The role of investor sentiment in property investment decisions

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.