On March 24, 2017, Chinese banking authorities and even more the central bank decided to reduce speculation in the real estate market. To do this they decided to reduce the risks of bank and risk of unpaid to review their rules when obtaining a second real estate. Until now, in order to be helped by banks, many Chinese couples divorced and obtained purchasing conditions for the purchase of a first real estate.

The conditions necessary to buy a property

First Real Estate

Several conditions are necessary to buy a first real estate on Beijing:

• 35% down-payment is required to obtain a loan of real estate for a flat of normal type
• 40% down-payment is required for the purchase of a luxury apartment (according to the ring road, price per sqm and evaluation of the government)
• A maximum of 25 years is required to refund the loan

Second Real Estate

Obtaining a second property is much more complicated than that of the first, the conditions are as follows:

• 60% down-payment is required to obtain a loan for a flat or for a normal apartment
• 80% down-payment is required to obtain a loan for a luxury apartment / house (according to the ring road, price per sqm and government assessment)
• A maximum of 25 years is required to refund the loan

The means used to speculate on real estate properties.

The Chinese real estate market is a young market that was opened in the 1990s. With over 30% annual inflation in all districts of Beijing, the Chinese are buying a lot  and have one of the world’s largest landowner ratios (90 % Of the population are owners).

In order to benefit from a loan facilitated, Chinese couples do not hesitate to divorce to buy a second real estate and thus benefit from a loan with restricted down-payment. Indeed, due to this measure Chinese can take benefit from government banking help, then they wait until their property takes value and resell it in the first 2 years.

By doing this, buyers contribute to maintain a housing bubble and jeopardize the banking system by providing loans that they are not able to refund.

The new reform/law

The new reform aims to remove this arrangement by prohibiting any person with a divorce from being able to buy under the conditions of the first real estate purchase until one year after pronunciation of the divorce. This assembly is indeed carried out routinely in China. The aim of this approach is to promote the purchase for all at a decent price, to lower the price of real estate, to verify from or originates the basic contribution and to ensure that the monthly payments can be well refund.

Sources

http://africa.chinadaily.com.cn/business/2017-03/25/content_28675013.htm

http://www.straitstimes.com/business/property/china-central-bank-urges-tighter-mortgage-checks-no-fake-divorces