates, households could save approximately RMB 560 billion annually in debt service and tax payments during 2026-2027 (about 2% of total household debt service and taxes in 2024). This figure exceeds half the scale of the government’s RMB 1 trillion consumption stimulus plan in 2025.

Detailed estimates of the three policy tools’ effects on consumption: - **New home transactions**: - Mortgage interest subsidy: RMB 63 billion annual savings - Income tax rebate: RMB 32 billion annual savings - Transaction tax cut: RMB 180 billion annual savings - **Existing mortgages**: - Mortgage interest subsidy: RMB 374 billion annual savings - Income tax rebate: RMB 187 billion annual savings - Transaction tax cut: Not applicable

**Challenges for the Banking System: Profitability Pressures** If mortgage subsidies are funded by banks rather than government fiscal support, bank profitability could be affected. With net interest margins already under pressure, this poses a significant challenge. Three concerning trends were noted: 1. Accelerated price declines for secondary homes even in first-tier cities; slower high-end new home sales; 2. Rising supply of defaulted mortgaged properties; 3. These factors collectively increase banks’ risk exposure when supporting real estate stimulus policies.

**Market Outlook and Investment Implications** The new stimulus is crucial for stabilizing the 2026 real estate market outlook and boosting overall consumption. In the current environment, the timing and scale of policy implementation will shape market direction. Investors should monitor: 1. Policy specifics, especially eligibility scope; 2. Banking system resilience and potential liquidity support; 3. Regional execution differences across cities.

Key risks to watch include: 1. Policy delays or underperformance; 2. Further contraction in banks’ risk appetite; 3. Continued deterioration in developers’ cash flows; 4. Persistent pessimism in household income expectations.

Critical indicators to track: monthly property sales, mortgage applications, consumer confidence indices, and bank asset quality metrics.

**Conclusion and Outlook** The new stimulus could simultaneously benefit the housing market and consumption, but its effectiveness hinges on policy design, particularly eligibility scope. In market terms, a 7%-25% equivalent price reduction could significantly improve homebuying affordability, accelerating price convergence to "fair value." For consumption, the RMB 560 billion annual savings are substantial, exceeding half the 2025 stimulus plan. However, banking sector profitability pressures, structural challenges in real estate, and policy execution uncertainties remain hurdles.

Policymakers must strike a delicate balance between stimulating demand and mitigating risks, while investors should closely track policy evolution and market reactions. Ultimately, stabilizing China’s real estate market is vital not only for the sector but also for broader consumption recovery, financial stability, and economic growth. Whether this stimulus marks a turning point will depend on the precision and execution of the policy mix. Goldman Sachs’ research provides a systematic framework to assess this critical issue, but the market’s trajectory will depend on actual policy rollout and stakeholder responses.