Pricing inter‐neighbourhood variation

Abstract

PurposeThe purpose of this paper is to focus on inter‐neighbourhood variation in the rental apartment market in Greater Cairo, Egypt, and its potential influence on property prices and performance of hedonic pricing models.Design/methodology/approachThe paper delves into the issue of whether comparables from different neighbourhoods are homogeneous enough to be aggregated in hedonic pricing models. This paper extends the research on rental‐property market segmentation by investigating the existence of apartment submarkets determined by neighbourhoods.FindingsResults show that parameters are unstable across neighbourhoods and Chow test provides further support for utilising spatial hedonic pricing models.Originality/valueThis paper provides further support for spatial hedonic pricing models using empirical evidence from Greater Cairo, Egypt. The paper finds that explanatory and predictive powers of hedonic pricing models are improved when separate hedonic equations are estimated for each neighbourhood in Greater Cairo. The paper does not provide an elaborate solution for implementing spatial models in Greater Cairo but rather supports the notion that one has to be developed.