Chinese Speculators Fuel Property Market With Fake Divorces to Skirt Curbs
By Bloomberg News - Aug 16, 2011 3:25 PM GMT+1200

China this year raised the minimum down payment for second- home purchases, and about 40 Chinese cities including Beijing and Shanghai started limiting the number of apartments to two for each family, and one for non-locals.

Frank He said he faked a divorce from his wife of 10 years to skirt China’s ban on third mortgages and obtain a bank loan for a third property, a 12 million yuan ($1.9 million) suburban villa.

“My wife and I love each other, but as long as we can get the mortgage from the bank for the deal, we’ll take it,” said He, a 40-year-old manager at a chemical company. The forged document, which cost the Shanghai couple 20,000 yuan, helped them get a loan amounting to 60 percent of the purchase price, he said.

Chinese homebuyers and developers are finding loopholes as they come under pressure from government policies to curb gains in residential prices, such as limits on the number of properties owned. Builders are refraining from cutting prices, offering free parking lots and attics instead, as they face higher borrowing costs after Standard & Poor’s downgraded their outlook in June.

Their actions may hamper the government’s efforts to prevent a bubble in the housing market. Sales surged 25 percent in the first seven months from a year earlier and prices climbed in 67 of 70 cities monitored by the government in the first half.

“These are actually price cuts in disguise,” Sun Mingchun, Hong Kong-based economist at Daiwa Securities Capital Markets, said in an interview. “Developers are reluctant to offer discounts and are playing games with the government.”

Some sellers are throwing in gardens and basements, according to a Century 21 China Real Estate report in June. In Shanghai, properties with the additional offerings draw 30 percent more customers to display homes than those without, according to the country’s second-biggest real estate brokerage firm with 22,000 employees.

Cash-Flow Crunch

Chinese developers are facing a strain on liquidity. Almost 70 percent said their cash-flow conditions worsened in August from July, independent investment advisory firm CEBM Group Ltd. said in an Aug. 5 report, citing a monthly survey of real-estate companies in 12 cities. That compared with 22 percent in July.