The role of investor sentiment in property investment decisions

TLDR

Property investment decisions are usually framed as a rational, data‑driven process, but sentiment‑based approaches in broader markets are considered suboptimal and can cause mispricing. The study aims to assess how investor sentiment may augment or replace data deficiencies in property investment decisions. The authors surveyed property investment decision‑makers to compare contrasting views of sentiment. Survey results show that investor sentiment is an important factor in property decisions, and respondents’ conception of sentiment differs from that used in wider financial markets. Keywords: Investor Sentiment, Investor Behaviour, Property Decisions, Market Information Sources.

Abstract

Abstract 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 deficiencies in, such data, property investors may turn to perceptions of investor or market sentiment. Reliance on sentiment in the wider financial 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 confirmed as different to the concept applied in the wider financial markets. Keywords: Investor SentimentInvestor BehaviourProperty DecisionsMarket Information Sources