Property-Price Determinants in Indonesia

Abstract

Price formation provides critical insights into the attributes of fledgling property markets in developing countries. This article investigates asking-price formation across the Indonesian archipelago, including previously unstudied regional property markets. We compile a rich micro dataset of asking prices for residential, commercial, and undeveloped land from a nationwide classifieds database. Through a hedonic price analysis we identify the impact of property and advertisement attributes on asking prices for each type of property, using spatial fixed effects to control for spatially correlated unobservable characteristics at the district and city levels. Results indicate that property characteristics, land ownership status, and advertising method are all statistically significant indicators of asking price. We find considerable heterogeneity in asking-price formation in residential, commercial, and undeveloped land, and identify key differences between urban and rural markets.

Proses pembentukan harga mmberikan informasi penting akan perkembangan pasar properti di negara berkembang. Tulisan ini berisi telaah terhadap proses pembentukan harga permintaan di seluruh kepulauan Indonesia, termasuk pasar properti regional yang belum pernah dikaji sebelumnya. Kami mengompilasi set data mikro yang besar mengenai harga permintaan hunian tempat tinggal, komersil, dan tanah dari berbagai basis data nasional. Menggunakan analisis harga hedonis, kami mengidentifikasi dampak atribut properti dan iklan terhadap harga permintaan bagi setiap tipe properti seraya menggunakan efek tetap spasial untuk mengendalikan korelasi spasial dari karakteristik-karakteristik yang tidak terboservasi pada level kabupaten dan kota. Hasil penelitian menunjukkan bahwa karakteristik properti, status kepemilikan lahan, dan metode pengiklanan semuanya merupakan indikator signifikan terhadap harga permintaan. Penulis juga menemukan variasi yang cukup signifikan dalam pembentukan harga permintaan hunian tempat tinggal, komersil, dan tanah. Terakhir, kami bahas perbedaan-perbedaan utama antara pasar perkotaan dan pedesaan.

Keywords:

• hedonic analysis
• asking-price formation
• property markets
• developing countries
• land tenure

JEL classification:

• O18
• R12
• R21
• R30

Notes

1 For example, the neighbourhood of Embong Kaliasin in Surabaya and the neighbourhood of Setiabudi in Jakarta.

2 Lewis (2007) provides one of the few studies reporting actual sales data, collected as a part of a Ministry of Finance review of the accuracy of property tax appraisals in Jakarta.

3 The street names we identified were Sudirman, Diponogoro, Ahmad Yani, Merdeka, Alun-alun, and Balaikota.

4 We were not able to collect all the available observations, because OLX does not have an API to access the data. Following typical etiquette, we built a significant time lag into our code to avoid overloading their servers. We also limited the number of requests per 24 hours.

5 Results with different functional form specifications are available from the authors by request.

6 We also conducted a principal component analysis to cluster the independent variables. The findings largely support the importance of all three components discussed above: structural attributes, land tenure status, and advertisement attributes. These results are available from the authors upon request.

7 Regression models with the full set of interaction variables can be found in the supplementary material, available at http://dx.doi.org/10.1080/00074918.2018.1436158.

8 Alternatively, houses with landlines are more frequently found in small towns rather than villages, therefore the landline effect could simply indicate the property is in a more favourable location.