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INVESTMENT

Hong Kong taxi licences hit record high of almost US$1m

Price of vehicle with permit jumps 80pc from 2009 to record HK$7.66 million as low interest rates attract investors

PUBLISHED : Wednesday, 07 August, 2013, 12:00am
UPDATED : Wednesday, 07 August, 2013, 5:44am

Allan Shek, the owner of a shop selling gold and jade jewellery, says he has made millions on the side by riding wild swings in the stock market and by buying into the city's property boom. No more.

Last month, he bought five taxis and the licences to operate them. Seven or eight of his friends have bought taxis too, he says.

The bubble is already there. Investors feel that there aren't many good investment tools in the market, as there are restrictions on the property market, and the stock market is not performing that well
Billy Mak, an associate professor of finance at Hong Kong Baptist University

"If I have the ability, I will buy 15 more taxis this year," says Shek, speaking with rapid-fire enthusiasm over the latest way to make money in a city where the benchmark Hang Seng Index has fallen almost 7 per cent from the year's high and record property prices have started to decline because of government curbs.

The price of a licence combined with a taxi reached a record HK$7.66 million on June 6, the highest since data started being tracked, according Taxixchange.com which brokers deals and has monitored sales since 2000.

Prices have surged more than 80 per cent since taking off in September 2009, as cheap financing and expectations of continued gains draw investors.

The run-up is sparking warnings of yet another investment bubble in a city that is no stranger to them, says Billy Mak, an associate professor of finance at Hong Kong Baptist University.

The prices for the cars - most are shiny, red Toyota Crown Comfort models imported from Japan - and their licences have increased at a faster rate than the income the taxis generate.

"The bubble is already there," Mak says.

"Investors feel that there aren't many good investment tools in the market, as there are restrictions on the property market, and the stock market is not performing that well."

Investors typically turn over their purchases to taxi-management companies, which rent them to drivers to generate income.

About half the licences are bought by investors, according to Sintat Motors Management, another broker.

While prices of the taxis and licences have almost doubled since 2009, daily rental costs of HK$680 to HK$800 have increased by about 12 per cent in the same period, says Ling Chi-yung, a general manager at Sintat Motors.

Many investors are shifting out of the property market, according to Cheung King-sum, Sintat Motors' executive director.

Cheung says about 10 per cent of the investors are retirees looking for stable income, while 10 per cent of owners are drivers.

Home prices in the city have more than doubled since the start of 2009 because of near-record low mortgage rates and an influx of buyers from the mainland.

That turned the city into the world's most expensive place to buy an apartment, according to property broker Savills.

Seeking to slow the housing bubble, Chief Executive Leung Chun-ying introduced a series of curbs, which then led investors to drive up the costs of parking spaces and resulted in more measures. The latest, in February, led to a 2.7 per cent drop in home prices since their peak. Transactions in the first half of this year fell to the lowest since 1996.

"Today, the return rate of a taxi is higher than that of property," says Kenny Wong, an investor who owns four vehicles after buying his latest last year. "I won't sell it even if it increases to HK$8 million because there is no better investment for now. After selling it, what can I do except put my money into the bank?"

Taxis generate about HK$18,000 a month after management, maintenance and insurance is deducted, Cheung says. Putting HK$7.66 million, the record cost of a taxi in June, in a bank would pay just HK$1,277 per month in interest, at a rate of 0.2 per cent for a one-year time deposit at HSBC, with no chance of capital appreciation. The same amount would have bought a 600 square foot flat on Hong Kong Island, according to Midland Holdings.

In New York, prices for taxi medallions - which are aluminium disks affixed to the hood of cabs allowing them to operate - prompted a spurt of investor interest after two of them sold for a record US$1 million each in October 2011. The latest New York medallions, not including the cost of the cab, sold for US$1.05 million last month.

Hong Kong's taxi prices are fanned by limited supply. The number of taxis has been held constant at 15,250 since 1994, the last time the Transport Department issued licences.

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impala
Why on earth is the supply of taxis being held constant at 1994 levels? Can somebody explain the Transport Department's rationale for this? Like, maybe somebody from the Transport Department?

Singapore (a city with a comparable low rate of car ownership) has over 25,000 taxis. And they have just 2/3rd of our population on a much smaller surface. So what is the Transport Department playing at here?!

The Hong Kong population was just under 6m in 1994. Now it is over 7m. Completely new areas have been developed since then (Tung Chung, TKO etc) and transport demand keeps rising... Why is the supply of taxis not growing with it?

If they had issued 3% new licences per year, the number of licenses would now be around 27,500 now. Seems completely out of whack and arbitrary to keep it at 15,250 for nearly 20 years.

It looks like yet another another case of a special-interest group making money at the cost of the overall population. Now we are looking at a potential bubble in licences, taxi fares have risen much faster than inflation (even taking into account fuel costs), we have failed to create some 12,000 taxi driver jobs over the past two decades... and don't even bother trying to find a taxi in rush hour without queuing for 10-15 minutes. Or when it rains.
dynamco
At present there are 18,138 taxis in Hong Kong, of which 15,250 are red taxis , 2,838 are NT taxis (green) and 50 are Lantau taxis (blue). The average daily taxi patronage is about 1 million.
Has jve ever tried to catch a cab in Singapore away from a taxi stand ?
jerson007
the government wants us to buy more cars (pay more taxes), have the cars block the roads on Sundays, so no one can march. simple really.
dynamco
www.hybridcars.com/byd-says-its-e6-taxi-fleet-in-hong-kong-will-grow-833-times-larger-in-3-years/
plug me in
impala
I have actually. I did not find it harder than it should be. Except perhaps that there were what seemed to be excessive no-stopping zones in force. But hey, it is a fine city after all. Either way, I suppose you are insinuating there are not enough taxis in Singapore either, even though by every measure they already have more taxis than we do?

And thank you for correcting the figures. It appears very hard for the SCMP to get its fact straight. Nevertheless, the point remains: why is the supply held constant at 1994 levels of roughly 18,000 taxis while everything else has grown significantly since then.

Apart from population, urban areas, new roads and so on, one market segment that uses a lot of taxis are tourists. Last year, we had 49m tourists visiting Hong Kong. In 1994, this was less than 10m. Just this five-fold increase of tourists alone should already be sufficient reason to increase the number of taxi licences.
dynamco
which is why in the 'old days' a taxi involved in an accident in the NT rendering it a wreck was also in an accident on HK Island around the same time & date & both had the same licence plate number ........................
but of course that no longer happens now ?
 
 
 
 
 

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