Is split­ting up the new best way to move on up?

China Daily (USA) - - FRONT PAGE - By WU YIYAO in Shang­hai wuyiyao@chi­nadaily.com.cn

Bei­jing civil ser­vant Li Zhen and his wife face a dif­fi­cult de­ci­sion: The cou­ple may need to di­vorce to re­al­ize their dream of a big­ger and nicer home.

If they do not split, at least legally, they may have to pay up to 1 mil­lion yuan ($150,000) in in­come tax if they sell ei­ther of their two small apart­ments, ac­cord­ing to the cur­rent real es­tate pol­icy. This would make their plan to up­grade fi­nan­cially im­pos­si­ble.

But if they di­vorce, with each tak­ing own­er­ship of one prop­erty, they could be spared the tax.

Time ap­pears to be against them, too, as the mar­ket is rife with spec­u­la­tion that Chi­nese banks could tighten lend­ing re­quire­ments for po­ten­tial home­buy­ers, such as de­mand­ing higher down pay­ments, from which un­mar­ried peo­ple would be ex­empt.

“I know that if peo­ple work out what we’re do­ing they’ll de­spise me and even ques­tion my moral­ity,” Li said. “But what can we do?”

The Li fam­ily is not alone. Many hap­pily mar­ried cou­ples in Bei­jing and Shang­hai who have seen house prices soar are fac­ing a sim­i­lar dilemma.

In Bei­jing, fam­i­lies with more than one prop­erty are re­quired to pay a 20 per­cent tax on any profit made from a real es­tate deal. Ac­cord­ing to the reg­u­la­tions, fam­i­lies can own a max­i­mum of two apart­ments.

Some cou­ples in the cap­i­tal have also opted to di­vorce be­fore sell­ing to avoid the tax.

In Shang­hai, civil af­fairs of­fices have been over­whelmed by cou­ples who want to split up due to con­cerns over changes to the rules. Their anx­i­ety was com­pounded on Aug 24 with a ru­mor that the city was to block di­vorcees from buy­ing prop­erty with a 30 per­cent down pay­ment within a year of their breakup.

The strat­egy is to get di­vorced in the morn­ing, buy a prop­erty as a sin­gle per­son (with a down pay­ment of just 30 per­cent of the full price if it’s their first home) in the af­ter­noon, and re­marry the next day.

It’s a method of­ten used by cou­ples who want a new house but don’t want to meet the higher down pay­ment re­quire­ment for a sec­ond home, which is at least 50 per­cent.

On Aug 25, the Shang­hai hous­ing author­ity took to so­cial me­dia to dis­miss the ru­mor. Yet that did not pre­vent more than 130 cou­ples ap­ply­ing for a di­vorce that day at just one of the city’s civil af­fairs of­fices, dou­ble the daily av­er­age, China Econ­omy Weekly reported.

The author­ity dis­missed sim­i­lar ru­mors twice in a week in early Septem­ber, say­ing that pol­i­cy­mak­ers were not con­sid­er­ing chang­ing the po­lices re­gard­ing prop­erty pur­chases.

By Thurs­day, five so­cial me­dia ac­counts had been closed per­ma­nently for spread­ing the ru­mors, with 13 more sus­pended for about a month. The next day, seven real es­tate agents were de­tained on al­le­ga­tions of start­ing ru­mors to boost their busi­ness.

“Peo­ple would rather be­lieve the ru­mor than risk be­com­ing in­el­i­gi­ble to buy a home with the cur­rent down pay­ment re­quire­ment if a limit is placed on prop­erty pur­chases,” said Ma Junjie, an agent for Homelink in Shang­hai. “It’s in­deed herd men­tal­ity, but for some, to be one of the herd is bet­ter than be­ing left be­hind.”

Neigh­bor­ing cities such as Nan­jing and Suzhou, where home prices have risen by more than 30 per­cent year-onyear, have in­tro­duced mea­sures to curb spec­u­la­tive buy­ing, in­clud­ing push­ing up down pay­ment re­quire­ments for sec­ond homes and block­ing peo­ple from ap­ply­ing for mort­gages to buy a sec­ond or third home if they have not paid off their pre­vi­ous mort­gage.

In­dus­try in­sid­ers be­lieve the gap be­tween sup­ply and de­mand is the key fac­tor for the ris­ing prop­erty prices.

Gao Jian­feng, a prop­erty mar­ket an­a­lyst at Numora Se­cu­ri­ties, also said that lim­its on home pur­chases only work on a tem­po­rary ba­sis.

“In such sit­u­a­tions, un­less land sup­ply rises sig­nif­i­cantly, mea­sures to curb soar­ing home prices won’t be very ef­fec­tive,” he said.

The res­i­den­tial prop­erty mar­ket in China is di­verg­ing, with some cities strug­gling to re­duce huge in­ven­to­ries and oth­ers fac­ing over­heated mar­kets.

Al­bert Lau, CEO of Sav­ills China, said in an in­ter­view this year that for lower-tier cities fac­ing pres­sure to re­duce in­ven­tory, one key task is to trans­form the lo­cal econ­omy and make the city more at­trac­tive to po­ten­tial buy­ers.

If a city does not pro­vide enough em­ploy­ment op­por­tu­ni­ties or at­tract peo­ple to set­tle there, it won’t gen­er­ate the de­mand for hous­ing, he said.

CHAI SHIJUE / FOR CHINA DAILY

Po­ten­tial home­buy­ers read ad­ver­tise­ments at a prop­erty expo in Bei­jing in April.

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