Why Hongkongers easily fall prey to investment scams

May 16, 2019 12:34
Numerous bubble tea companies are actively looking for franchisees. Photo: Reuters

Many small investors in the city fall prey to all kinds of investment scams.

In one of the latest cases, at least 100 Hongkongers were trapped by a claw machine investment scam, which claimed to offer a monthly return of HK$20,000 for people who put in HK$100,000.

Why are small investors so prone to such investment traps?

The way I see it, fear of inflation eating up hard-earned savings and the lack of investment knowledge could be the key reasons.

Not a few are sitting on a cash pile of over HK$1 million thanks to sustained robust economic expansion in recent years.

Property has been the best investment over the past decade. But as housing prices are skyrocketing, even millionaires don't have enough money for property investment, perhaps not even for a car park.

But thanks to the decade-long real estate boom, property is the only kind of investment most people understand and follow.

With properties getting out of reach for many, those eager to find another alternative to fight inflation have become easy targets.

In the case of the claw-machine scam, the biggest draw is the low investment threshold of HK$100,000 and the unbelievably quick and high return – over 300 percent on an annualized basis.

There are a number of other investments being touted recently, and people should exercise caution before jumping on the bandwagon.

First is the bubble tea franchise.

A bubble tea craze is on the rise in Hong Kong. Numerous bubble tea companies are actively looking for franchisees, who only need to invest HK$500,000 to HK$800,000 to open a shop.

But such a craze comes and goes quickly. Meanwhile, investors have to pay a large sum of franchise fee upfront and competition is getting intense.

Foreign real estate also has been hot in recent years as properties in Japan, Taiwan, Malaysia, Thailand or the Great Bay Area are a lot more affordable than those in Hong Kong.

But while property might be less risky, one has to make sure the project developer is a reliable one, and one shouldn’t overestimate the potential rental return or room for price appreciation.

There is no easy money. Whatever the venture is, investors must do their homework.

This article appeared in the Hong Kong Economic Journal on May 15

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]


Hong Kong Economic Journal columnist