(Yicai) March 10 -- Zhai Meiqing, a member of the National Committee of the Chinese People's Political Consultative Conference, has suggested that China should implement "mortgage interest subsidies" to boost market confidence.

Targeted interest subsidies for house loans should replace general interest rate cuts, with a subsidy of 50 to 75 basis points for first-home buyers, with an additional 20 to 25 bps for families with multiple children and new urban residents, said Zhai Meiqing, who is also chairwoman of HeungKong Group. Outstanding mortgages should also be subsidized by about 50 bps, she added.

Multiple Chinese cities have already tried using mortgage interest subsidies. For example, Nanchong launched a policy that provides a one-time financial subsidy of 1 percent on mortgages for couples who register their marriage for the first time earlier this month, with loans of up to CNY200,000 (USD29,060). Changchun, Wuhan, and Nanjing have been exploring such policies since the end of 2023.

Zhai also suggested piloting a "buying a house and receiving consumption vouchers" program in key cities, with coupons for household appliances, cars, and other goods based on the home price, as well as exploring an increase in the special additional deduction for personal income tax related to mortgage interest, alleviating the pressure on residents to repay loans and unleashing consumer potential.

The special additional deduction for personal income tax related to mortgages should be raised to CNY3,000 from CNY1,000 (USD434 from USD144.70) per month, with a maximum duration of 240 months, said Yao Jinbo, a deputy to the National People's Congress and chairman and chief Executive officer of 58.Com.

China's real estate market policies, which are being implemented in a "gradual and cautious" manner, have not achieved the expected results, noted Liu Yonghao, a CPPCC member and chairman of New Hope Group. The country must introduce a series of strong policies in a concentrated manner, coordinating efforts across financial, tax, and housing construction departments to work together effectively, he stressed.

The suggestions address the pain points related to the affordability constraints faced by specific groups, such as new residents and multi-child families, according to Yan Yuejin, deputy director of the E-House China Research and Development Institute. The measures would help reduce the holding costs for homebuyers and activate the "sell old and buy new" exchange, he pointed out.

However, mortgage interest subsidies are demand-side cost subsidies that cannot independently resolve deeper contradictions, such as asset price issues and structural imbalances in supply and demand, according to the fixed income department of Soochow Securities. A "one-size-fits-all" national policy is considered unrealistic, it added.

A top-down approach will most likely be adopted in the future, where local policies are tailored to specific cities. This will prioritize new first-home loans and implement pilot programs in cities with high house prices and significant discrepancies between interest rates and rental yields.

Depending on the outcomes and available financial resources, policies may gradually expand to address demand for improved housing or specific existing loans.

Editor: Martin Kadiev