MCLC: real estate divorces

[Denton, Kirk]

MCLC LIST
From: kirk (denton.2 at osu.edu)
Subject: real estate divorces
***********************************************************

Source: NYT (3/8/13):
http://www.nytimes.com/2013/03/09/world/asia/some-chinese-seek-a-divorce-to
-avoid-real-estate-tax.html

In China, Checklist for a Home Seller: First, Get a Divorce
By DAVID BARBOZA

SHANGHAI — When the Chinese government announced new curbs on property
prices this month, homeowners bombarded social networking sites with
complaints. They formed long lines at property bureaus to register to sell
their homes before the restrictions went into effect.

And some couples went even further: they filed for divorce.

Divorce filings shot up here and in other big cities across China this
past week after rumors spread that one way to avoid the new 20 percent tax
on profits from housing sales was to separate from a spouse, at least on
paper.

The surge in divorce filings is the latest indication of how volatile an
issue real estate has become in China in the past decade and how resistant
people are to additional taxes.

Worried that housing prices are spiraling out of control and threatening
social stability, the central government regularly rolls out measures
aimed at damping demand and weeding out speculators.

Then home buyers, sellers, property developers and even local governments
— which are typically heavily dependent on land sales for income — try to
find ways to get around the restrictions.

“They always do this,” said Du Jinsong, a property analyst in Hong Kong
for Credit Suisse. “When they implement new measures, people are always
trying to circumvent the rules.”

China’s housing market has been one of the prime engines of economic
growth in the past decade, and recently a sharp upturn in prices has
reignited fears about inequality and a housing bubble.

On March 1, just days before the opening of China’s annual legislative
session, the powerful State Council, which is led by Prime Minister Wen
Jiabao, announced a series of new property measures that analysts say
unsettled the housing market.

In its statement, the State Council, or cabinet, said that local
governments should strictly enforce an earlier rule that ordered people
selling a secondary home to pay a 20 percent tax on the profit.

Almost immediately, housing administration bureaus and real estate trading
centers in big cities were flooded with people hoping to sell their
apartments before the restrictions took effect. (Most local governments
have not yet announced a deadline.)

And in a bizarre twist, marriage registration centers in Shanghai,
Nanjing, Wuhan and other big cities were also inundated with couples who
admitted they were filing for fake divorces in hopes of avoiding the
property tax.

By filing for divorce, many reasoned, a couple with two homes could then
claim that each had only one home. That way they could technically avoid
having one of the homes classified as a second home, which under the new
rules would be subject to the 20 percent capital gains tax if sold. After
the divorce and the sale of one of the homes, the couple could file to be
remarried.

Here in Shanghai, a registration center in the Zhabei district said it had
a record 53 divorce filings on Tuesday, well above normal.

On Friday, at a marriage registration center in the Pudong district, a
33-year-old woman named Frances Tao arrived with her husband. She
acknowledged that they were filing for divorce, not to avoid the 20
percent capital gains tax on second homes, but to get around another
restriction, which requires home buyers to put down a much higher deposit
on a second home than on a primary residence.

Ms. Tao said that by divorcing, one of them would be able to purchase a
first home and put down less money and get a better interest rate.

“We don’t have other choices,” Ms. Tao said. “But the government and
developers continue to make a lot of money.”
Xu Yan contributed research.