The Anatomy of the Real Estate Sector in Lesotho: Reviewing an Appropriate House Price Index Methodology

EXCESSIVE ASSET price volatility, especially in real estate markets, has been associated with financial crises. The purpose of this study is to propose a house price index methodology that will be suitable in the case of Lesotho. The study explored several property indices and establishes that the proper methodology that can be adopted in Lesotho is the classified median price index. Data unavailability in Lesotho excluded other house price index methodologies identified in the literature.

Therefore, the study recommends that the Central Bank of Lesotho should adopt the median price index methodology in its attempt to develop a house price index for Lesotho. This recommendation leverages on the following advantages of the median price index. First, this methodology reports the average or median price of houses sold in each time period and does not require characteristics on the house sold. Second, it is easy to compute and third, it uses readily available data from mortgage loans provided by the banking sector