Want to reduce Shanghai's divorce rates? Just scrap those property-cooling measures

It is no secret that Shanghai's couples are choosing to split up to avoid costly taxes

PUBLISHED : Saturday, 22 February, 2014, 4:48am
UPDATED : Saturday, 22 February, 2014, 4:50am

The Chinese traditionally view marriage as a lifelong union. But as Chinese society becomes more open and the economy flourishes, the rate of divorce among young couples on the mainland has been rapidly rising.

In Shanghai, the country's commercial hub, 61,000 couples ended their marriages last year, up 37 per cent from 2012. The number, which accounted for only divorces by agreement, did not even include judicial divorces, in which couples have to wait for a judicial declaration to formalise their split.

It's little wonder the rising trend has become a cause of concern for the city's officials.

It's an open secret that many divorces in Shanghai are in fact fake as couples seek ways to sidestep stringent housing policies implemented to cool the property market and bring down soaring home prices.

The city's divorce rates started rising in 2011 after - under Beijing's directives to curb housing demand - local families were barred from buying a third apartment. Splitting up would allow a previously married couple to own two homes each.

Most of such couples who undergo divorce in name still live together as a family, and anecdotal evidence shows they are comfortable with the arrangement. Some have said the marriage certificate was just a piece of paper to them that had no impact on their daily lives and relationship.

Last year, the government's plan to impose a 20 per cent capital gains tax on the selling of flats forced a new round of couples into fake divorces.

Under the pending policy, those with just one flat would be exempted from the tax when selling their home. Having a divorce and splitting the number of homes between partners could save a family hundreds of thousands of yuan, based on Shanghai's current home prices.

Beijing had ordered local governments to implement such measures because of fears that the overheated property market would result in a bubble that, when burst, would undermine the national economy.

The policies are aimed at curbing speculators. But as home prices continue to soar - increasing more than 20 per cent from a year ago - more couples are viewing a fake divorce as the preferred option over incurring additional taxes or giving up on lucrative investment opportunities.

Most Shanghai residents see the implementation of the cooling measures as a failure.

First, they argue, a homeowner who has more than two houses is not necessarily a speculator. Besides, corrupt officials and thousands of investors in Wenzhou , the mainland's private-business hub in Zhejiang province, can own dozens of apartments.

Secondly, the residents find it unfair for the government to collect a 20 per cent tax from families who decide to sell one or both of their two homes. Such families may intend to sell their smaller homes to buy a bigger flat as a way of upgrading their living conditions.

Disgruntled Shanghai residents call the pending 20 per cent capital gains tax "robbery".

Since the new Communist Party leadership came into power in 2012, however, there has been mounting speculation that the government might eventually phase out the old cooling measures that limit the city's residents from making further home purchases.

But thousands of families in Shanghai cannot afford to take the risk of waiting for the policies to be scrapped; so many couples will continue to file for divorce in name as a means of facilitating their home purchases and sales.