China property is so attractive, couples are divorcing over it

Earlier this year, Mr and Mrs Cai, a couple from Shanghai, decided to end their marriage. The rationale wasn't irreconcilable differences or even mild disagreements; rather, it was a property market bubble in China's financial hub.

The pair, who operate a clothing shop, wanted to buy an apartment for 3.5 million yuan ($519,000), adding to a couple of places they already owned. But the local government had begun, among other bubble-fighting measures, to limit purchases by existing property holders. So, in February, the couple divorced. "Why would we worry about divorce? We've been married for so long," says Cai (He requested that the couple's full names be withheld to avoid potential legal difficulties.) "If we don't buy this apartment, we'll miss the chance to get rich."
 
In the first eight months of 2016, according to data compiled by Bloomberg, average prices for new homes rose 28 percent in Tier 1 cities, which encompass affluent metropolises like Shanghai, and 10 percent in smaller, Tier 2 cities. The boom traces to 2014, when the People's Bank of China began easing lending requirements and cutting interest rates. The China Securities Regulatory Commission also lifted restrictions on bond and stock sales by developers, helping them raise money for new projects.

Soon, properties were selling for ever-larger sums in government land auctions. By June 2016, China's 196 listed developers had incurred 3 trillion yuan in debt, up from 1.3 trillion three years before. In many cities a square meter of undeveloped land is worth more than a square meter of a finished home nearby, a situation the Chinese describe as "flour more expensive than bread."

Officials are trying to end the exuberance without harming the economy, a task made more difficult by the property fever's uneven spread. Average prices are up only 2 per cent this year in less-wealthy Tier 3 cities. Many smaller municipalities rely on property sales to plug holes in their budgets, giving them an incentive to increase the supply of developable land. So while premier cities have seen tight supply and high prices, smaller ones have too many apartments and not enough buyers.

"Usually the market moves in tandem," says Patrick Wong, an analyst with Bloomberg Intelligence in Hong Kong. "It's quite dramatic to see Tier 1 cities need tightening and lower-tier cities need relaxation."

China is relying on local policymakers to help tailor the response. Suzhou, a Tier 2 city near Shanghai, announced on October 3 that buyers with more than one mortgage will be ineligible for more, and that those seeking a second property must make down payments of 80 per cent, up from 50 per cent.

Hangzhou, home of e-commerce giant Alibaba, has capped land auction sales at 150 per cent of opening bids. The central government is also promising to crack down on rogue players: In early October, the Ministry of Housing and Urban-Rural Development said it was investigating 45 developers and agents for allegedly engaging in false advertising and other unlawful activities promoting speculation.