Explain possible factors that could affect the price of private property

04 Nov Explain possible factors that could affect the price of private property

Economics Tuition By Anthony Fok
Economics Essay Question: Explain possible factors that could affect the price of private property.

Demand factors

• Increase in population size due to influx of foreigners: as there are now more buyers in the market for private property, demand is likely to have increased, leading to higher price
• Income level: as economies begin to recover from the global crisis, it is likely that consumers’ incomes will increase. With the increase in income, demand for normal goods and luxury goods – such as private property – would increase. As demand for private property is likely to be income elastic – given that private property can be viewed as a luxury good and buyers are likely to spend a large proportion of their income on it – the increase in demand following the recovery may be substantial leading to higher price
• Ease of securing housing loans and low interest rates: As home buyers are highly likely to require a loan for purchase of property, low interest rates would mean low cost of borrowing and that could increase demand for property leading to higher price

Supply factors

• Increase in developers’ cost of production (e.g. higher sand cost) and can lead to a fall in supply leading to higher price
• Expectations of future developments in property market:
  • With a positive outlook of the global economy, developers may wish to increase supply of property in future, which can leading to lower price
  • With higher competition from rival developers and the need to undertake product differentiation which is likely to be costly, the increase in supply may be moderated.