China Cracks Down on Fake Divorces That Let People Buy More Properties

A resurgence in real estate prices in Shanghai and Shenzhen has prompted authorities to rein in speculation, in line with the Chinese government’s resolve to keep the property market in check.

Shanghai officials unveiled policies late Thursday to cool the local market, including a measure designed to plug a loophole long exploited by buyers using fake divorces to become eligible to purchase more properties or obtain mortgages. The city will also levy a tax on sales of houses purchased within five years, up from the previous two-year barrier.

This is “aimed at resolutely enforcing the decisions of the central committee of the Party” and “firmly upholding the policy stance that ‘houses are for inhabiting, not for speculation’,” the Shanghai municipal government said in a statement, referring to President Xi Jinping’s vow to boost housing affordability.

With the new policy, Shanghai follows big cities including Shenzhen and Hangzhou to crack down on housing speculation via fake divorces since 2018, said Pan Hao, a property analyst at KE Holdings Inc.

As most Chinese cities limit home-buying demand by capping the number of properties a family can own, divorce becomes a way to bypass the restriction. In Shanghai, local families are allowed to own two homes. Under the new rule, the number of homes owned by people who have been divorced for less than three years will be counted based on the total they had when they were still married.

Shenzhen Moves

The government of the southern boomtown of Shenzhen also moved to tighten home-purchase rules this month, according to local media reports. With the cost of an apartment equal to 43.5 times a resident’s average annual salary, Shenzhen’s housing affordability is little better than Hong Kong, the worst among 80 megacities, according to E-House (China) Enterprise Holdings Ltd., a real estate firm.

Chinese authorities are determined to control housing risks after monetary easing spurred a rebound in the residential market. The central bank capped loans for the real estate sector earlier this month for the first time.

Existing-home prices of certain popular projects in Shanghai surged more than 30% last year, according to China Real Estate Information Corp. Sales of existing homes in the city almost doubled last month from a year earlier, based on square-meter volume, according to KE Holdings.

‘Strong Warning’

The new rules in Shanghai add to the tightening of city’s already strict home-buying requirements. In 2016, it raised the down-payment threshold to as high as 70% of a residential property’s value to cool demand.

The latest policy was rolled out faster than expected and “serves as a strong warning for other markets,” said Ding Zuyu, co-president of E-House. “It may cool down Shanghai’s home market in the short term,” he said, while adding that it’s unlikely to tank it because speculative purchases in the city “aren’t that widespread.”

Sinolink Securities Co. said it expects residential property prices in Shanghai to rise further, albeit slowly, this year in spite of the latest cooling measures.

Price growth in some central areas of the city could even accelerate, given that demand is robust there and the land to be supplied for future residential development is primarily located in the suburbs, it said in a research note.

©2021 Bloomberg L.P.

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