Beijing Cracks Down on ‘Fake Divorces’ in Spate of New Housing Regulations

Beijing’s latest round of housing restrictions have closed the “fake divorce” loophole that allowed married couples to divorce in order to become first-time buyers. The new measure was among eight new regulations launched by the city government on Friday as it moves to cool housing prices.

People who are divorced for less than a year can no longer receive the benefits of a first-time buyer, according to regulations released on Friday by the Beijing government and the People’s Bank of China.

Closing off the divorce device means that newly single people who would previously have qualified for 35 to 40 percent down payments as first-time buyers, must now put down the 60 to 80 percent down payments required of second-time investors.

Housing Rules Trigger Divorce Epidemics

In August of last year, the later debunked rumour of an increase in down payment requirements for second-home buyers in Shanghai caused a run on the divorce courts in the city with hundreds of applicants flooding courts in the city’s Xuhui district rushing to end their marriages before missing the chance to pick up a home on the cheap.

And in a village near Nanjing last month, 160 couples divorced over a single weekend to qualify for extra relocation compensation when their homes were condemned to make way for a new development.

Beijing has been grappling with the fake divorce phenomenon for sometime, and Shanghai enacted a similar ban on divorced persons attempting to get a mortgage as a first-time buyer, although the rules only applied to those who had been divorced for six months.

Renewed Focus on Speculation and Loans

The announcement of the eight measures in Beijing were marked with a slogan announced by Premier Li Keqiang at the recent  National People’s Congress: “Housing is for living, not speculation.” Beijing is keen for a real estate cool down and this new list of restrictions took aim at lending and excessive leveraging in property projects.

Much of the responsibility for these new measures was put on the banking authorities, with the announcement stating that commercial banks should “strengthen the management of consumer loans and other unsecured credit loans.” More specifically, the change encouraged banks to be more vigilant in checking that a potential applicants do not inflate their income in order to get bigger loans.

Regulations on top of Regulations

These eight new strictures come just a week after previous municipal regulations, which included raising the down payment floor from 50 percent to 60 percent, and ‘non-ordinary’ purchasers were required to make a down payment of 80 percent. The measures also enacted a 25-year maximum on all mortgage repayment periods.

The March 17 regulations saw nine other cities follow suit with restrictions, and the rules from Friday are seeing a similar and continued trend around the country. Shanghai banks now demand a 70 percent down payment for any home more than 144 square meters and Zhongshan and Foshan in Guangdong province put restrictions on those without local household registration permits.