The literature on investor decision-making behaviour in property investment is sparse, loosely integrated and focused principally upon large, institutional investors. It reflects rational, normative models that treat investor behaviour as highly structured and formalised. By contrast, behavioural psychology suggests that individuals frequently act sub-optimally. These ideas have been explored in financial decision making and have been found in the actions of property valuers and property lenders. This paper addresses this neglected area of property investment decision-making. Semi-structured interviews were conducted with a sample of property investment directors of smaller property companies. The interviews investigate the decision-making structures in these companies, the process by which investment strategy is formulated, the investment``screening'' process and the determinants of purchase/sell decisions. The findings are discussed and related to the literature on decision making under uncertainty. IntroductionIn large part, the literature on business decision making is dominated by rationalist perspectives and focused on examination of sets of rules that people should follow, rather than how decisions are actually made. The limited amount of investigation of property decision making (e.g. Anderson and Settle, 1996;Farragher and Kleinman, 1996;Miles et al., 1989) has likewise been concerned principally with the rules and techniques that people adopt, with normative models ubiquitous in textbook descriptions of the decision process (Pyhrr et al., 1989;Hartigay and Yu, 1993;Jaffe and Sirmans, 1995). The general dominance of rationalist approaches has been challenged by behavioural decision theory, drawing from cognitive psychology, and addressed at closer examination of process features, including the decision environment and individual differences between decision makers (Tversky and Kahneman, 1974). The impact of behavioural approaches upon property analysis has so far largely been confined to valuation decisions
Property decision-making is typically characterized as a structured rational process, using factual data and leading to optimal decision-making. To augment, or substitute for de ciencies in, such data, property investors may turn to perceptions of investor or market sentiment. Reliance on sentiment in the wider nancial markets is, however, regarded as suboptimal behaviour that leads to mispricing. Discussion of these contrasting views of sentiment is coupled with the results from a survey of property investment decision-makers. These results indicate that investor sentiment is an important factor in property decision-making, despite its neglect in formal explanations of property market functioning. The conception of investor sentiment held by survey respondents is explored and con rmed as different to the concept applied in the wider nancial markets.
There is a substantial literature which suggests that appraisals are smoothed and lag the true level of prices. This study combines a qualitative interview survey of the leading fund manager/owners in the UK and their appraisers with a empirical study of the number of appraisals which change each month within the IPD Monthly Index. The paper concentrates on how the appraisal process operates for commercial real estate performance measurement purposes. The survey interviews suggest that periodic appraisal services are consolidating in fewer firms and, within these major firms, appraisers adopt different approaches to changing appraisals on a period by period basis, with some wanting hard transaction evidence while others act on 'softer' signals. The survey also indicates a seasonal effect with greater effort and information being applied to annual and quarterly appraisals than monthly. The analysis of the appraisals within the IPD Monthly Index confirms this effect with around 5% more appraisals being moved at each quarter day than the other months. More November appraisals change than expected and this suggests that the increased information flows for the December end year appraisals are flowing through into earlier appraisals, especially as client/appraiser draft appraisal meetings for the December appraisals, a regular occurrence in the UK, can occur in November. January illustrates significantly less activity than other months, a seasonal effect after the exertions of the December appraisals.
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