In a recent survey of the housing market during the first holiday period following the implementation of the mortgage interest subsidy policy, smaller units under 120 square meters have emerged as the fastest-selling properties, with many projects reporting complete sellouts of such inventory.

In Xinxiang, Henan Province, a sales consultant at an active residential project stated that demand from first-time buyers remains strong, and all units below 113 square meters have already been sold. The policy requires homes to be under 120 square meters, prompting some buyers to specifically select properties that meet this criterion.

The mortgage interest subsidy policy took effect on October 1, 2026, offering a 1 percentage point reduction on eligible home loans. Industry observers note that the vast majority of housing in third- and fourth-tier cities qualifies for the subsidy, with first-time buyers being the primary beneficiaries.

Small and Medium-Sized Units Sell Out First

At a residential project in Xinxiang, a sales consultant named Guo Chen explained on October 3 that only one 113-square-meter unit remained, located on the second floor. When asked about the availability of units under 120 square meters, Guo noted that the project, which launched several buildings in July with a focus on larger layouts, also included units ranging from 89 to 113 square meters.

The sales office saw a steady stream of visitors during the National Day holiday, drawn by promotional offers. Guo stated that small and medium-sized units have sold particularly well, especially after the interest subsidy policy took effect, as some buyers decided to act quickly to save on interest payments.

By October 4, all available units below 113 square meters in the project had been completely sold out. Priced at around 7,000 yuan per square meter, a 113-square-meter unit with a 15% down payment and a 40-year equal principal and interest loan at the current first-home commercial mortgage rate of 3.25% would have a monthly payment of about 2,505 yuan. With the 1 percentage point subsidy reducing the rate to 2.25%, the monthly payment drops to approximately 2,126 yuan.

Under the current subsidy policy, buyers can save 379 yuan per month, totaling about 22,740 yuan over five years. Guo also mentioned that the project is designed with the concept of "good houses," achieving an actual usable area ratio of over 100%, making the 113-square-meter units more space-efficient than similar-sized properties on the market and more cost-effective than the project's 128-square-meter units.

Some clients have already inquired about the next phase of sales, specifically targeting small and medium-sized units. In the southern part of Xinxiang's urban area, a project aimed at first-time buyers launched additional units during the holiday, featuring 89-square-meter and 112-square-meter layouts as the main offerings. Following the subsidy policy, the project has highlighted lower monthly payments as a key selling point.

A sales consultant at the project estimated that for a 112-square-meter unit, buyers could save over 300 yuan per month after the subsidy, amounting to about 18,000 yuan over five years. The project also offered special holiday promotions, including subsidies for deed taxes, 10,000 yuan for renovation, and free home appliances, totaling nearly 20,000 yuan in savings. Combined with the mortgage subsidy, buyers could save nearly 40,000 yuan.

Most Homes in Third- and Fourth-Tier Cities Qualify

Sun Fang, a real estate agent in Xinxiang with years of experience, began contacting clients before the holiday to schedule viewings. She noted that while some clients traveled during the break, others took the opportunity to look at homes, with one to two groups visiting daily. Since the subsidy policy was announced, several buyers have consulted her about the application process.

According to Sun, housing prices in Xinxiang range from 5,000 to 8,000 yuan per square meter, with most properties meeting the requirement that the home price not exceed 1.5 million yuan. However, the policy also stipulates that the property must not exceed 120 square meters, which most first-time buyer homes or second-hand properties satisfy.

Compared to larger cities, third- and fourth-tier cities like Xinxiang tend to have larger available units, with three-bedroom or larger homes often exceeding 120 square meters and thus ineligible for the subsidy. Some projects include smaller units under 120 square meters, which are more sought after. A survey of several active projects in Xinxiang revealed that most improvement-oriented units exceed 120 square meters and do not qualify for the subsidy.

At one project, the smallest unit is about 121 square meters, and the consultant lamented that being just 1 square meter over disqualifies them. Analysts from the China Index Academy noted that the subsidy policy targets first-time buyers, reflecting a focus on protecting and improving livelihoods. The price and size limits indicate a preference for first-time buyers.

From a city coverage perspective, the China Index Academy stated that the majority of homes in third- and fourth-tier cities, as well as main new housing products in outer and suburban areas of second-tier cities, fall within the eligible range. Most second-hand homes are also covered. First-tier cities see less involvement in new housing but a higher proportion of second-hand homes qualifying.

Willingness to Leverage Rises

Li Yujia, chief researcher at the Guangdong Housing Policy Research Center, told reporters that a 1 percentage point subsidy is equivalent to 100 basis points, representing a significant targeted rate cut. This subsidy can save buyers about one-third of their interest costs, far more impactful than previous LPR cuts of 0.1 to 0.2 percentage points.

Li noted that with a 1 percentage point reduction, mortgage rates drop to around 2%, essentially matching the risk-free rate. This lowers the opportunity cost of borrowing and boosts residents' willingness to take on debt. The subsidy significantly enhances the purchasing power of first-time buyers, especially new urban migrants and young families sensitive to monthly cash flow. Saving several hundred yuan per month reduces repayment pressure, converting some hesitant demand into actual purchases.

According to China Index Academy estimates, total sales of new and second-hand homes nationwide in 2025 will be around 14 trillion yuan. Data from 40 key monitored cities show that in 2025, new homes under 120 square meters and priced under 1.5 million yuan accounted for 33.6% of transactions, while second-hand homes in the same category made up 56.3%. In third- and fourth-tier cities, the proportion of homes meeting these size and price criteria is even higher.

Assuming 50% of homes meet the conditions and first-time buyers account for 50%, about 3.5 trillion yuan of the 14 trillion yuan in transactions would qualify for the subsidy. With a 50% loan-to-value ratio and a 1 percentage point subsidy, the annual subsidy total would be approximately 17.5 billion yuan, totaling about 87.5 billion yuan over five years.