The Real Deal New York

China clamps down on use of divorce loophole to buy property

Some married couples in China are breaking up in order to dodge taxes

November 22, 2016 10:10AM

Residential buildings in the Jiading district of Shanghai (credit: Getty images)

Residential buildings in the Jiading district of Shanghai, China (credit: Getty images)

In an attempt to tighten credit-lending standards and curtail soaring home prices, Chinese authorities are cracking down on couples using so-called “fake divorces” to buy property.

Average home prices in Shanghai rose 27.5 percent in October year-over-year, the Wall Street Journal reported. Prices have gotten so high that couples have started divorcing so that one person can be treated as an independent buyer to avoid taxes. But amid fears that China’s property market is a bubble soon to pop, authorities are now starting to crack down on the practice.

Commercial banks have been told to examine borrowers’ ability to repay mortgages based on “family credibility,” according to the Journal. Real Estate brokers told the paper that some lenders are already declining loan applications from people who have divorced in the last six months.

“Divorce is not some great thing,” a female investor known only as Ms. Li told the paper. “But we needed to buy before it got more expensive.” Li and her husband divorced in order to buy their fourth home Shanghai’s Putuo district.

Developments in China’s property market have real implication for New York City. The Chinese are major investors in the city’s real estate, which is seen as a reliable place to park money.

Last week, The Real Deal hosted its second U.S. Real Estate Showcase & Forum in Shanghai, the largest United States-focused real estate event ever held in the country.  The 10 days of panels covered the future of the EB-5 visa program and foreign investment under the Trump presidency,  as well as advice on how Chinese investors can break into the U.S commercial real estate market[WSJ]Miriam Hall

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