Capital structure and profitability of the property and construction sectors in Hong Kong

Chiang Yat Hung, Chan Ping Chuen Albert, Hui Chi Man Eddie

Research output: Journal article publicationReview articleAcademic researchpeer-review

67 Citations (Scopus)


This paper examines the inter-relationship between profitability, cost of capital and capital structure among property developers and contractors in Hong Kong. Whilst major indigenous local developers are among the largest and the most profitable in the world, their contractor counterparts are generally small and nowhere near as profitable. An analysis of financial data suggests that gearing is generally higher among contractors than developers. However, it does not mean that contractors borrow more than developers. Indeed they do not need to borrow as much as developers even if they have the assets to pledge as collateral. Contractors do not have to pay for high land costs, and they obtain project finance from developers through interim payments in lump sum contracts that are widely adopted in the industry. Their high gearing reflects more their low equity base than high level of debts. Their costs of equities are about double the developers’, probably due to their usually low or negative profit margins. This conclusion is substantiated by further regression analysis of the data. The findings indicate that capital gearing is positively related with asset but negatively with profit margins. This article concludes with a discussion on implications of such profitability divide between the two sectors on the unequal relationship between developers and contractors, and on their competitiveness.
Original languageEnglish
Pages (from-to)434-453
Number of pages20
JournalJournal of Property Investment & Finance
Issue number6
Publication statusPublished - 1 Dec 2002


  • Competition
  • Construction industry
  • Gearing
  • Hong Kong
  • Property

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Finance
  • Economics, Econometrics and Finance(all)


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