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Revisiting the Price of Residential Land in Jakarta

World Bank in Jakarta, Jl Jenderal Sudirman, Jakarta Stock Exchange Building, Jakarta DKI 1290, Indonesia, blewis{at}worldbank.org

This paper corroborates the main stylised facts of previous studies regarding the relationship between urban residential land price and distance from the centre of the city: the effect of distance on land values is significant and negative and the influence of distance on the price of land has become less important over time. The analysis, using data from Jakarta, reveals that the use of market prices instead of appraised prices does not have much effect on the estimated land value gradient, although it does have major consequences for the estimated influence of environmental conditions on land price. Apparently, the market values environmental conditions to a significant degree whereas such conditions have no impact on government assessments of land price. The examination demonstrates that the elasticity of land price with respect to parcel size is significantly different from one, contrary to the assumption of the basic model, but that changing the naive model to reflect that fact does not have notable impact on the estimated land value gradient. Finally, the investigation illustrates the potential importance of using randomly generated data in the estimation of the influence of distance and other independent variables on land price. Utilisation of an incidental truncation model, which attempts to adjust for the non-random character of the sample data, results in an estimate of the absolute value of the land price gradient that is larger by a factor of two relative to that derived from the unadjusted model.

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