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What do you do with HK$1.5 million in your savings account when the interest rate is almost zero? 
Many people would buy property or shares, but in the past year more and more investors have been going off the beaten track and buying a taxi licence - HK$1.5 million roughly covers the down payment.
Last month, the cost of a taxi licence broke through the HK$5 million level, up more than 36 per cent from a year earlier, easily surpassing the 20 per cent rise in the property market and 9 per cent increase in the stock market over the same period.
But as the gap between taxi rental income and the investment capital needed continues to widen, experts warn of a possible bubble in the trade - especially when more licence buyers are investors who are unfamiliar with the industry. 
Chan Man-keung, director of taxixchange.com,  a major taxi licence trading platform and a veteran broker, said taxis were a good investment tool, particularly for the retired and housewives. 
'If you are a 60-year-old pensioner, there's a slim chance of you obtaining a mortgage on a property transaction. However, the success rate is more than 90 per cent if it is a taxi licence that you are buying.'
While banks are not allowed to approve property mortgage loans when an applicant's monthly repayment makes up more than half of his or her salary, restrictions on taxi licences are less stringent. Bankers specialising in the trade say the repayment amount can reach 70 per cent, or even up to 80 per cent, of a person's income. 
Someone earning HK$6,000 a month could afford to buy a taxi and licence, which now costs about HK$5.13 million, assuming car rental from the driver of HK$15,500 a month.
With a down payment of HK$1.54 million and an interest rate of 1.75 per cent, the investor would have to pay HK$14,783 a month on a 25-year mortgage, after taking into account annual expenses including licence fees, insurance, business registration fees and vehicle inspection. 
Chan said that after adding up all the costs, the investment brought a 4.66 per cent rate of return - a bigger margin than was obtainable from investing that amount in real estate.
With a HK$1.54 million down payment, an investor can buy a flat of 635 sq ft in Kornhill, which now attracts a monthly rental income of HK$14,000, giving a return of 3.73 per cent. 
But Mak Sui-choi,  an economist at Baptist University, said the taxi trade used return on equity in the calculation rather than return on asset adopted by the property market, which could be misleading. 
'Equity return reflects only the short-term return based upon one's initial investment sum, it does not reflect the risk of a fluctuating interest rate, which could raise the bulk of your input.'
If one adopted an asset return approach, the investment in a taxi licence only yielded a return of 3.27 per cent, Mak said. 
Nevertheless, investors are flocking to the taxi market, with licence transactions jumping 66.6 per cent, to 5,163 last year, compared with 2009, fuelled by low interest rates. This has pushed the price of buying a licence through the roof.
In October, a mainland investor bought 15  in one go. 
While most licence owners were also drivers in the past, more buyers are investors now as they have become too costly for drivers. 
While some investors were veteran speculators, Chan said not everyone was looking at the short term. 'Some of them want to establish a taxi fleet of their own.' 
The cost of renting a taxi has been raised three times in the past year but this has not matched the surge in the cost of a licence. 
The rent for a 10-hour shift has risen 16.6 per cent to HK$350 over the past year, although this was still way below 1997 levels, and it was less than half of the 36 per cent increase in taxi licence price. 
'Taxi owners cannot raise rents whenever they like, we have to consider the drivers' affordability because if they fail to make enough money they will leave the business, and without enough drivers the taxis will be left idle which means no income for the owners,' Chan said.
The Transport Department stopped issuing new taxi licences in 1994, capping the number at 18,138, with about half held by taxi drivers and the other half by firms and dealers. It is understood the government has no plans to issue new licences in the near future - a factor that keeps licence prices high.
But as the price continues to set records, securities analyst Kenny Tang Sing-hing says investors should think carefully about the market.
'Is there still any upside for the licence price if it has already surpassed HK$5 million? 
'If we are talking about a sustainable investment, blue chip shares like Hang Seng and HSBC both offer four per cent returns in [terms of] dividend and with much lower costs and risks,' he said.
Mak said investors should assess their risk tolerance carefully before delving into the business because the small number of players in the market meant licence prices were easily manipulated and it was not transparent to outsiders. 
In response to regulation of bank loans, the Hong Kong Monetary Authority said it did not set an underwriting benchmark for any loan product except residential property lending, which made up a third of the city's bank loans, a spokeswoman said. Despite an increase in taxi loans during the first nine months last year, they accounted for less than one per cent of total loan value.



Investors queue up for HK$5m taxi ride