Updated: 10/30/2013 00:51 | By Agence France-Presse

Beijing, Shanghai divorces soar over property tax

Divorce rates in China's two wealthiest cities, Beijing and Shanghai, have soared after the announcement of a property tax that includes a loophole for couples who split up, figures show.

Beijing, Shanghai divorces soar over property tax

Beijing's divorce rate has soared as couples seek to avoid a property tax by using a loophole for those whose marriages end

Nearly 40,000 couples divorced in the Chinese capital in the first nine months of this year, jumping 41 percent on the same period in 2012, according to figures released by Beijing's civil affairs officials this month.

Similarly, divorces in Shanghai -- where concerns over the tax were high -- leaped almost 40 percent over the same period, data from authorities in the commercial hub showed.

But figures from the southwestern metropolis of Chongqing, where the tax has yet to be imposed, had divorces there rising by just over seven percent.

In March China announced a nationwide capital gains tax of 20 percent on the profits owners make from selling residential property.

But the terms allow couples with two properties who divorce and put each house into one person's name to then sell them tax-free under certain conditions -- after which they can remarry.

The capital's divorce growth rate was "far higher" than in the previous four years, the state-run Beijing Youth Daily reported Tuesday.

"Some of these people divorced in order to avoid the capital gains tax," Zhang Dawei, director of research at real estate agency Centaline China in Beijing, told AFP. "They will quickly remarry."

Getting separated on paper is currently the "only feasible" way to escape the tax, he added.

With property prices skyrocketing in recent years, the capital gains tax can amount to tens of thousands of dollars in China's first-tier cities if fully implemented.

Homeowners were previously taxed at just one or two percent of the sale price.An exemption from the tax is available for vendors who are selling their only home and have owned it for more than five years.

More than 44,000 couples separated in the January-September period this year in Shanghai, up nearly 40 percent year-on-year, official data showed.

A Shanghai marriage registration office -- where divorce applications are also processed in China -- has put out a sign saying: "There are risks in the property market, think twice before you get divorced," the Beijing Youth Daily said.

Shanghai divorce lawyer Zhong Tao told AFP that the effect of the capital gains tax on his business had peaked in the early part of the year, as it had been widely publicised at the time but Shanghai had yet to fully implement it.

"In fact the divorce rate is rising every year and caused by multiple factors, including related policies like the 20 percent capital gains tax, but this is just an episode," he said.

Other financial considerations that can also play a part in divorces include qualifying to take out a lower-rate first-time-buyer mortgage or, in other cases, buy a second apartment.

Zhang said: "The divorce rate has been high over the past few years due to the home purchase restrictions and the capital gains tax in all cities where these policies apply."

But policymakers were unlikely to be able to close the loophole, he added.

"This is a grey area. The government cannot do anything if a couple insist on getting divorced," he said.

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

As well as 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.

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