Targeted demand-side stimulus and the equity market: evidence from China's mortgage interest-subsidy for first-time homebuyers

On 29 September 2026 China's Ministry of Finance, the People's Bank of China and the National Financial Regulatory Administration issued the Notice on Implementing the Residential Home-Purchase Mortgage Interest-Subsidy Policy (Caijin [2026] No. 95). From 1 October 2026 the central government subsidizes, for up to five years, one percentage point of the annual interest on newly issued commercial mortgages used by first-time buyers to purchase homes of at most 120 square metres and no more than RMB 1.5 million, on subsidized principal of up to RMB 1 million. This paper studies the stock-market response of the A-share real-estate sector to this sharply dated, narrowly targeted demand-side intervention. Using a single-factor market model on the 69 constituents of the CSI All-Share Real Estate Index, the estimated average abnormal return is +3.81% on the event day (29 September 2026), significant at the 1% level under the cross-sectional t (10.67), Patell (12.90) and Boehmer–Masumeci–Poulsen (10.48) tests. An equal-weighted portfolio gives an identical estimate, 94.2% of firms recorded positive abnormal returns, and the aggregate change in market value is about RMB 32.6 billion. The sector had already risen about 4.2% over the prior five sessions and gave back about 1.8% over the five sessions after the National Day holiday. The pattern is consistent with anticipatory pricing of a broader Q3-2026 housing-policy cluster and a partial reversal once the subsidy's modest scope was digested; even a fiscally small, targeted measure can move sector valuations materially, but only partly durably.