How Real Estate Investment Trusts (Reits) Make Property Investment Decisions: A Review Of The Literature

Real estate investment trusts (REITs) are companies that invest in income- producing real estate. REITs, unlike other listed companies, are required to distribute a high percentage (70%-90%) of taxable income to shareholders. The acceptance and increase in the use of REITs as a means of investment have increased over time with REIT regimes in over 30 countries and a global market capitalisation of $1.10 trillion by the end of 2018 (EPRA, 2018). REITs provide investors with the ability to invest widely across various property sectors, providing investors with diversification, liquidity, transparency, regular income, and tax efficiency. However, even as REIT regimes continue to receive significant coverage, research on the investment decision-making process undertaken by REITs has mostly been drawn from the United States with limited research done to understand this concept in other REITs regimes. By using a systematic review of existing literature, this paper aims to document how REITs make property investment decisions by identifying the various steps, stages or sequences adopted when REITs carry out investment decisions. Findings show that normative investment decision- making models guided by a rationalistic theory that assumes the investment decision making is highly structured and formalised are prevalent in research the property investment decision making of developed REITs regimes such as those in the US, UK, France and Germany. Also, there is a growing recognition that property investment decision making is far from rational with an appreciation of the role behavioural biases play in property investment decision making. The behavioural perspective has been recognised to present a more realistic view of a rationalist approach to investment decision making with investment decision making occurring in imperfect and sometimes chaotic markets. This is primarily observed in emerging REIT regimes such as those in South Africa and Nigeria were steps and processes taken to achieve a final decision may deviate from a rationalist approach. The findings of this study suggest that more work is required to explore REITs investment decision-making steps and process in both developed and emerging regimes.