Effect of prospect based behavior biases on the performance of real estate investments in Kenya

Abstract

Kenya is the world’s top performer in terms of real estate transparency and there has been a phenomenal growth in real estate investment in Kenya in the last ten years (2005-2016), with returns that way outdo the returns in the security markets. Despite this growth, Kenya has the lowest real estate returns in the Eastern Africa. The returns of real estate in Kenya are the lowest, standing at an average of 8% compared to that of Uganda with 11.1% and Tanzania 8.8%. Based on this trend, a fundamental question would be what is really driving this investment. This study therefore attempted to determine the contribution of Prospect based behavioural biases in influencing real estate performance in Kenya using a sample of 353 individual investors. To test study hypothesis, Model R2, ANOVA Statistics and Regression coefficients were generated and interpreted. The results indicate that prospect bias negatively influence the performance of real estate industry. These findings imply that there is apparent irregularity in human behaviour when evaluating risk under uncertainty thus affecting the performance of their investments. Further interpretation is that losses hurt more than gains satisfy therefore real estate investors in Kenya tend to be risk averse when choosing between gains and risk takers when choosing between losses.