Wealth Blog

Til second home do us part

PUBLISHED : Friday, 08 March, 2013, 7:34pm
UPDATED : Friday, 08 March, 2013, 7:36pm

We’ve all been watching with fascination as events unfold at Li Ka-shing’s foray into hotel room sales at Apex Horizon in sunny Kwai Chung, as investors try to evade the new stamp duty. So far they seem to have outwitted chief executive CY Leung’s attempt to foil the developer, but for how long no one is sure. Meanwhile, a similar tax has been imposed on buyers of second homes in some cities in China, with the aim of cooling property market hotspots.

Perhaps we should pay less attention to the antics of folks in Kwai Chung and more to the canny investors north of the border. It seems you only have to say “I do”, that is, get married, then nip around to the divorce court two weeks later and problem solved. Then you get re-married, to the same person. These jolly divorcing Shanghai couples explained to the FT that the mortgage officer at their bank recommended this ruse as the best way to wriggle around the new property tax.

It works like this. The capital gains tax on housing sales was intended to calm China’s roaring market, but in the week since it was announced, it has not panned out as anticipated.

Transactions have shot up, together with prices, with buyers racing to complete before the new 20 per cent duty kicks in. The date is unknown. All understandable, but why the leap in the divorce rate? This, says the FT, is a practical, if rather cynical strategy for exploiting a loophole. It seems mainlanders are as addicted to property dealing as their Hong Kong cousins and will go to even greater extremes to save money. 


Practical Solution

So suppose you are married and one of you owns a place in Shanghai, but you want to buy a second flat in Beijing. Easy. You divorce, your wife buys the second gaff and you remarry once the deal goes through. You pay no tax if this is an individual’s first property.

Of course the divorce court requires you to come up with reasonable grounds for splitting up, and property speculation is not one of them. “Lack of feelings” was the grounds chosen by the FT’s quoted couple, which may have been more apt than they realised. The divorce rate has climbed steeply in a week, confirms state-run newspaper the Shanghai Daily.

Crowds outside property registration offices have been reported around China this week. Wuxi reported a sevenfold jump in sales activity, compared to the daily norm before the new tax was introduced last Friday. And in Beijing, estate agents reported sales up about 20 per cent. Asking prices are being achieved, there’s no time for haggling. One snag is that government officials have yet to spell out details of the new tax and the exact date it starts. Not surprisingly this is fuelling the activity even more.

The question is, are the mainland authorities as determined as Leung not to relent? There’s a chance that the sudden stock market slump and property price surge might prompt a government re-think, though housing minister Jiang Weixin told China Central Television that there was no turning back. “Like all new policies, we will review their effect after implementing them for a time,” he said. “Perhaps we will make them even stricter.” Oh dear. Let’s hope Leung isn’t tempted to follow suit.