Cheap tax loans tempt the brave

money-glitz | Victor Zhong 11 Oct 2021

As financiers in the city rush to launch and promote tax loans, market watchers say investors can take advantage of cheap credit and invest in safe stocks that offer high yields, as an investment alternative to bonds or property.

With the tax season around the corner, banks have kicked off their tax season loans, which are special loans usually offered between October and April with lower interest rates, smaller loan amounts and shorter repayment periods, compared with other personal borrowings.

Among lenders, DBS Hong Kong is offering tax season loans with annual percentage rates as low as 1.33 percent, one of the lowest in the city. The loan amount goes up to HK$2 million or 20 times an applicant's monthly salary, whichever is lower, according to the bank's website.

The best rate, equivalent to a flat rate per month of 0.06 percent, is applicable for a 12-month loan amounting to HK$1.5 million or above, suggesting a monthly income of at least HK$125,000. Applicants with a minimum annual income of HK$80,000 can apply for a 12 to 24 months flexible repayment period before the promotion ends on October 31.

Meanwhile, Citibank launched its tax season loan last week with an APR of as low as 1.38 percent. Such a rate is also available for a 12-month HK$1.5 million loan.


Also, the virtual bank ZA Bank has launched a tax loan with a fixed APR for clients. Users can enjoy a guaranteed APR of 1.58 percent upon successful application for the tax loan with an invitation code for a 10 percent discount coupon and drawdown of a loan amount of HK$200,000 or above with a tenor of 6 to 36 months.

For example, the monthly flat rate for a 12-month loan stands at 0.0786 percent. The offer ends December 31.

In comparison, its peer WeLab Bank does not have the tax season loan but offers the GoFlexi Personal Loan, with an APR as low as 1.68 percent and cash rebates, depending on the size and tenor of the loan.

The service allows clients to deposit any extra cash on hand back into WeLab Bank to generate high-interest income, in which the personal loan rate is linked with the deposit rate. Loan tenor options are available every three months, starting from 6 to 60 months.

Apart from tax payment, borrowers could also make use of tax season loans for liquidity or investment, depends on their appetite for risk.

But despite the low-interest rates that the banks are charging, Anli Securities chairman and chief executive Andrew Wong Wai-hong says only a few borrowers will be granted loans at the most favorable rate after taking requirements - such as the loan amount and repayment period - into consideration.

Therefore, the average interest rate is expected to range between 2 to 3 percent for the man on the street, which means the ideal return rate should be around 10 percent so that an investor can make a reasonable profit, says Wong.

However, Wong points out that there are currently not many such options on the equity and bond markets, following a recent selloff on the market as well as credit default fears stoked by the debt-ridden mainland developer China Evergrande (3333).

Chinese property bonds' surging yields came under heavy selling pressure after Chinese homebuilder Fantasia Holdings (1777) failed to make a US$206 million (HK$1.61 billion) international market debt payment on time.

Wong picks three shares with low volatility and high yield for investors - HKT (6823), Citic Telecom (1883), and Shougang Fushan Resources Group (0639).

He says that Citic Telecom offers a yield of around 8 percent and its telecom service is expected to find support from the rollout of 5G in Macau.

Meanwhile, Wong says that he is optimistic about the growing television and telecom business of HKT, which may fuel the growth in stock prices. The shares come in with a nearly 7 percent yield.

The 52-week volatility of both telecoms firms HKT and Citic Telecom is less than 20 percent, making them a stable investment for loan borrowers, says Wong.

For Shougang Fushan Resources Group, Wong expects the coal-producing company to grow its income by 50 percent or even double it over the next 12 months due to the recent coal shortage in China.

This will support the performance of its shares, Wong says.

The company offers a payout ratio of around 60 percent in the first half of 2021 by declaring an interim dividend of 8 HK cents, compared with a basic earning of 13.33 HK cents, according to the results announcement.

China is in the grip of a power crunch as a shortage of coal supplies, toughening emissions standards and strong demand from manufacturers and industry have pushed coal prices to record highs and triggered widespread curbs on usage.

Thermal coal futures closed up 4.2 percent on September 30 on the Zhengzhou Commodity Exchange, after hitting an all-time high of 1,408 yuan (HK$1,699) per tonne, having doubled between July and September.


Although China has vowed to go carbon neutral by 2060, coal is still expected to ride on the energy shortage in the short term, according to Conita Hung Lai-ping, investment strategy director of Tiger Faith Asset Management.

She advises investors to accumulate shares of Yan Zhou Coal (1171) at HK$15 and China Coal (1898) at around HK$6 apiece.

And Kenny Ng Lai-yin, a securities strategist at Everbright Sun Hung Kai, recommends defensive stocks with solid financial results, such as power tools producer Techtronic Industries (0669) and Chinese multinational technology company Lenovo (0992).

He expects the benchmark Hang Seng Index to move within a range between 23,000 points to 25,000 this month amid several negative factors including the US debt ceiling, tapering plans, interest rate hikes and Sino-US tensions.

Therefore, tax loan borrowers need to carefully consider the risks as making investments with low-interest tax loans is quite an aggressive strategy, warns Hung.

These investors may have to sell their holdings if share prices fall because they face the pressure of interest payments, and find themselves on the losing end.

For real estate, Wong says that he does not suggest using a tax loan as a down payment for flats as the investment period is much longer than the maximum repayment period of a tax loan and it takes a longer time to dispose off a flat to cash in.

So while tax loans do offer an opportunity to invest, investors are advised to look carefully at the risks involved before taking the plunge.

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