The value of formal titles to land in residential property transactions

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 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 finished and unfinished housing units and 400m 2 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 plots" and "finished housing" units, a positive net risk-price premium is dependent on the anticipated occupation strategy subsequent to purchase. On average "frequent visitation" after purchase induces a higher riskprice premium over formal purchases for both "vacant plots" and "finished housing" units. A Legal title to a "vacant plots" 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 plots" 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.

Land administration practices in Tanzania: a replica of past mistakes

“…The East Africa Royal Commission (1955) also noted with concern that Africans in the fringe of urban centres face severe urban expansion land-related conflicts. Security of tenure (Alananga, 2018). In countries where informally held land rights, especially in rural-urban transition zone, or traditional rural land rights are being formalised, ineffective community participation may also lead to serious lack of awareness and inefficiency in land administration practices (Mahalingam, 2011).…”

“…It is however, noteworthy that democratic principles may impose superior informal organisers who may be at odd with the hereditary nature of traditional leadership. Informal organisers grow out of asymmetric information among peri-urban transitional zone dwellers (Alananga 2018). When residents and buyers are struggling to get information on land rights, somehow some clever people realise the potential for collecting and disseminating information on land rights.…”