Determinants of the prices of residential properties in Pakistan

Abstract

PurposeThis research aims to identify the statistically significant characteristics of a hedonic model to explain the pricing of residential properties in two cities in Pakistan.Design/methodology/approachThe research methodology applies extreme bounds analysis and the least absolute shrinkage and selection operator. Estimators of efficient pricing were measured via stochastic frontier analysis.Findings The study findings show that the market valuation of residential properties in Islamabad and Rawalpindi is systematically related to numerous factors, including property location, neighborhood characteristics, environmental characteristics, structural characteristics and administrative qualities of local housing societies. The authors also find statistical evidence that suggests that residential estate properties in the two cities are overpriced in the sense that the market transaction prices tend to be higher than the fair prices of the properties in the two cities.Practical implicationsIn Pakistan, the term “real estate” is used rather synonymously with the word “investment.” The findings of this research will help investors to identify the measurable factors that affect the transaction prices of residential real estate. These identifications will facilitate the development of strategic plans toward achieving sustainable rates of return in residential real estate markets.Social implicationsThe residential real estate sector in Pakistan is constantly changing. There are myriad causes for these changes, including changes in social structure, cultural attitudes and technology. Customary methods for forecasting market prices for residential properties have been rendered unreliable because of the dynamics of the market. This study will contribute to the understanding of the changing dynamics of residential real estate pricing.Originality/valueAlthough Pakistan's residential real estate market is growing very rapidly, there is little published research identifying the drivers of this growth. This study covers these aspects to fill the theoretical gap in a real estate context.