Wednesday 27 February 2013

MAS imposes restrictions on private car loans

By Sing Geok Shan, Channel NewsAsia, 25 Feb 2013

The Monetary Authority of Singapore is imposing restrictions on loans for private cars to safeguard against borrowers defaulting on their repayments.

Beginning on February 26, the central bank said consumers will be limited to borrowing 60 per cent of the purchase price of a motor vehicle when the open market value (OMV) is S$20,000 or less.

A tighter limit of 50 per cent will be imposed when the OMV is more than S$20,000.

The MAS is also capping the tenure of a motor vehicle loan at five years.

"The financing restrictions are necessary to encourage financial prudence among buyers," the MAS said in a statement.

"In this prolonged environment of very low interest rates, there is greater risk of buyers over-extending themselves," it said.

The new restrictions do not apply to loans for either commercial vehicles or for motorcycles.

For re-financing facilities, only the cap on loan tenure applies.

The MAS previously had in place financing restrictions on car loans from February 1995 to January 2003.

* Physically disabled, caregivers will be exempted from car loan curbs
By Imelda Saad, Channel NewsAsia, 7 Mar 2013

He made the announcement in Parliament on Thursday, following feedback that the new loan limits will adversely impact those truly in need of a vehicle.

MPs have raised the plight of families with young children, the elderly and disabled.

Under new rules imposed last month, prospective car buyers can take up loans of only up to 60 per cent of the price of a car, depending on its Open Market Value (OMV).

That means buyers have to fork out a cash downpayment of at least 40 per cent.

At the same time, the loan tenure has been shortened to five years.

Mr Tharman said the exemption will take reference from the criteria in existing assistance schemes for the physically disabled.

Mr Tharman said the central bank cannot liberalise further at this point without undermining one of the important reasons for the new loan rules - that is, to cool demand and the skyrocketing Certificate of Entitlement (COE) prices.

The minister said COE prices have gone up by between 40 per cent and 60 per cent over the past two years.

The rise in COE prices, he added, has also been a major contributor of inflation in Singapore.

Separately, for used car dealers, Mr Tharman said the Land Transport Authority (LTA) will give them more time to find buyers for their cars.

It will do so by extending the temporary transfer scheme for used car dealers from the current nine months to a full year.

"MAS has met with the Singapore Vehicle Traders Association to listen to their feedback and also explain the rationale for the measures," said Mr Tharman.

Mr Tharman added the MAS is also studying how the depreciation in the value of a used car can be taken into account in determining the OMV for the purpose of applying the appropriate tier for the new loan rules.

The new loan rules have a 50 per cent or 60 per cent loan-to-value ratio, depending on the OMV.

Mr Tharman stressed that the new loan rules are not permanent. They will be reviewed, depending on market circumstances. 

Middle & lower-income groups may be priced out of car market: dealers
By Dylan Loh, Channel NewsAsia, 26 Feb 2013

Car dealers on Tuesday said middle and lower-income groups may find it difficult to own a vehicle with the new rules in place.

The government on Monday announced a slew of measures, tightening the noose on car loans and registration fees.

This has prompted strong reactions from the industry and prospective buyers.

Under the Monetary Authority of Singapore (MAS) car loan curbs, buyers have a maximum of five years to service their car loans.

They also have to foot a downpayment of 40 per cent or more for a new vehicle.

This has sent buyers and the market reeling.

Carway Enterprise, which helps buyers borrow to buy cars, said loan applications dropped by 30 to 40 per cent a day after the measures were unveiled.

Other car dealers said more time is needed to see what the real effects are.

Eddie Loo, managing director of CarTimes Automobile, said: "We have a mixture of customers -- those who come and buy (with) cash, but there are definitely people who want a hundred percent loan.

"So it's almost like 50-50 kind of market that people come into. So to penalise those who need a car and have to fork out 50 per cent of the loan amount, I think, the timing is not very correct."

Prospective car buyers are also feeling the pinch.

John Molina, a prospective car buyer, said: "I want to buy a car, but because of this, I mean it's impossible for me, or it's almost near-impossible."

Another prospective car buyer, Mark Lim, said: "For those people who are really very rich, to them there's no effect -- today I want to buy a Ferrari, for example, I don't even care about how much is the downpayment."

Still, others have suggestions on how to ease the pinch.

Singapore Vehicle Traders Association's honorary secretary Raymond Tang said: "The government should consider looking into the aspect of weighing these loan curbs -- should not be bringing it into the used car market."

He said the used car market is for people whose "budget is very constrained".

Questions which prospective buyers will be asking in the months ahead are: "To buy or not to buy, and which model? Can I even afford a car?"

Eyes will also be keenly watching how the Budget measures will affect the prices of Certificates of Entitlement (COEs) for cars. This will in turn determine just how expensive owning a set of wheels in Singapore will be.

Tiered ARF: Most cars sold incur higher taxes
By Christopher Tan, The Straits Times, 28 Feb 2013

MORE than 85 per cent of car models sold in Singapore today will attract higher taxes with the newly introduced tiered Additional Registration Fee (ARF) scheme.

This could lead to some consumers favouring Japanese and Korean brands again, since these cars will become even more affordable in relation to the German brands.

According to data collated by the Land Transport Authority (LTA), only 27 - or 13.7 per cent - of a total of 197 car models will not see their ARF rising.

