Divorces Increase over Property Tax in China

  • January 13, 2014
  • Editor: Amanda Wu
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Divorces Increase over Property Tax in China
Beijing's divorce rate has increased by more than 40 percent in the first three quarters of this year from the same period last year. Experts said that might be because couples are seeking to avoid a property tax imposed earlier this year. [house.online.sh.cn]
Beijing's divorce rate has increased by more than 40 percent in the first three quarters of this year from the same period last year. Experts said that might be because couples are seeking to avoid a property tax imposed earlier this year.

According to the Beijing Civil Affairs Bureau, 39,075 couples divorced in the first nine months of this year, up 41 percent from the same period in 2012.

The figure also surpasses the 38,197 couples who divorced during all of 2012. The growth rate of divorces is much higher than that in the previous four years.

Official figures show the number of divorces in the city over the past four years has increased steadily. In 2009, about 30,000 couples divorced, and 32,595 couples the following year. In 2011, 32,999 marriages ended in the divorce court.

China's home prices have taken off in recent years as the country has rapidly urbanized. Home prices continued to rise at a quicker pace in major Chinese cities in January 2013. Out of a statistical pool of 70 major Chinese cities monitored by the National Bureau of Statistics, 53 saw home prices increase within 2.2 percent month on month in January.

In March, the country introduced a nationwide 20 percent individual income tax levied on capital gains by home sellers.

Previously, only a one percent individual income tax was levied on the sale price. The tax hike increased the cost of existing second-hand home transactions and affected speculative purchases in the property market.

However, the regulations allow couples with two properties who divorce and put one house in a former spouse's name to sell their residential property tax-free under certain conditions. They are then able to remarry.

"The rapid growth of the divorce rate in Beijing has something to do with the new property purchase regulations by the government as some people make use of the loophole to avoid the high tax," said Li Ziwei, an marriage expert and vice-president of the Beijing Marriage and Family Construction Association.

Li said the divorce rate clearly soared in the month after the regulation was released in March, adding "this phenomenon not only happens in Beijing, but couples in other first-tier cities, where (property) prices have rocketed in recent years, also use this method to avoid taxes. They can save tens of thousands of dollars".

Li added that the marriage registration department, where divorce applications are also processed, has no responsibility and cannot interfere in the freedom of marriage. Staff in the department would also not know a couples' real purpose for divorcing.

"Even if a couple decides to get a divorce to evade taxes, they say they fell out of love and their personalities are not suitable for each other," Li said.

"The government should be more open and precise when making public policies," said Zhou Xiaozheng, a sociology professor at Renmin University of China. "It should hold more public hearings and solicit advice from experts and the general public."

"There's nothing wrong with people wanting to maximize their interests, but the government needs to make sure that the policy has no loopholes," he added.

Negative Effects of Fake Divorces

The 20 percent individual income tax is the reason for some divorces, said Tang Can, a researcher from the Women's Research Center under the Chinese Academy of Social Science.

"The national regulation clearly harms the stability of families. However, family harmony is the foundation of social stability. The regulation should be revised or changed if it makes families unstable," added Tang.

"'Fake divorce' does not violate the law, but it's against traditional Chinese values. Improper public policies might drive people away from traditional values," said Wang Zhongwu, a sociology professor at Shandong University who also showed concerns about the "fake divorces."

According to the Civil Affairs Bureau in Shanghai's Minhang District, the number of couples getting divorced daily has increased to more than 30 from less than 10 in the past, and the number of people asking for the issue of single status certificates has also increased.

A Shanghai marriage registration office has put out a sign saying there are risks in the property market and to think twice before getting divorced.

Jiang Yongping, an expert from the Women's Studies Institute of China (WSIC) said some "fake" divorces could lead to "real" problems.

"Some husbands may use this as an excuse to get a divorce from his wife and marry another woman."

Jiang warned that couples should not fake a divorce to make use of the loophole as that could bring about many unexpected consequences.

Expanded Property Tax Trials Predicted

Property prices are a sensitive issue in China and authorities have sought for the past three years to control their rise.

The trial imposition of taxes has been part of China's efforts to cool its property market since 2010 in response to public complaints over runaway housing prices. Shanghai and Chongqing were chosen as the first pilot cities to collect property taxes at the beginning of 2011.

Present property taxes imposed in Shanghai and Chongqing have not played a significant role in keeping local housing prices in check, according to Gu Yunchang, deputy head of the China Real Estate and Housing Research Association.

Property tax can help curb speculative home purchases as people have to take the cost of carry into account when deciding to buy houses, said Chen Guoqiang, vice-president of China Real Estate Society.

Anyhow, property tax is expected to be a price stabilizer for the real estate market as it can eliminate any property prices' rally due to excessive speculation in the market which may inflate asset bubble risk and drag down the whole country's economic growth.

China is likely to expand its property tax trials amid recent hikes in home prices in many cities, the Beijing-based Securities Daily in late October 2013.

Apart from the capital gains tax, other measures have included restrictions on purchases of second and third homes, higher minimum down-payments and taxes on multiple and non-locally owned homes in some cities.

(Source: Xinhua, China Daily and Beijing Time)

Read More
One Way to a Cheaper Second House: Divorce
There are many reasons couples divorce: money, extra-marital affairs, boredom among them. In China, it has also become a strategic tactic to evade new real estate restrictions.

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