Locked in

Authorities move (again) to close loopholes in China’s hot property markets


Till home-purchased do we part

Pre-nuptial agreements seem like a cynical way to start a marriage: determining in advance who will be entitled to what in the event of divorce. But if a marriage does break down, the pre-nup can at least remove the additional stress of having to fight for assets.

One man who is very familiar with pre-nups is Xiao Wang, a 24 year-old estate agent in Shanghai. In recent years, he’s been married and divorced four times, signing pre-nups with each bride before tying the knot. He even married and divorced the same 78 year-old woman from Henan province twice.

The four pre-nups might seem to be unfair on Wang, as each denies him the right to the couple’s shared property after divorce, but that is the crux of the service Wang is providing.

Wang is based in Shanghai, where property purchasing restrictions mandate that a buyer must have a Shanghai hukou and have paid local taxes for five years. In order to circumvent this regulation, Wang is one of many estate agents who started offering an extra value-added service: he marries wealthy female clients, buys a unit under his name using the woman’s money, then files for a divorce and leaves the property to his former spouse. According to the state broadcaster CCTV, Wang gets a fee of up to Rmb80,000 ($11,596) each time.

In Shanghai last year there was a sudden surge in divorces as a rumour emerged that the local authorities were going to remove a clause that allowed a divorced party to purchase property as a first-time buyer; instead, the divorcee would be subject to regulations for second-time buyers, which include disadvantages such as higher downpayments. Legitimate couples therefore rushed to separate so that they could buy property cheaply in the future (see WiC339).

The strange correlation between restrictions on property ownership and failed marriages hasn’t gone unnoticed by the authorities. And last month in Beijing the central bank and the banking and housing market regulators released a joint statement which, among other new homebuying bans, declared exactly what many property investors in Shanghai had feared: that individuals who have been divorced for less than a year are not eligible to register as first-time buyers, meaning they would face more demanding downpayment rates of 60-80%, as opposed to the 35-40% offered to first-time purchasers.

Following the capital’s lead, nine other cities, including Shenzhen and Chengdu, quickly moved to introduce new homebuying restrictions in order to tame surging real estate prices.

But the sudden and strict impositions haven’t been immediately adhered to by local agents. The China Daily reports that six commercial property projects and 15 estate agent offices were also “punished” late last month for ignoring a new prohibition against selling commercial floorspace to individuals seeking to use it as a residence.

China Daily wrote that the punishments refuted the “long held criticism that the housing commission’s warnings generally have no teeth”.

Meanwhile, the Ministry of Housing and Urban-Rural Development (MOHURD) is expanding the scope of its fight against unlawful housing sales as well. Sina Finance, a news portal, reports that during a convention aimed at “cleaning up the property market”, the ministry called on local authorities to tackle three irregular estate agent practices: monopolising the market and manipulating prices; creating rumours to fuel market speculation; and using fake documents (such as sham marriage certificates) in purchases.

During its conference MOHURD called out 30 property agencies that it claimed had violated these rules, further suggesting that the commission is getting more serious about enforcing its rules.

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