China’s Real Estate Bubble: Using Divorce As Regulatory Arbitrage

The cat and mouse game between the regulators and the markets or regulatory arbitrages have not been limited to institutions.

Even individuals practice them for profit reasons.

In China, one way to elude government administrative controls on the ballooning property bubble has been for families to apply for divorce.

Writes Teresa Kong of Matthews Asia, (bold emphasis mine)

Real estate risks are still big concerns for investors in China. The central authorities have been trying to dampen property speculation, but as the saying goes in China: “for every government policy, the people have a counterpolicy.” Trying to control demand through administrative means leads people to devise some novel ways around the rules. This begs the question of just how effective China’s new regulations may be in moderating property prices. In September last year, the Chinese government announced that all mortgages on second homes would require at least a 50% down payment, and mortgages on third homes were banned. While on tour at one of the developments, I heard one property manager say that he and his wife got a divorce to get around this rule. It was simple, he explained, a divorce certificate required 10 yuan (US$1.50), and a visit to city hall. That way they would be considered two households and his wife would be able to finance her “first” home with a traditional first-home mortgage—practical, though not exactly romantic.

And it is no wonder why China’s divorce rate has recently skyrocketed.

Yet China’s government controlled media has blamed the accelerating divorce rates on “rising wealth and independence” according to the China Post.

As earlier mentioned, governments and their apologists, as well as the media, employs such deep-seated bad habits of mistakenly treating symptoms as the underlying cause of the unfolding events.

That’s why governments end up not only having regulations that prompts for an economic backfire, but importantly, become direct promoters of the decline of a nation’s moral fibre.