Moving on

Your place, or mine?

Forget the ‘till-death-do-us-part’ bit. Once the word was out on the possibility of new restrictions on home purchases in Shanghai, married couples focused on the ‘richer or poorer’ aspect of their vows. And for many, that meant they had to get a quickie divorce.

Home purchase regulations treat married couples as a single unit in China. In Shanghai, for instance, a first-time buyer can buy one property with a 30% deposit. Married couples can buy a second home but the deposit is higher, at up to 70%.

A divorce can circumvent the restrictions. Following the separation, the couple registers their existing home under one of their names, leaving the other partner free to buy again as a first time buyer. They can then remarry after the purchase is complete.

Rumours that the authorities were going to close this loophole prompted a desperate dash from would-be divorcees last week. Shanghai Morning Post reported that long lines were seen at the offices where divorces are administered all over the city.

One of the couples media spoke to only got married six months ago. The two made little effort to hide the fact that they were separating to make it easier to purchase a second home. “We have a very good relationship and are reluctant to divorce,” they told Economic Observer. “To be honest, we are forced into this situation.”

Spurred by the rumours about the rule changes, new home sales in the city spiked dramatically too. Data from Soufun, the real estate portal, suggests that sales reached 5,000 units between August 26 and 30, doubling the number of transactions from the week before. Shanghai’s prices also rose by 5.6% to nearly Rmb43,600 ($6,530) per square metre from the previous week, says Caixin Weekly.

The Shanghai authorities have done their best to keep a lid on the property market by blocking peer-to-peer lending as a funding source for downpayments and increasing downpayment rates for second homes. Buyers lacking a Shanghai hukou— a residence permit — have to show they have had a pension and medical insurance plan in the city for at least five years before they can purchase a home.

But the restrictions seemed to have little impact, as Shanghai home prices continued to surge 27.3% in July from a year earlier, according to the National Bureau of Statistics. One reason for the rally is that people are turning back to property as an investment after a disastrous period for China’s rollercoaster stock markets.

Another is the new credit that has flooded the market this year. Home mortgages accounted for more than half of all the new loans issued by the big commercial banks in the first half of 2016.

Or as Securities Daily puts it, mortgage loans have become “the meat of Tang Seng”, a reference to a popular legend, which means meat so coveted everyone wants a piece.

China Construction Bank, the second-largest commercial lender by assets, witnessed a 14.7% growth in its residential mortgage balance to Rmb3.2 trillion in the first half of the year, accounting for 62.5% of the bank’s new loans.

Similarly, Agricultural Bank of China, the third-largest lender, increased its housing mortgage balance by Rmb311 billion to Rmb2.2 trillion in the same period. Mortgage lending contributed 64% of the bank’s new loans.

And it’s not only Shanghai that faces the ‘fake divorce’ phenomenon. Shenzhen and Nanjing are also seeing couples separate for the sake of purchasing another home. Modern Express has reported that 22,200 couples in Nanjing filed for divorce in the first six months of the year, an increase of 41% on a year ago. And there was another tell-tale sign: the number of couples remarrying went up over 40% in the same period.

For regular readers of WiC there will be a sense of déjà vu. We reported a similar trend in 2013 (in issue 184) in the wake of similar property cooling measures. There was mention of an earlier instance too in WiC61 in 2010. At other times we’ve reported how the authorities have employed boosting measures to give a lift to the sector. All of which suggests China’s property markets seem to lurch between fifth gear and first, rarely finding a more comfortable third.

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