In the tiered scheme, a car with an Open Market Value (OMV or approximate cost price) of up to $20,000 will be taxed at the current rate of 100 per cent. The next $30,000 will be taxed at 140 per cent, and any OMV above $50,000 at 180 per cent.

The tiered scheme is effective for cars registered with COEs obtained from next month.

The LTA data shows about half - or 101 - of the models attracting the next-tier tax of 140 per cent, and 69 models subjected to the 180 per cent tax.

The list is based on cars registered last month. The car with the highest OMV registered last month - $422,791 - was a Lamborghini Aventador.

Car dealers note that the current model mix might change now that costlier cars incur higher - and often punitive - taxes.

Motor Traders Association vice-president Glenn Tan said the current model mix, with a large proportion of premium European brands, is a function of high COE prices.

The COE premium for cars up to 1,600cc is now hovering around $78,000 while that for bigger cars is around $92,000.

"If things change, we will see a flight back to more reasonably priced cars," he added.

This could mean the Japanese and Korean brands, which were traditionally top sellers before the German models started gaining ground four to five years ago.

The best-selling Japanese and Korean cars typically have OMVs below $20,000.

Will sellers attempt to suppress OMVs, say, by fitting components such as air-conditioners, hi-fi systems and sports rims locally?

Mr Michael Wong, general manager of Isuzu agent Triangle Auto, said: "That may happen but it boils down to the savings. But by doing that, you also incur labour cost."

The impact of the tiered ARF scheme is expected to be moderate for most cars. For instance, a Toyota Camry 2.0 with an OMV of $23,519 will incur $24,927 in ARF, or $1,408 more.

The popular BMW 520i, with an OMV of $41,316, will attract $49,842 in ARF, or $8,526 more.

But at the top end, the tiered system is punitive. A Rolls-Royce Phantom with an OMV of $632,000 will incur $1,088,000 in ARF - $456,000 more.

Mr Wong said: "The bulk of cars here will be within a so-called 'palatable' range. Bear in mind that ARF was 175 per cent not too long ago." The period he was referring to was 1983 to 1990 when all cars were subjected to a flat 175 per cent ARF.

In that regime, the Phantom, BMW 520i and Camry would have incurred $1,106,000, $72,303 and $41,158 in ARF respectively. Back then, luxury-car buyers complained that car taxes were unfair to them.

That car could cost you $1.6m over the years
Experts urge buyers to add up the costs and think about what else to do with the money
By Alvin Foo, The Straits Times, 3 Mar 2013

Owning a car in Singapore for one's adult life could add up to a whopping $1.6 million, say financial experts. And that's just for a non-flashy 1.6-litre family sedan.

Those who can't do without a car should be prepared to make lifestyle changes to cope with tough new curbs on car loans, financial advisers told The Sunday Times.

Car buyers must now make down payments of 40 per cent to 50 per cent of the purchase price and settle car loans within five years, under new central bank rules. The market had been unregulated for a decade, allowing car buyers to borrow up to 100 per cent of purchase prices and take as long as 10 years to repay.

Financial advisers were quick to point out the triple whammy of reduced financing limits, high certificate of entitlement prices and hefty down payments.

For instance, the down payment on a new Japanese or Korean 1.6-litre car costing around $150,000 is now at least $60,000.

"For the average income earner and for younger age groups in general, the best thing to do may be to avoid purchasing a car altogether," said Ms Geraldine Lam, an investment specialist at financial advisory firm Providend.

She calculated that owning a 1.6-litre car here could cost between between $1,304 and $2,641 monthly, for loan repayments and running costs such as petrol, insurance, parking fees and servicing.

This could add up to as much as $1.6 million over 50 years, assuming one has a car from age 25 to 75.

Committing to larger monthly loan repayments over a shorter period could also affect a person's ability to borrow for a property in future, the experts warned. That is because banks often look at a potential home buyer's capability to service the home loan based on his other financial commitments.

Before putting down that hefty down payment for a car, buyers should consider what else they could do with the money, the experts said. Among other things, $60,000 is enough for a down payment on a resale Housing Board flat in some estates, or a wedding banquet for 350 at a top hotel. Or it could be invested. For example, investing $1,000 monthly with a yearly return of 4 per cent would yield $1.9 million at the end of 50 years.

For those who insist on getting a car, the rule changes may mean having to make lifestyle adjustments to keep up the payments.

"The majority of people will need to cut back on their variable spending, by eating out less or dining at a hawker centre instead of a fancy restaurant," said wealth management consultant David Gardner at The Henley Group, which provides financial planning services.

Buyers might also want to consider getting a used car instead of a new one, as this will mean a lower initial cash outlay and taking a smaller loan.

Instead of spending on a costly car, Ms Lam suggested relying on taxis as an alternative, including booking a dedicated cabby on a regular basis.

Checks with banks revealed that Singaporeans mainly do not take the full 10 years to repay their car loans.

A DBS Bank spokesman said: "We have observed that most car buyers in Singapore tend to repay the loan in full within four to seven years. Repayment delinquency has also improved over the last few years as consumers become more financially savvy."

Lecturer Ng Ko-Vin, 32, said last week's changes convinced him that he should buy a used Honda Edix instead of a new car, as it will mean forking out less cash upfront.

Public relations executive Melvyn Tan, 35, who is still hoping to buy a car, said: "I was planning to put a 30 per cent down payment, but now I have to redo my sums and save a bit longer."


Only a car can meet my travelling needs. Fact or myth?
Car dealers face bleak outlook as customers cancel orders

No comments:

Post a Comment