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.