Beijing imposes fresh home purchase restrictions to close the ‘divorce’ loophole

Beijing residents who have been divorced for less than a year will no longer qualify as “first-time” home buyers in the latest move to crack down on couple’s dissolving their marriage as a way to skirt restrictions on second-home purchases.

The stipulation is one of eight new regulations laid out in a document released by China’s central bank and Beijing’s banking and housing authorities on Friday. The new regulations aim to close the remaining loopholes left by the policy tightening announced on March 17, which raised down payment requirements for most homes in the city to 80 per cent from 70 per cent. It also broadened the definition of “second-time buyers” to those who have no homes under their names but still have a mortgage history.

Beijing rolls out harshest ever home buyer down payment levels

The tighter definition eliminates those who sell their existing home to buy a new home or couples who divorce to qualify for “first-time” status.

Before Friday, if a couple divorced and one didn’t have a home or a mortgage record, that party could qualify as a first time buyer. But after Friday, both cannot qualify as first time buyer.

A similar measure was introduced in Shanghai last year, but the ban only applied to those divorced within six months.

Friday’s move to close another loophole was the second of its kind this week. On Wednesday, Beijing authorities said said non-local buyers could not buy a flat in the city unless they have made social security fund or tax payments for a consecutive 60 months. Prior to that, the threshold was 60 months of social security payments, or at least one tax payment a year for five years.

Friday’s regulations also asked banks to step up verification of mortgage applicants’ income to prevent the previously widespread practice of inflating income to qualify for a mortgage. Borrowers cannot secure a loan if their monthly mortgage burden exceeds half of their monthly income.

Banks were also asked to check the source of home buyers’ down payments as many borrowed money from property agents or other lenders to increased their leverage.

The further tightening since last Friday was aimed at staving off speculative buyers who were fuelling a new price rally since late February, especially in the secondhand home market. In Beijing, a record 6,676 existing homes were sold from March 13 to 19, up 56.9 per cent from the previous week, according to data from Centaline Property Agency.

Following Beijing’s lead on March 17, an additional nine mainland Chinese cities have rolled out more restrictive measures. On Thursday, Chengdu expanded purchase curbs on existing homes and raised the social security payment threshold for non-local buyers.