Study On The Capital Structure Of The Listed Real Estate Companies In Hong Kong

Several effective business models were generated by Hong Kong real estate companies from the operating experiences in the past boom and bust property market cycles. The decision of capital structure played an important role in these models. Therefore, the listed Hong Kong real estate companies were selected as target and their capital structures were studied in depth, in order to demonstrate the relationship between their business strategies and capital structure decisions.The results showed that the debt level of Hong Kong real estate companies was lower than other sectors, due to the characteristics and business strategies of real estate business. Most of the successful Hong Kong developers preferred keeping their debt level at a lower level in boom market in order to reserve resources for acquiring more land banks and expanding their investment portfolio in the coming bust market. This inference was supported by the empirical study on the financial data of the listed Hong Kong Real estate companies. From the empirical results, the scale and growth of sample companies showed positive correlation with the debt level. However, the profitability, proportion of properties hold and the market trend showed negative correlation with the debt level.Deft level was not a critical determinant on the profitability of the real estate business. In fact, the capital structure mainly reflected the attitude of companies on the risk management and their business strategies. As concluded, risk and return should be the major factor in the capital structure decision. Companies should kept enough operation capital even in bust market. On the other hand, the developers should also hold serval investment properties in order to diversify their business risks.