Mar 112013
 

I’m sure many have heard that divorce can be financially devastating for a couple. But in a country that has over a billion people, couples are divorcing like their future retirement plans depend on it. And in a way, it’s true. China is home to some of the most unaffordable real estate in the world. If you think housing in Vancouver is expensive for a middle class family, think about what life must be like for a middle class family living in Beijing (O_o)

13_03_chinapropertyprice, divorce to save money

In order to curb high housing prices the Communist Party of China announced a new tax on property sales last week. It states that owners who sell their non primary residence have to pay 20% tax on any profit they make. To take advantage of a tax loop hole many couples in the country are getting divorced and taking one property each. This way neither of them will have a second home anymore, and neither of their properties will be subject to the new tax. Registration centers in various Chinese districts are reporting thirty to a hundred percent more divorces than normal. Furthermore, the number of people applying for proof that they are now single has gone up multiple folds.

meanwhile in china, divorce to save moneyA 700 sq-ft apartment in a large city goes for about $400,000 USD. But just five years ago the same apartment was only worth about half as much. According to the IMF the average person in China only makes about $6600 USD a year.  Imagine if a couple bought a property 5 years ago and can sell it today for a $200,000 profit, wow! If used wisely this windfall could probably fund someone’s entire retirement because relative to income levels that’s the equivalent of someone in Canada or the US winning the lottery!  What about any lasting distress or awkwardness for the family after the divorce? Not to worry because The Shanghai Daily mentioned that these same couples were remarrying as soon as one of their homes were sold tax free 🙂 Might be tough for couples with children to explain what a “tax divorce” is to their kids though 😀

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Random Useless Fact: 

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March 2013 Budget Roundup = Decrease of -($5820.49) or -2.78%StudentDebtSurvivor (@StuDebtSurvivor)brickbybrickinvesting2012theoutliermodelLiquid Independence Recent comment authors
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JC @ Passive-Income-Pursuit
Guest

Can’t say I blame them. That’s a huge bite of the profits for a pretty simple get around. It’s not like you need a piece of paper to show that you’re committed. I’d be very tempted to go this same route. I had no idea that the house value to income ratio was that out of whack in China! And I thought the coasts here in the USA were way too expensive.

My Financial Independence Journey
Guest

I remember reading about this. It just goes to show you that how economic incentives are structured can have a huge effect on people’s behavior. Including promoting divorce.

John S @ Frugal Rules
Guest

Wow, that’s crazy. You’d figure they would have not allowed that loophole. I guess it just goes to show you that the US government is not the only one that is backwards. 😉

Pauline
Guest

In France it is 27% and they just made the amortization table over 30 years instead of 15 before. Never heard of people getting divorced for that though, thanks for the tip haha.

Mo' Money Mo' Houses (@momoneymohouses)
Guest

What? That’s crazy!

Alex Yang (@yyangalex)
Guest

not surprised. its been done many times before when they introduced stricter 2nd home mortgage down payments, and 2nd home ownership limitations, etc. the list goes on. the core of the problem is people in china all of a sudden have this extra money they have no idea what to do with. chinese capital markets are nowhere near as accessible as north america, which removes a large area assets can flow towards. this is a govt induced problem and the result will destroy a generation’s life savings when the RE bubble pops.

theoutliermodel
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Leave it to the Chinese to figure out such a ridiculous loophole…

brickbybrickinvesting2012
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brickbybrickinvesting2012

Wow! That’s nuts! I always knew real estate in China was expensive but figured it was somewhere along the lines of Los Angeles prices here in the U.S. come to find out I was no where close. Thanks for sharing the eye opening info.

StudentDebtSurvivor (@StuDebtSurvivor)
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StudentDebtSurvivor (@StuDebtSurvivor)

Oh wow, it totally stinks that couples are having to get divorced to save on taxes, but I guess if I was in that situation I’d have to think about it as a real option.

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