While prior studies have examined the predictive effect of macroeconomic and country risk components on property stock index dynamics, limited explanations exist in the literature regarding the time-varying effect of investor sentiment on housing prices. Accordingly, this study assesses the impact of investor sentiment on the commercial housing properties’ returns and their conditional volatility and the effect of investor sentiment on housing price indices under different market conditions, using GARCH, GJR-GARCH, E-GARCH and Markov-switching VAR models. We found investor sentiment to have a significant impact on the risk premium of the property returns. Recent investor sentiment exerts positive predictive influences on prices of small and medium houses in both bullish and bearish market conditions, but no effect on the large housing market segment. This makes the implementation of risk-related diversification across small and medium real estate portfolios more effective than large real estate portfolios. Our findings show that investor sentiment is a plausible driver of mass investor redemption actions under conditions of uncertainty.