Decision-making in property Investment by Property Fund Managers

Abstract

The assets under management of property fund managers have been increasing over the last decade. The low interest rate environment and stability of property values relative to other asset class values has made property an attractive to wholesale investors. A large number of these investors are superannuation funds, who invest in property indirectly through property fund managers. As the characteristics of property, such as large value, heterogeneity, illiquid and large transaction costs, are so different to other asset classes, decision making by property fund managers is not expected to be the same as decision making on other asset classes. This paper surveys fourteen property fund managers on the factors that influence their decision making. The analytical hierarchical process (AHP) is used to allow pair-wise comparisons of the relative factors to be undertaken. This allows the factors to be ranked in order of importance. The factor strategic decision making is found to be considerably more important than the other factors in the survey. This is very different to the findings of earlier surveys in the United States, the Netherlands and Australia, which found geographical location and property type to be the preferred factors.