Decision making in small property companies

Abstract

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

The role of investor sentiment in property investment decisions

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The Influence of Frame Dependence on Investment Decisions made by Listed Property Fund Managers in South Africa

“…A growing body of research is exploring the relatively new research field of behaviour and property investment. French & French (1997), Gallimore, Hansz & Gray (2000) and Black, Brown, Diaz III, Gibler & Grissom(2003) all emphasise the influence of behavioural aspects in property investment decision-making. Studies by Crosby & McAllister (2004) and MacCowan & Orr (2008) have investigated the behaviour of property fund managers with regard to individual and mixed-asset funds.…”

The Perception and Management of Risk in UK Office Property Development

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“…For such companies banks will provide flexible facilities often with limited security. Smaller property investment companies operate in a similar though more modest fashion with fewer resources to investigate opportunities and more reliance on external financing (Gallimore et al 2000).…”