Climate Risk Perception and Behavioural Biases in Real Estate Investment Markets: A Systematic Review

Pacify Dzidzornu Agorsor; Elvis Attakora-Amaniampong; Williams Miller Appau

Pacify Dzidzornu Agorsor University of Business and Integrated Development Studies, Department of Real Estate, Wa, Ghana
Elvis Attakora-Amaniampong University of Business and Integrated Development Studies, Department of Real Estate, Wa, Ghana
Williams Miller Appau University of Business and Integrated Development Studies, Department of Real Estate, Wa, Ghana

Keywords: Climate adaptation, Climate risk, Investor behaviour, Property markets, Real estate investment

Abstract

Climate Change poses increasing physical and transitional risks to real estate markets, yet investment decisions continue to show systematic misperception of these hazards. This review synthesises recent empirical and theoretical literature on climate risk perception and behavioural biases in real estate investment markets, focusing on Ghana and comparative African economies. Following the PRISMA 2020 Protocol and based on over 2500 records identified from Scopus and Web of Science, 30 peer-reviewed studies between 2020 and 2025 were selected after screening and synthesised to address four research questions regarding how real estate investors perceive climate risk, what behavioural variables mediate their responses, whether market prices reflect these perceptions, and which theoretical lenses best explain observed behaviours. Three key findings emerged. One, climate risk perception is consistently distorted by cognitive biases, including availability heuristics, loss aversion, optimism bias, and herding. Two, climate risks are being capitalised into property prices, with flood-risk discounts of 12-18% documented in Accra and 6-15% in U.S. coastal markets. However, pricing remains reactive, incomplete and highly unequal across geographies. Three, developer adaptation is driven primarily by financial incentives and regulatory pressure rather than proactive, forward-looking risk management. Grounded in Prospect Theory (Kahneman, 1979) and the Adaptive Market Hypothesis (Lo, 2004), the review attributes these patterns to a structural market failure. The study recommends that policymakers in Ghana and comparable African economies prioritise investment in standardised, publicly accessible climate hazard data and mandatory climate risk disclosure frameworks as a foundational step towards closing the perception-reality gap in real estate climate risk pricing and fostering more resilient, climate-adaptive property markets