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
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.
"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.