Somalia’s real estate industry has witnessed massive development in recent years, contributing to the urbanization and infrastructure growth. This study aims to investigate the determinants of residential property rents in Somalia and assess whether these rents are fairly valued. By employing a two-stage modeling approach, the research provides insights into the factors influencing rental prices and the potential risks associated with the speculative nature of the real estate market.

Source

Determinants of Residential Property Rents:

The study employs a hedonic regression model to discern the pivotal factors shaping residential property rents in Somalia. Results indicate that the size, location, and security of a property exert substantial influence on its monthly rental rates. Particularly, properties situated in safer areas, often preferred by government employees, command elevated rents, underscoring the paramountcy of security within the real estate market. These findings shed light on the nuanced interplay between the various property attributes and rental pricing dynamics in Somalia. Understanding these factors is vital for property owners, developers, and policymakers to make informed decisions regarding investment, development, and regulatory interventions aimed at fostering a thriving and equitable real estate sector. By recognizing the significance of security alongside other determinants, stakeholders can better navigate the complexities of the residential rental market and contribute to its sustainable growth and resilience.

Valuation of Residential Property Rents:

An artificial neural network is applied in the second stage of the analysis to investigate the fair valuation of residential property rents. The study reveals that residential property rents in Somalia are not fairly valued, with overvaluation being more prevalent than undervaluation. This suggests that the real estate industry is more speculative-driven than real demand-driven, which could lead to a bubble-then-burst scenario if left unchecked.

Implications and Recommendations:

The speculative nature of Somalia’s real estate market poses risks to its long-term sustainability. While the industry has huge potential in the long run, it requires government intervention to regulate, supervise, and protect the infant market. Policymakers should formulate policies that balance the needs of the real estate industry with the affordability concerns of the poor and low-income citizens.

Conclusion:

Somalia’s booming real estate market has been a significant contributor to the country’s economic growth and urbanization. However, the speculative nature of the industry raises concerns about its long-term sustainability. This study highlights the need for government intervention to regulate the market and ensure fair valuation of residential property rents. By striking a balance between the needs of the real estate industry and the affordability concerns of the population, policymakers can foster a stable and inclusive real estate market that supports sustainable development in Somalia.