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Abstract
This paper examines the economic performance of 16 property companies in Hong Kong, and how well they do in comparison with Singapore property companies. The results show that Hong Kong property companies that diversified into other sectors appeared to perform better than those focused solely in real estate. Property companies in Hong Kong generally achieved higher rate of returns on their capital invested than Singapore property companies. Government financial assistance for private homeownership is believed to play an important role in the relatively better performance of Hong Kong's companies, particularly after 1997. Meanwhile, firms in Hong Kong are exposed to higher weighted average cost of capital due to higher business risks, in addition to higher interest rate stemmed from a linked exchange rate system. On the whole, property companies in both Singapore and Hong Kong do not perform well from an Economic Value‐Added (EVA) perspective, but this does not necessarily mean that they are poorly managed. The empirical results show that the performance of a company is influenced dramatically by profits generated from the sale of non‐property assets.
Acknowledgement
The authors would like to thank Mr Ka‐hung Yu for his valuable assistance.
Notes
1. Detailed descriptions of these two variables are presented in section 2.
2. It could be a problem in the computation of WACC if a country’s corporate tax rate varies on different levels of corporate income. However, since Hong Kong is using a fixed‐rate corporate tax rate structure, such latent issue is not applicable.
3. If rates equivalent to government bond interest rate are used, the risk premium would have been lower so would the WACC (the savings rate was 0.125% p.a. in Fall 2004 when the Hong Kong Government offered 2.75% p.a. for their 3‐year tolled facilities‐backed bonds issued in the same year).
4. This loan scheme was cancelled in 2004.