The Role of Market Fundamentals versus Market Sentiment in Property Investment Decision-making in South Africa

Abstract

In property markets, unlike capital markets, the quantity and quality of data available is limited. To compensate for deficiencies in data on market fundamentals available for property investment decision-making, fund managers may rely on market sentiment. Such deficiencies, together with possible mispricing in property assets, may lead to inefficiencies in property markets. We investigate the use of market sentiment and personal judgement, as opposed to market fundamentals, in property investment decision-making in South Africa. The results indicate that in the South African property investment context, market sentiment plays a smaller role than market fundamentals, unlike in some developed economies.