19 May 2019
Limited supply and lesser threat from entities such as Uber will help taxi license prices in Hong Kong to hold up. Photo: Bloomberg
Limited supply and lesser threat from entities such as Uber will help taxi license prices in Hong Kong to hold up. Photo: Bloomberg

Why a taxi license is still a good ride in Hong Kong

With vehicle hiring apps such as Uber and Lyft denting the business of regular city cabs, some metros in the US have seen demand for new taxi licenses and the value of existing ones fall sharply.

Now, will we see a similar thing happen in Hong Kong, where a taxi license has hitherto been a popular alternative investment? Will a license no longer be a good asset, offering steady returns?

In Philadelphia, authorities failed to attract any bidders for new taxi licenses at US$475,000 each last week. Transport officials then decided to reschedule the auction and lower the asking price to US$350,000. In Boston, a cab license is now worth 20 percent less compared to six months ago.

The situation is not much better in New York. Taxi medallion price in the megacity has slumped 13 percent to US$872,000, from a record high of US$1 million in June last year.

Pressure from the popular app Uber has been a key reason for the drop in the price. Uber offers competitive rates, helping it take significant amount of business away from the traditional taxis.

An 11.2-kilometer ride from the Loop area to the University of Chicago in a taxi costs about US$26. But the same trip costs only US$12.29 with UberX, the cheapest-cost service option from Uber, the New York Times reports. By using UberX service, a passenger can save more than 50 percent of they have to pay for an ordinary taxi ride.

With the new competition, it is no wonder that taxi drivers in the US, as well as in some European cities, are mad with Uber.

What about Hong Kong?

Hong Kong’s taxi license has also been falling in value, but the drop is moderate when compared with US. Why is the local market less affected by the emergence of Uber?

Taxi license price had risen rapidly during 2010-2013, soaring nearly 90 percent over the period and hiting a record high last year. The return was better than investing in the property sector.

The price hit a record HK$7.66 million last June, but now it is worth nearly 10 percent less. According to the latest transaction on Monday, it was worth HK$6.91 million, as per information on the broker platform, which started tracking the data back in 2000.

Although the price has been declining, some investors think that it is a buying opportunity. A person surnamed Yao told Hong Kong Commercial Daily recently that he sold six out of his eight properties in order to invest in taxi licenses.

Investors like Yao may be right. There are indeed a number of reasons why the license in Hong Kong should hold up better than those in the US.

First and foremost, taxi fares in Hong Kong are almost the lowest among megacities in the world. TY Ko, a columnist for the Hong Kong Economic Journal, did a little experiment a few months ago. He said it cost him roughly HK$170 (US$22) to take a 17-kilometer taxi ride from the IFC building in Central to Shatin New Town Plaza, but the same trip cost him HK$350 when he used the Uber service another day.

Taxis in Hong Kong are so cheap that Uber finds no room to compete with its UberX. That’s why the group is only aiming at business clients here by providing high-end service with Benz S-Class fleet.

Rather than taking business away from taxi drivers, most of the common taxi-hailing apps in Hong Kong such as HKTaxi, GoGoTaxi, Easy Taxi and Kuaidi all serve as platforms for the taxi drivers, rather than bring in other outside drivers. In other words, the apps feed business for the taxi drivers.

The handy software tools also enhance the business of the taxi industry by luring passengers with discounts to better match vacant vehicles with customers nearby.

Limited supply of taxi licenses is also an important factor.

The government stopped issuing new licenses since 1998. The city has 18,000 taxi licenses in total at present. Over 80 percent of them are red taxi licenses, which can only operate in the urban area.

Unless the government changes the policy, a taxi license should remain a relatively good defensive investment for those willing to transact on the secondary market.

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EJ Insight writer

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