Divorce & Property Values

Hong Kong is one of the most expensive cities in the world. According to the Hong Kong Census and Statistics Department, divorce has steadily increased, and is nearly three times higher than in 1991. Is there a connection between real estate prices, divorce and property divisions?

As Bloomberg reports, the usual suspects for Hong Kong’s sky-high property prices are low interest rates, a housing shortage and demand from mainland China. But there’s another unforeseen factor: divorce.

Demand for separations and remarriages have accelerated sharply over the past two decades as the former British colony has deepened its integration with the mainland.

Between 1976 and 1995, cumulative total 84,788. In the subsequent years, through 2015, divorces shot up to 323,298.

Looser travel restrictions between Hong Kong and the mainland after Britain handed the colony back in 1997 have played a role in encouraging Hong Kong residents to find new partners across the border.

Florida Divorce and Real Estate

I’ve written on the role of divorce and real estate before. In many cases, declining house prices make it less likely that a homeowner will get divorced, but more likely that a renter’s marriage will end. Why?

Generally, courts distribute the marital assets and debts between the parties. In dividing the marital assets and debts though, the court must begin with the premise that the distribution should be equal.

Equity in the marital home is sometimes the most valuable asset. However, during periods of market downturns, the equity is a lot less, and home values can sometimes be upside down. When the equity is too low to distribute, or selling a house may mean a loss, people don’t want to sell, and have to stay married.

Researchers also think that the drop in divorce rates probably have something to do with the fact that a drop in the equity in your house traps unhappy couples in their house. However, renters can find two affordable apartments easier.

The Case of Hong Kong

Hong Kong’s housing planners didn’t anticipate the wave of break-ups. The cumulative gross number of new domestic housing units built between 1976 and 1995 reached 1,267,335. In the 19 years afterwards that number dropped to 857,378.

The divorce phenomenon is feeding into a market frenzy that the Hong Kong government has found increasingly tricky to manage. As mortgage lending booms and prices reach records, a mix of rising interest rates, frothy property valuations and the potential for a market collapse are frequently flagged as one of the biggest risks to the economy.

In cases of marriage break ups, both members of a former couple can end up on waiting lists for public housing, with private homes proving unattainable.

Households need 18 years of median income to buy a home, more than anywhere else in the world.

The Bloomberg article is here.