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Construction loans and industry development: the case of Hong Kong

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  • Yat-Hung Chiang
  • Eddie Cheng

Abstract

Building contractors are generally small private firms. Bank loans are their major, if not only, source of external finance. However, building and construction loans represent a mere minuscule portion of all bank loans in Hong Kong, suggesting that contractors may have been neglected by banks. With the case of Hong Kong, this study examines the lack of supply and demand of construction finance, and the implications for industry competition and innovation. Contractors' perceptions were solicited through a questionnaire survey. Key issues identified were further explored in subsequent interviews. The results were then triangulated with secondary data. It is found that although contractors do not usually have enough assets to pledge as collateral, they generally do not need to borrow that much. The provision of interim payments has enabled them to work with small capital outlay. However, the interim payment mechanism has induced a low barrier to entry, which has helped perpetuate the vicious circle of labour intensiveness of building construction, exploitation of labour-only subcontracting, proliferation of small subcontractors and intense rivalry between firms. The findings conclude that contractors' limited access to finance generally and bank loans in particular has posed a major barrier to innovation and hence industry development.

Suggested Citation

  • Yat-Hung Chiang & Eddie Cheng, 2010. "Construction loans and industry development: the case of Hong Kong," Construction Management and Economics, Taylor & Francis Journals, vol. 28(9), pages 959-969.
  • Handle: RePEc:taf:conmgt:v:28:y:2010:i:9:p:959-969
    DOI: 10.1080/01446193.2010.494679
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    References listed on IDEAS

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    1. George A. Akerlof, 2009. "How Human Psychology Drives the Economy and Why It Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1175-1175.
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    Cited by:

    1. Ka Chi Lam & Olalekan Shamsideen Oshodi, 2015. "The capital budgeting evaluation practices (2014) of contractors in the Hong Kong construction industry," Construction Management and Economics, Taylor & Francis Journals, vol. 33(7), pages 587-600, July.

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