Divorce, a by-product of China's new real estate policy

Divorce, a by-product of China's new real estate policy Shanghai Zao The Chinese government announced this month that it will carry out a new round of housing price controls, and social networking sites are full of complaints from homeowners. For...

Shanghai: The Chinese government this month announced a new round of housing price controls, and social networking sites were filled with complaints from homeowners. In order to sell their properties before the regulations came into effect, they queued up in front of the housing authority.

Some couples even take a more extreme approach: divorce.

According to the new regulations, individuals selling houses will be taxed at 20% on the profits gained from the transfer. Rumor has it that one way to avoid paying this tax is to divorce your spouse, at least in name only. As a result, divorce applications in Shanghai and major Chinese cities have risen sharply in the past week.

The sharp increase in divorces once again shows how unstable the real estate issue has become over the past decade and how opposed the public is to new taxes.

Worried that housing prices would rise out of control and threaten social stability, the central government has continuously introduced policies aimed at curbing demand and curbing speculation.

Home buyers, home sellers, real estate developers, and even local governments, which often rely heavily on selling land for revenue, are trying to find ways to circumvent government restrictions.

"They always do this," said Du Jinsong, a Hong Kong-based real estate analyst at Credit Suisse. "Whenever new policies are introduced, people always find ways to get around the regulations."

China's real estate market has been an important engine of economic growth over the past decade, but the recent surge in housing prices has raised concerns about inequality and a housing bubble.

On March 1, just days before China’s annual Two Sessions, the all-powerful State Council (led by Premier Wen Jiabao) announced a series of new real estate policies. Analysts say these policies have shaken the housing market.

The State Council said in a statement that local governments should strictly implement a previously issued regulation that requires a 20% tax on the profits from the transfer of second-hand houses.

Housing authorities and real estate transaction centers in major cities were suddenly crowded with people hoping to sell their houses before the regulations took effect. (Most local governments have yet to announce effective dates for their policies.)

Something weirder happened. Marriage registration offices in Shanghai, Nanjing, Wuhan and other major cities are also crowded with divorcees who admit to falsifying divorces to avoid property taxes.

Many people explain that after a couple who owns two homes files for divorce, they can claim that they each only have one home. This way, they can avoid one of their homes being listed as a second home. According to the new regulations, if the second home is sold, they must pay 20% tax on the profit from the sale. After the divorce, they sold a house and could remarry.

A marriage registration office in Shanghai's Zhabei District said it received a total of 53 divorce applications on Tuesday, far exceeding the normal level.

On Friday, 33-year-old Frances Tao and her husband came to a marriage registration office in Pudong District. She admitted that they came to apply for divorce, but not to avoid the 20% second-hand housing transaction tax, but to bypass another restrictive policy, that is, when buying a second home, buyers must pay a much higher down payment than when buying the first home.

Francis Tao said that through divorce, one of them can buy a house according to the policy of buying the first house, pay a lower down payment, and the interest rate is also lower.

"We have no choice," said Francis Tao, "but the government and developers are still making a lot of money."

Xu Yan contributed reporting to this article.

>Translation: Chen Liu