Hedonic house price index for Dar es Salaam: examining the effects of data from informal and formal real estate agents

Abstract

The nascent Dar es Salaam housing market is among the housing markets in sub-Saharan Africa without a practical house price index. However, there exists real estate agents, both formal and informal with the potential for availing plenty of housing transaction data. Nevertheless, no studies have been carried out to examine the potential of data from both informal and formal real estate agents for developing house price indices. Using the house transaction data from both informal and formal agents, the study determines the effect of the two data sources on the house price index for Dar es Salaam. Using the hedonic method, the study employs the OLS and tests for spatial influences to advance the OLS to spatial econometric models. Eventually, the spatial econometric model (Spatial Durbin) is used to create an index with data from both formal and informal agents and this is compared to the index with data from only informal agents to examine if the addition of data from the formal agents improves the house price index. The basis of the analysis is pooled cross-sectional data. The addition of data from formal real estate agents to the data from informal agents seems to marginally improve the hedonic model and produce a steadier house price index. However, the marginal improvement is probably due to the differences in the volumes of data rather than the data source. A house price index for Dar es Salaam could be developed with data from both formal and informal real estate agents.