Abstract
Under property informality, perceptions on transaction failure risks at purchase can diversify the spectrum of possible prices depending on anticipated strategies subsequent to purchase. Based on survey data on 1514 residential property owners 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 three-bedrooms and units and 400m2 plots. The results suggest that risk averse households pay on average around Tanzanian Shillings (Tshs) 349,000/= more to acquire formally titled residential properties than they would pay for similar but informal properties simply because of a lower perceived transaction failure risk for the former. Such lower perceived risk is however, unambiguously relevant only among unfinished housing purchasers. For vacant and finished housing units, a positive net risk-price premium is dependent on the anticipated strategy subsequent to purchase. On average frequent visitation after purchase induces a higher risk-price premium over formal purchases for both vacant and finished housing units. A Legal title to a vacant has a small risk-price premium of around Tshs. 5,000/= over effective occupation for the same but a relatively higher risk-price discount for frequently visited plots among risk lovers yielding a positive net risk-price premium of around Tshs. 16,000/=. These marginal risk-price premiums for vacant suggest that informal and formally titled plots sale on average around the same price regardless of whether the purchaser is risk averse or otherwise. Formally titled finished housing is on average, purchased at a higher price but such premiums are limitedly associated with risk aversion suggesting that such premiums emanate from factors other than the use of formal titles in transactions.
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