What drives household residential property investors? A cross-country behavioural analysis

The real estate investment markets of Australia and Malaysia are continuously developing, due to the reputation of real estate as a lower risk investment. Individual investors play an important role in shaping the development of each of these real estate markets. This research aims to explore the behaviour – specifically, bounded rationality – of individual real estate investors, which, so far, has been unexplored. Individual investors are frequently described as rational and as optimising their choices out of self-interest. However, this research hypothesises that boundedly rational behaviour will complicate this theory. The study employs mixed methods to triangulate information related to the research questions. The first phase of data collection is a Delphi study comprised of two rounds of investigation that seek to obtain opinions from Australian and Malaysian experts. These panellists were selected on the basis of their expertise in real estate, both in academia and industry. The second phase of data collection is a research survey. The research survey collects responses from Malaysian individual real estate investors who have sold at least one of their properties. This particular selection criterion enables the study to explore experience across the entire investment process, from the purchasing of a property to selling. In both the Delphi study and research survey, Schwartz’s ten human values were assessed as guiding principles in real estate investment decision making. The results from both research phases suggested that achievement, self-direction, and security were the three top-ranked human values that were important in real estate investment decision-making. This research also suggested six propositions from bounded rational behaviours that were thought to significantly contribute to the real estate investment decision-making process. These bounded rational behaviours were accessibility, the endowment effect and loss aversion, herding, overconfidence, status quo bias, and anchoring. The findings from the research survey revealed that individual investors are likely to be affected by their prior experience when they make an investment decision. They are also likely to have emotional attachment to their property, exhibiting the endowment effect and loss aversion. The data also revealed the existence of herding and status quo bias, representing behaviour that conforms to social trends. Moreover, the data showed that individual investors are overconfident, especially if they achieved success with a past investment. Finally, the individual investors were found to use an anchor price to adjust the value of a property. The study explores the existence of bounded rational behaviours in individual real estate investors, which, previously, was not well understood. This study also makes a contribution to behavioural economics. Hence, this study provides improved understanding regarding quality decision-making in real estate investment and offers important insight regarding the implications of bounded rational behaviours at the individual and societal level.