China Housing Bubble: Couples Faking Divorce to Buy More Homes

on August 18 2011 10:09 AM
China
China is in the midst of a housing bubble, and the government has initiated policies to try and slow growth of second and third home buying. But many couples are getting around the new policies by faking divorce, so they can borrow more money. Creative Common

As America tries to recover from its housing bubble burst, China's housing bubble is blowing up. The latest: Chinese couples are faking divorce so they can borrow more money to buy more second and third homes, trying to seize upon rising prices.

In the effort to curb the growing housing bubble, the Chinese government has tried to initiate actions to make getting second mortgages harder. The government raised the down payment for second mortgages to make them harder to obtain, and about 40 Chinese cities have begun to limit apartment purchases to two per family, according to a story from Bloomberg.

The government, the story says, has also asked commercial banks to quit giving loans to third-time home buyers.

Chinese citizens are behaving just like Americans did when the housing bubble blew up here -- seeing housing buys as fast-appreciating assets. They want second homes, and even third homes as prices rise. And they aren't interested in the government's actions to slow their efforts.

To get around the restrictions, Chinese couples are flocking to "so-called fake-certificate companies, which sell phone divorce papers for 300 yuan, or about $45," according to a story in The Globe and Mail, since getting divorced allows couples to register properties under different names.

Also, there are reports that real estate agents eager to cash in on the rush to buy are helping couples with forged documents to prove local residency, allowing hopeful buyers to get more properties by getting around restrictions.

In other words, Chinese couples want so badly to get in on rising housing prices they are pretending to divorce so they can borrow more money to buy additional homes.

Owning property wasn't even the norm in China until about 13 years ago. Renting was the norm. But as the government initially tried to spur buying to boost the economy. prices began to rise in a building rush and since then the bubble continues to grow while buyers try to cash in.

Housing fever has gripped the nation, as incomes have risen and loans are readily available, even amid the new restrictions. Housing sales have surged 25 percent in the first seven months of this year, and prices have increased in 67 out of 70 cities monitored by the Chinese government, according to The Toronto Star.

Besides faking divorces, some hopeful home buyers are also registering businesses to buy property, since the new regulations apply only to families.

"Traditionally people in east Asia all have a passion to possess properties," said Liu Li-Gang, a Hong Kong-based economist at Australia and New Zealand Banking Group Ltd., in a Bloomberg story. "But economic theories also apply here.

"In eastern Asian countries we hae less land with a high intensity of people. Properties are a scarce commodity, so if you enter the market early, there is a bigger chance of high returns."

 

 

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