Cooling measures fuel surge in divorces

Mainland couples opt to part ways, perhaps temporarily, to take advantage of lower deposit and mortgage rates for buying a first home

PUBLISHED : Wednesday, 06 November, 2013, 5:10am
UPDATED : Wednesday, 06 November, 2013, 5:45am

Geng and his wife Li got divorced at the end of last year. The plan was that Li would buy a home and remarry Geng. A divorced status would allow her avail of lower deposit and mortgage rates as it would be treated as the first home for Li rather than the second home for the family, saving Li the higher down payment and mortgage rates applicable to second homes.

But the plan went horribly wrong as Geng refused to remarry Li and instead wanted to marry his new girlfriend.

The case, filed in Beijing's Haidian District Court, is hardly a stand-alone family tragedy on the mainland. Divorces, temporary and final, have been on the rise since the authorities started a new round of property tightening measures four years ago to cool the market.

Divorces split family assets and enable the spouse left with no home the right to buy his or her first home for lower deposit and mortgage rates.

Under the rules following the tightening, families buying their first homes make a 30 per cent down payment and can access benchmark or even discounted mortgage rates. But those buying second homes must pay up to 70 per cent up front, with mortgage rates at 10 per cent more than the benchmark lending rate. Those buying a third home get no loans at all.

Couples resort to temporary divorces to get the first-home benefits and avoid paying a hefty 20 per cent capital gains tax in Beijing and other taxes and fees, such as an income tax of 1 to 2 per cent of the home price and a deed tax of 5.5 per cent, in other cities.

"My agent proposed we get divorced to avoid the 20 per cent tax," said Tian Li, who is selling an apartment in Beijing. "I am still weighing it."

Her quandary explains why divorce rates are surging on the mainland in step with property prices.

Shanghai registered 44,303 divorces in the first nine months of this year, already surpassing 44,158 for the whole of last year. In comparison, 37,851 couples got divorced in 2009. Other major cities such as Beijing and Shenzhen have witnessed a similar trend.

The website of the Shanghai Civil Affairs Bureau says its office in the Minhang district received 51 applications for divorces on March 4, the first working day after the new measures were rolled out by the outgoing cabinet headed by former premier Wen Jiabao. Before that, daily divorce applications used to be in single digits.

Shocked Minhang officials put out a warning saying: "The property market is risky, be careful in getting divorced."

The civil affairs office even invited two lawyers every day to work on reconciliation and persuaded eight couples against separating on March 4, according to the website.

Most cities chose not to implement the March policies too rigidly, yet the divorce numbers kept rising.

Beijing saw 13,679 divorces in the third quarter, up from 12,544 in the second and 12,852 in the first. In comparison, there were only 6,381 divorces in 2000.

Prices of new homes, excluding affordable homes in big cities such as Beijing, Shanghai, Shenzhen and Guangzhou, rose more than 20 per cent in September from a year earlier. In some prime locations of these cities, prices are now 10 times the levels a decade ago, raising concerns among young people that they might be shut out of the property market forever.

The other side of the surge in fake divorces is the rise in fake marriages as a result of the rapid appreciation in property prices. Those barred from buying property shell out thousands of yuan to marry on paper complete strangers who are allowed to buy homes.

For example, in Beijing, non-locals must contribute to the city's pension fund and insurance schemes for five consecutive years to be eligible to buy property there.