The Effect of Behavioral Factors on Investment Decisions in Real Estate Sector in Nairobi County

Abstract

Purpose-This study was intent on establishing the effect of behavioral factors on investment decisions in the real estate sector in Nairobi County. The behavioral factors explored for this study were herd behavior, representativeness, anchoring and overconfidence.

Methodology-The study exploited descriptive research design to explicate how investors in real estate sector in Nairobi County make investment decisions from a behavioral finance point of view. Descriptive statistics and inferential statistics were used to scrutinize the data. Descriptive statistics adopted in this study included frequencies, mean, percentages and standard deviation. Additionally, inferential statistics of regression models and correlation analysis were used to examine the relationship of the study variables. The scrutinized data were presented in form of frequency tables and pie charts.

Findings-The results of the study revealed that 53.71% of the respondents make use of the intuitions when evaluating investment decisions. The outcomes of the study further showed that representativeness, herd behaviour, anchoring and overconfidence have positive correlation coefficients of 0.21, 0.31, 0.16 and 0.32 respectively with the investment decisions in the real estate sector. The multiple R for the regression was 0.817, suggesting a strong positive correlation between the values that the model predicts and the actual values of the dependent variable. The R Square was 0.667 suggesting that about 66.7% of the variation in the real estate investment can be explained by the variation in the extent to which they are influenced by the behavioral factors. The Multiple R and the R Square suggest that behavioral factors exert influence on the investment decisions in the real estate sector.

Implications- Behavioural factors analysis provides explanations on the trend of the investors in making critical investment decisions which portray a particular pattern of behaviour in the investment. Investors lack rationality when making decisions about their investments but rather make decisions based on emotions, feelings, mood and sentiments.

Value- The study findings will enable investors to acquire skills necessary in eliminating various behavioral biases and increasing their rationality when making investment decisions in the real estate sector.