FACTORS THAT IMPACT THE CHINESE HOUSE PRICES

FACTORS THAT IMPACT THE CHINESE HOUSE PRICES

INTRODUCTION

In this chapter, discussion of the background statement, the housing prices and the historical background of the chinese housing will be elaborated. It is crucial to understand the background of the housing prices as it  growth, inflation rate, interest rate, land availability historical background the determinants are important in the sense that it helps household members, investors and policy makers in making informed decisions. Subsequently, the problem statement will be explained to bring about clear illustrations of the housing prices in china. Also, the research questions and the objectives will be listed to portray the aims of the research. Additionally, the research will evaluate the literature review on the various determinants and how they impact on housing prices and finally, relationships between the variables will be determined and supported by theoretical and empirical explanations.

Background statement

Housing is one of the basic needs that a human being requires for proper survival. Therefore, the living standard of an individual is determined by the condition of the house of residence. For instance, the nature of the houses that people live differs in terms of structure and the surrounding neighborhoods. However, to afford a house, the housing price plays an important role since affordability in purchasing a house is related to housing price.

Before 1998, the Chinese government controlled the allocation of properties, including the distribution of real estates. The real estate market played a major role in the allocation of properties by the government. The employees working for the government were given houses at a relatively lower price since they were given subsidies from the government. Later that year, the government introduced new reforms and policies whereby, it resorted selling the real estate’s rather than giving it to its employees as part of their benefits. People saw the real estate’s differently after the reforms and opted it as a real opportunity to invest in the houses. This decision resulted to increase in incomes to investors and therefore investment of real estates was equally significant.

Rising housing prices will decrease its affordability and individuals who want to purchase houses will divert their resources to other non-housing entities. Additionally, this will affect the economy in the sense that it will affect the demand and supply. Moreover, increase in price will lower the demand while decreasing price will increase the supply. In, addition, investment in real estate will be a priority to many people especially when the stock market has not developed. In the same instance, many people in china have limited investment options. Therefore, choosing between investing in the stock market and real estates is the options that they have.

Problem statement

China recently, become the fastest growing economy in the world. Real estate market plays a major role in contribution to economic growth in the country. The government removed the housing benefits to its employees and replaced it with a market oriented approach whereby, it sold the real estates to its citizens and the citizens would buy and sell the estates. Therefore, there was an opportunity to conduct business and many people bought and owned real estates. Consequenlty, There was an increase in demand of real estate as a result, increase in housing prices. Furthermore, the citizens suffered as a result of the booming housing prices at that time.

Accordingly, this study found out that interest rates may have affected the raising in housing prices.  On the other hand, some studies illustrates that monetary policies is a major factor influencing interest rates. Similarly, some other studies reveal that an increase in interest rates of estates results to an increase in housing prices. Some scholars have opined that, demand of the real estates will decrease immensely with high interests’ rates due to high housing prices.

An equally significant aspect, economic growth influences the housing price in china. Moreover, the force of demand and supply is known to affect the housing prices in china. Additionally it has been established that increase in demand for houses causes an increase in price. Also, the economy plays a Vitol role in investment decisions, financial institutions and economic activities. Similarly, a relationship exists between the prices of houses and inflation. It has been established that inflation influences the investors ability to invest in real estates. Consequently, some studies has revealed that there exist a relationship between the land availability and housing prices. Furthrmore, it has been established that china has the largest population hence causing pressure to the land thereby leading to increase in housing prices. Another addition, some scholars found out that historical background and housing prices relates significantly. In other studies, China government in 1998 allowed its citizen to own estates and sell without any interruption. Therefore, it made the housing price to boom due to high demand.

At the same time,