MAS eases car loan rules with effect from 27 May 2016

Bigger car loans over longer tenures as MAS eases curbs
Regulator says move is timely as demand has moderated; observers divided on the impact
By Christopher Tan, Senior Transport Correspondent, The Straits Times, 27 May 2016

The Monetary Authority of Singapore (MAS) has eased car loan guidelines, just three years after instituting them.

For cars with an open market value (OMV) of $20,000 or less, buyers can now borrow up to 70 per cent of the purchase price, up from 60 per cent.

Buyers of cars with OMVs of more than $20,000 can borrow up to 60 per cent of the purchase price, up from 50 per cent.

Separately, the loan tenure has been raised to seven years from five.



MAS deputy managing director Ong Chong Tee said: "In 2013, when we introduced the measures, our immediate aim was to help restrain escalating COE (certificate of entitlement) premiums and consequent inflationary pressures.

"Since then, demand conditions have moderated and it is timely to ease the measures."

Industry observers were surprised by the news, which one said "came out of the blue". But they were divided over the impact it might have.

Some motor traders said it might not make a big difference as many parties have long found ways to circumvent the loan curbs. One common way is to inflate the invoice of the car. Another is to offer leases instead of hire-purchase deals.

Of late, ride-hailing apps like Uber have also been offering big loans to potential car buyers. They do so by registering the cars under a company's name, as private-hire vehicles, instead of the buyer's name. This way, the MAS restrictions do not apply.

Mr Ron Lim, general manager of Nissan agent Tan Chong Motors, said: "The reality is that high financing is already in existence, either through parallel importers or Uber.

"So, immediately, there will probably be no change in demand."

Mr Lim, however, welcomes the move because it "bridges the gap" for those who have been playing by the rules. "This helps to level the playing field." he said.

He does not think this will lift COE prices. "As in all businesses, the car industry has been impacted by the weaker economy," he said. Easing the curbs "won't make people feel richer".

But he said it might influence people to switch from Uber deals to more straightforward hire-purchase deals from authorised agents.

However, Mr Neo Nam Heng, chairman of diversified motor group Prime, expects the rule change to support COE prices "eventually".

"It will draw in more buyers, especially to Category A (cars up to 1,600cc)," he said.

Nanyang Business School Adjunct Associate Professor Zafar Momin said: "By easing the curbs, the MAS is priming demand, which is good in the sense that more people can afford cars, but it will raise COE prices."

He added that this could mean people ending up "buying cars at even higher prices". "Also, I wonder what this means in terms of policy coherence for trying to make Singapore a 'car-lite' nation," he said.

MAS eases car loan rules: Car buyers fear COE prices will be driven up
Despite easing of loan curbs, they remain cautious amid concern over how move will affect premiums
By Zhaki Abdullah, The Straits Times, 27 May 2016

Though the Monetary Authority of Singapore has eased restrictions on motor vehicle loans, car buyers are cautious and concerned about how the move will affect certificate of entitlement (COE) prices.

Interior designer Daphne Gan believes it could lead to more people bidding for COEs and driving premiums up. "I did my calculations and, even though the cost of entry to the car market is cheaper, I won't be paying less in the long run," said the 33-year-old, who drives a nine- year-old Honda Accord.

Mr Shahjehan Ismail Kutty, a 48-year-old finance manager, whose COE on his Kia Rio expires in August, said: "I would still have to fork out quite a bit as long as the COE remains high."

Graphic designer Farhan Hassan, however, said the easing of restrictions has made the prospect of buying a car more attractive.

"The new loan restrictions put the car we want a little within reach," said the 33-year-old, who hopes to buy a Honda Vezel after he gets married next March.

National University of Singapore transport researcher Lee Der Horng said the move will influence more people to buy cars, including those who were previously on the fence about entering the market.

However, he added that the authorities were sending "mixed signals" as making it easier for people to buy cars was not in line with the push towards a car-lite society.

Deputy chairman of the Government Parliamentary Committee for Transport Ang Hin Kee said encouraging a car-lite society is an ongoing process and will not happen overnight.

He added that lifting the previous restrictions will make it easier for the average buyer to compete for COEs against companies such as Uber-owned Lion City Rental, which has secured about 1,700 car COEs in the last two months.

"Lifting the restrictions makes it easier for those who are self-employed and others who need their own vehicles," said Mr Ang, who is also an MP for Ang Mo Kio GRC.

