Listing price estimation of apartments: A generalised linear model

Orientation: Residential property is an important segment of the property market in South Africa. Residential property transactions are typically infrequent and relate to a highly differentiated set of items making measurement techniques complex and difficult. Research purpose: The aim of this research was to develop a statistical model to estimate listing prices of apartments in KwaZulu-Natal, South Africa, and build a software application to disseminate the results thereof. Motivation for the study: This study presents a novel alternative to the log linear (ordinary least squares) method of deriving a hedonic price function for residential property where the arithmetic mean is computed as the expected value and not the geometric mean. Research design, approach and method: Using a data set of 1314 residential apartments provided by Private Property (Pty) Ltd, this research derives a hedonic price function for residential property using a generalised linear model based on the gamma distribution and log-link function. Main findings: The results showed that floor area, number of bedrooms, number of bathrooms and a dummy variable for suburb (location) were statistically significant determinants of listing prices. Practical/managerial implications: A software application, called the listing price calculator , was developed to disseminate the results of the model for commercial use by real estate buyers, sellers and agents, bridging the gap between academia and business. Contribution/value-add: This study derives a hedonic price function for residential property using a generalised linear model based on the gamma distribution and log-link function, which is novel in South African research.