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The role of capital structure in real estate project financing: Risk, cost, and policy implications

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  • Hwang, Sunjoo

Abstract

By examining project-level data on real estate project financing (PF), I find that higher equity ratios are associated with lower overall risk and reduced project costs. This finding supports policy measures aimed at strengthening capital structures without unduly constraining PF activity. If regulatory lending limits are to be introduced, they should target only lowequity PF projects. Moreover, preferred shares should be recognized as regulatory-eligible equity capital, and the deferral of capital gains tax should be made permanent to encourage in-kind land contributions. It is equally important to address regulatory arbitrage involving Project Finance Vehicles (PFVs), which are often exploited to pursue large-scale developments with minimal capital.

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  • Hwang, Sunjoo, 2025. "The role of capital structure in real estate project financing: Risk, cost, and policy implications," KDI Focus 145, Korea Development Institute (KDI).
    • Handle: RePEc:zbw:kdifoc:331223
    DOI: 10.22740/kdi.focus.e.2025.145
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