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Samwel Alananga

AfRES from African Real Estate Society (AfRES)

Abstract: Under property informality, perceptions on transaction failure risks at purchase can diversify the spectrum of possible prices depending on anticipated occupation strategies subsequent to purchase. Based on survey data on 1246 land purchasers from Kinondoni municipality, Dar es Salaam Tanzania, binomial logistic regression models were implemented to predict pre-purchase perceived transaction failure risks and mixed effect models were utilised to examine the effect of the predicted risks on (2010 constant) price of 400m2 plots. The results suggest that risk averse households pay on average around Tanzanian Shillings (Tshs) 10,000/=more if they intend to effectively occupy their newly acquired plots than they would pay for similar but ineffectively occupied plots simply because of a relatively lower perceived transaction failure risk associated with the former. This observation suggests that risk- price premium in land transaction is dependent on the anticipated occupation strategy subsequent to purchase. On average “frequent visitation” after purchase induces a higher risk-price premium over formal purchases. A Legal title to a “vacant plots” has a relatively smaller risk-price premium of around Tshs. 5,000/= over “effective occupation” for the same but a relatively higher risk-price discount is associated with “frequently visited” plots among risk lovers. These risk-price premia yields translates to an average of around Tshs. 16,000/= for each 400m2 plot purchase.These marginal risk-price premia suggest that informal and formally titled plots sale on average, at around the same price regardless of whether the purchaser is risk averse or otherwise. In terms of policy, titling of vacant land has limited transaction risk-reduction effect, purchasers might be indifferent between formal and informal purchase of vacant land.

Keywords: Developing Countries; housing transaction; price premia; transaction risk (search for similar items in EconPapers)
JEL-codes: R3 (search for similar items in EconPapers)
Date: 2017-09-01
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Handle: RePEc:afr:wpaper:afres2017_106