GPC for Transport chairman and MP for Potong Pasir Sitoh Yih Pin noted that the restrictions are still not at their pre-2013 levels, when the maximum loan was 80 per cent of a car's price and the loan tenure was 10 years. "Whether this will have a significant impact on demand for cars and, consequently, COE prices remains to be seen."

Mr Ang Wei Neng, who is also a member of the GPC for Transport, said there are considerations beyond just financing a car purchase and that prospective buyers should do their sums.

The MP for Jurong GRC said: "I would caution people to be prudent before deciding to buy a car. "

Used-car dealers perk up as loan curbs ease
But some are worried about the effect increased demand will have on COE prices in the near future
By Rei Kurohi, The Straits Times, 28 May 2016

Used-car dealers here are cautiously optimistic about the easing of loan curbs announced by the Monetary Authority of Singapore (MAS) on Thursday.

MAS introduced restrictions on loans for motor vehicles in 2013 to moderate demand for cars and certificates of entitlement (COEs), but used-car dealers were hit hard and had appealed against the policy.

The restrictions placed a cap on loans for vehicle purchases: 60 per cent for cars with an open market value of $20,000 or less, and 50 per cent for cars above that value. They also required the tenure to last no more than five years.

Now, the cap has been raised to 70 per cent and 60 per cent respectively, and the maximum tenure has been increased to seven years.

Mr Raymond Tang, first vice-president of the Singapore Vehicle Traders Association, said: "The two years' tenure extension is more significant than the 10 percentage point increments, but at the same time, buyers can enjoy it only if they are buying a car with seven years or less remaining in the COE validity period.

"We will have to wait and see how the market will react."

Mr Eddie Loo, founder and managing director of CarTimes Automobile, a new and used-car dealership, believes the move will boost car sales eventually. "Right now, banks are probably struggling with new documentation, coming out with loan packages, interest rates, commission and so on. They might need to change their agreements. The consumers will also take a bit of time to understand the impact on them."

However, he is also concerned about the effect an increased demand will have on COE prices in the near future. "We may have to re-adjust our selling prices as we continue to monitor consumer appetites."

"For used cars, we will not be increasing our prices but for new cars, the prices may have to go up by at least $2,000. There is some backlog from car importers, and some dealers would have signed deals for cars before the announcement was made. They might have to sell for prices below what they were supposed to."

CarTimes plans to give an update on the developments through its website and help potential owners secure COEs despite rising prices.

Others were sceptical about the impact on their businesses.

"This announcement will have a bigger impact on buyers of new cars," said Mr Jeremy Tang, founder and managing director of used-car dealer 99 Motors Trading. "Since they can stretch the loan up to seven years now and they can enjoy lower payments, more buyers will be going for new cars. Shifting COE prices don't really affect used cars much."

* Car loan curbs reset as inflationary pressures have eased

When the Monetary Authority of Singapore (MAS) introduced car loan restrictions in 2013, we explained their immediate purpose: To restrain the strong demand for cars and escalating certificate of entitlement (COE) premiums at the time, and the consequent pressures on inflation ("Easing of car loan curbs sends mixed signals" by Mr Ronnie Lim Ah Bee; last Saturday).

As explained in Parliament by Minister Lawrence Wong in March 2013, "the introduction of restrictions on motor vehicle loans represents a temporary cyclical response to these developments to dampen demand for motor vehicles, and alleviate overall inflationary pressures in the economy".

The stringency of the 2013 restrictions reflected these cyclical conditions.

COE premiums have since fallen significantly and inflationary pressures have receded. Outstanding motor vehicle loans have also declined substantially.

MAS has, therefore, in consultation with the Ministry of Transport (MOT), reset the car loan restrictions to levels appropriate for the long term.

The new rules continue to provide a brake on excessive borrowing, and support both financial prudence and a more car-lite society.

We intend to keep these car loan restrictions for the long term.

The move to a car-lite society will, more fundamentally, be underpinned by the vehicle quota system to manage the vehicle population, and continued investments to improve our public transport system, enabling people to meet their transport needs without having to own a car.

Bey Mui Leng (Ms)
Director (Corporate Communications)
Monetary Authority of Singapore

Christine Yap (Ms)
Director (Corporate Communications)
Ministry of Transport
ST Forum, 3 Jun 2016