China Property: Potential Policy Easing Ahead?

China property sector shares have rallied by 10% since 18 Sept 2026, likely based on investors' expectation of a potential mortgage rate subsidy launched before the National Day holiday, with 40-100bp anticipated for a newly originated mortgage for a primary home and first home, but not for existing mortgages. The current first home mortgage rate is 3.05%; assuming a 40-100bp cut, that would fall to 2.05-2.65%, vs tier 1 and tier 2 cities rental yields of 1.7% and 2.4% respectively (50 cities rental yield reached 2.41% as of July 2026). More importantly, we see more signs of rental price stabilization due to reduced supply from commodity housing completion and social housing, suggested by a falling vacancy rate in tier 1 cities' suburbs districts. Two uncertainties remain: 1) existing mortgages and secondary transactions may not be included (new and secondary home transactions each accounted for around 50% of total in 2025);