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Microeconomics For Business Essay

1035 words - 5 pages

The real estate market is one of the essential components of any national economy. Without the real estate market may not be the market in general as well as the labor market and the capital market by themselves without property are unlikely to exist, as even financial institutions (banks, stock exchanges, investment companies, etc.) must be part of the real estate market to purchase or rent space required for their activities. The development of the real estate market depends on many factors, among which in the first place there are supply and demand. But as every market, real estate one cannot be perfect. Most disastrous situation is appeared at the Honk Kong. The Hong Kong ...view middle of the document...

4. Expensiveness;
5. High costs among the process of house changing.
According to nowadays situation in Hong Kong main problems for demand is related to the land and expensiveness. Second one is mostly caused by the problem of the land itself. Initially, the biggest problem lies in the limitations of the land fund of Hong Kong. Hong Kong is only 1,104 square kilometers, which is simply not comparable with the population equal to 7.1 million people (CSD, 2011). Even now, the population density of Hong Kong counts to horrific 6480 people per square kilometer. Real estate developers just simply cannot find land for further construction. This issue cause land price raising that in this turn leads to rising in home prices. Today the average price for an apartment in Hong Kong with area of 130-200 sq. m. is 15 thousand HK dollars (1,924 U.S. dollars) per 1 square. m. (RBC, 2011). This is a simple model of surplus on the market. Sellers set the price above the equilibrium price and buyers cannot afford it. With flow of time to cover losses of real estate holders, price will continue to rise. All of these things can cause an enormous house bubble on the market of real estate.
Part 2:
If housing developers will continue to act in such a way economy will receive a devastating double blow at the same time - on the one hand ability to refinance will disappear, on the other hand - mortgage demand will disappear as well. This combination of circumstances will drove the market into a deep stupor that will cause quick prices fall in the housing market (Burgess, 2009). The only circumstances that will allow market to survive in this difficult time will be governmental support. Without an exaggeration it can be mentioned that, if there is no money from governmental subsidiarity, the housing market will be collapsed completely.
Due to the fact that by the time up to the crisis, the market will be overvalued, and the construction industry would continue to gather momentum, with financial model of...

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