China's trade data posted overnight showed scant evidence of the Sino-US trade war with exports steady and imports on the rise. It is likely too early for the US tariffs to skew the data much yet, however, and another drop in Chinese equities shows that the situation is far from resolved.
Article / 02 April 2015 at 9:06 GMT

Want to gauge housing demand in China?...Watch the divorce rate

Managing Director / Asia-analytica Research
  • The higher the tax-dodge divorce rate, the higher demand for property
  • Loophole sees 'extraordinary surge' in divorced couples remarrying each other
  • Government must think again to revive flagging property market

By Pauline Loong

Forget standard indicators such as price-to-income ratios. A more accurate gauge of urban residential property demand in China these days is the rate of divorce – or more accurately, divorce aimed at dodging property taxes.

The rule of thumb is: the higher the tax-dodge divorce rate, the stronger the speculative demand. The lower the divorce rate, the weaker the demand. What makes a divorce a tax-dodge move, as opposed to a genuine split, is the couple’s speedy re-marriage - to each other - after the relevant transactions have been completed.

And the latest tax-dodge divorce data show that the government has been so successful in squashing demand that it will take more than minor tweaks going forward to revive the now moribund market as new home sales and prices continue to fall. 

'Till taxes do us part

Local statistics show an abnormally high rate of re-unions among divorced couples, which the authorities attribute to the widespread phenomenon of tax-dodge divorces. 

In Shanghai, twice as many divorced couples remarried each other in 2014 compared with two years previously before fiscal changes made splitting up an easy way to avoid property taxes. 

The pace has been slowing in some cities. The authorities disclosed this week that 17,286 divorced couples officially reunited last year, an increase of 17.4% on the previous year. This compares with the 82.6% surge in 2013 which saw 14,730 divorced couples remarrying each other. 

But in the affluent city of Nanjing, the numbers remain high. Nearly 25,000 divorced couples retied the knot in 2014. These reunions account for almost a third of marriages in the city that year.


Two years ago, the government raised capital gains tax on the sale of second homes to 20%. The move was aimed at clamping down on rampant speculation in the property market at the time and bringing what was then skyrocketing house prices back down to earth. 

Previously, sales of second homes were taxed at 1-3% of the property’s value.

But, as always with attempts by Beijing to legislate away market forces, the unintended happened. The move unleashed panic. Prices jumped further and sales spiked as buyers and sellers sought to close deals before the new tax goes into effect. 

 A third of unions in Nanjing in 2014 were divorced couples remarrying each other. Photo: iStock

Socially acceptable

Couples have exploited a loophole in the law which imposes the capital gains tax only on those selling a second (or subsequent) home. A married couple is deemed to be a single unit in terms of capital gains tax. 

But if a couple with two properties is divorced and each party has only one property registered in his or her name, no capital gains tax would be levied.

Just as Deng Xiaoping had pragmatically put aside Marxist economics in his Open Door policy aimed at increasing living standards, young Chinese couples are pragmatically putting aside romantic notions in a move guaranteed to dodge hefty taxes and increase the family’s wealth.

Such divorces carry no social stigma and are accepted by wider society. 

A director of the China Marriage and Family Counseling Centre points to the “extraordinary surge” in the remarriage rate of couples to each other. It is common, he said, to see couples in Shanghai bringing along their parents and children and waiting outside the civil affairs stations to file for divorce, as if the entire family is attending a joyful event.

More policy easing likely for property

Beijing has been quietly stepping up its easing campaign to jump start a slowing economy weighed down by a cooling property market, high debt levels and excess factory capacity. 

Earlier this week, it reduced the down payment needed to buy second homes and also cut taxes on some property transactions.

But March data show few signs of stabilisation in the economy. Surveys of China's factory and services sectors showed continuing weakness in the economy with producer prices in factories falling again in March for 13 months in a row and companies shedding jobs as they struggle with weak demand.

 A cooling housing market is causing concern in China. Photo: iStock

The official Purchasing Managers' Index edged up to 50.1 in March from February's 49.9 or barely above the 50-point level that separates an expansion in activity from a contraction. 

The services sector showed the official non-manufacturing PMI cooling slightly to 53.7 from February's 53.9, hugging a one-year low. 

No cheer for housing market

More worrying for the government is the stubborn weakness in the property sector, which accounts for an estimated 20% of GDP and 30% of total investment. Land sales alone account for 57% of local fiscal revenue last year.

But there are no signs of cheer for the moribund industry. Sales of new homes slumped 17% in the first two months of this year from a year earlier and investment in new housing dropped 1.8%. Prices fell in 66 major cities in February.

But given the importance of the property sector to the wider economy and to local government revenues, more aggressive tactics targeting the property market are more likely to be next in line.

-- Edited by Oliver Morrison

Pauline Loong is managing director of Asia-analytica Research and senior fellow of the CIMB ASEAN Research Institute

Important notice: Nothing in this report is intended to be, or should be construed as, an offer to buy or sell, or invitation to subscribe for any securities or as advice relating to legal, technical or investment matters. This report has been prepared on the basis of information that is believed to be correct and from sources believed to be reliable. Asia-analytica makes no express or implied warranty as to the accuracy or completeness of any such information and makes no undertaking to update any such information. Opinions expressed are subject to change without notice.
fxtime fxtime
Remarkable :-)
Pauline Loong Pauline Loong
Yes, death and taxes and divorce!
fxtime fxtime
So the infamous quote 'till death do us part'' etc before wedding ceremony completes is now really adjusted to ''till second home do us part'' !!
Pauline Loong Pauline Loong
There is this matchmaking show on Chinese television. The producer decided to put up the profile of Prince Harry to see how he would fare. The girls all gave him the thumbs down. These are the answers to the questions the girls asked. Do you own a home? No, I live with my grandmother and visit my father's home during holidays. What kind of job do you have? I am still practising for the job I have in mind. When we get married, what kind of car can you afford for the wedding? I would be expected to take my wife to church in a horse and buggy. None of the girls on the show thought he was a good catch.


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