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Working out the property puzzle
April-27-2010

New policies to prevent property bubbles in China's major cities could lead to an increase in couples going through "divorces of convenience", analysts have warned.

To address the spike in housing prices, on April 17 the central government not only hiked interest rates for mortgages on second and third homes, but also stated that married couples will now be treated as a "family unit" when purchasing property.

The move means couples will have to pay substantially larger deposits and monthly installments, and experts believe this could spark a spate of "fake separations".

Banks have already seen cases of people divorcing before buying a new house and then hastily remarrying after the deal is finalized, according to reports on news website sina.com.

Li Min and her husband had already paid a deposit for an apartment in Nanjing, capital of Jiangsu province, when the policies were unveiled this month. She said they now plan to scrap the deal.

"The original 200,000 yuan ($29,000) down payment almost emptied our pockets. Under the new rules, we would have to pay out another 200,000 yuan more. How can we afford that?" said Li, who is in her early 30s. She and her husband already own a small apartment in the city.

She said the bank clerk said that, if Li is single, the second home regulations would not apply.

"I understood what she meant and, although it's an insult to love, I couldn't think of a better way if we still want the house," she said. "I'm sure many people are considering it."

Despite concerns over the loophole, overall it appears the policies have successfully tempered China's housing market.

Prices for most secondhand apartments in Beijing fell 10 percent this month, say analysts with Beijing Homelink Real Estate.

"As long as the new measures are strictly implemented, they will have an instantaneous effect on cracking down on house hoarding, speculation and high property prices," said Yi Xianrong, director of the financial development office under the Chinese Academy of Social Sciences' institute of finance and banking.

The nation's average house price is now 15 times the average income (in Shanghai, Beijing and Guangzhou it is 50 times higher), prompting fears of a serious property bubble.

Despite government efforts to curb the soaring costs, prices in 70 of China's largest cities rose 11.7 percent year on year in March, according to the National Bureau of Statistics, putting them at the highest level for five years.

"If the housing prices keep rising at such a large margin, the government may introduce tougher policies in May or June," predicted Weng Feiyu, a real estate analyst at Everbright Securities.

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