The value of formal titles to land in residential property transactions

Abstract

PurposeThe purpose of this paper is to analyse the impact of title risks on property prices to establish the associated title risk-price premiums across property types and the moderating effect of occupation strategies for informal transactions.Design/methodology/approachBased on household survey data on transactions for 1,514 residential properties in Kinondoni Municipality, Tanzania, binomial logistic regression models were implemented to predict pre-purchase transaction risks. The results of which were used as inputs in mixed effect models to examine the effect of the predicted title risks on (2,010 constant) purchase price for three-bedrooms finished and unfinished housing units and 400 m2 plots.FindingsAlthough legal titles have positive overall title risk-price premiums, such premiums hardly accrue from transactions involving finished houses and marginally accrue from vacant plots transactions. On average, unfinished housing purchasers are title risk-averse, “vacant plots” purchasers are title risk-neutral, while “finished housing” purchasers are title risk-lovers.Research limitations/implicationsThe sample composition does not include developer-built housing units, the inclusion of which may sway results away from the observations of this study.Practical implicationsTitling alone can hardly be used as a property market stimuli (eliminate transaction risks) unless the market is dominated by unfinished houses.Originality/valueExisting studies consider neither traded housing products nor pre-purchase transaction risks or consider only one of the two, thus leaving a gap in the literature for which this study sought to bridge. Researchers must incorporate both to arrive at a well-informed conclusion on the potential risks as well as prices achievable in each transaction.