Monetary Authority of Singapore clamps down on car loans

[movingtospore]

So WTF exactly does this mean re the caps on vehicle financing starting tomorrow?

"For a motor vehicle with open market value that does not exceed $20,000, the maximum loan-to-value is 60 per cent of the purchase price, including relevant taxes and the price of the Certificate of Entitlement.

For vehicles with an open market value of more than $20,000, the maximum loan will be capped at 50 per cent.

In addition, the tenure of a motor vehicle loan will be capped at 5 years."

Holy $hit. The car market here is going to collapse within a month. Most locals finance. Or foreigners for that matter. So, I guess if you are unfortunate enough to own a car, too bad for you, the market is about to collapse and your car will soon be worth MUCH less than you bought it for. If you don't own one - hang on for six months they'll be going for cash...

[Wd40]

I don't think it will affect resale cars negatively. Just like property cooling measures don't have effect same logic for cars too. COEs may correct in the near term but couple of months later again it will be back to record highs.

[iamsen]

Accompanied boss to get his car serviced at the Honda dealer couple months back. Browsed the showroom while waiting for servicing to be done. Choked at $160,000 price tag of a Honda Fit.

[JR8]

Young people should focus on buying a home, making babies, and voting 'the responsible way'.

Buying a car is selfish and anti-social in this regard, and so will be punished (for your own good) with mammoth taxes.

[Strong Eagle]

So WTF exactly does this mean re the caps on vehicle financing starting tomorrow?

"For a motor vehicle with open market value that does not exceed $20,000, the maximum loan-to-value is 60 per cent of the purchase price, including relevant taxes and the price of the Certificate of Entitlement.

For vehicles with an open market value of more than $20,000, the maximum loan will be capped at 50 per cent.

In addition, the tenure of a motor vehicle loan will be capped at 5 years."

Holy $hit. The car market here is going to collapse within a month. Most locals finance. Or foreigners for that matter. So, I guess if you are unfortunate enough to own a car, too bad for you, the market is about to collapse and your car will soon be worth MUCH less than you bought it for. If you don't own one - hang on for six months they'll be going for cash...

What it means is 50 percent down on most used cars in order to get a loan. Quite a difference from where I put down $500 on a $25,000 car and financed the rest. Instead, I'd have to cough up $12,500 cash in order to drive my "cheap" car.

Instead of doing something about absolutely ridiculous COE rates ($78,301/Cat A, $92,667/Cat B), the gahmen has instead chosen to completely screw up the used car market.

As of now, used cars at least partially reflect the higher COE values in their asking price. 50 percent down will kill used car demand and prices will drop. So, those with the cash will get a relative bargain, while sellers will find they cannot get the asking price they might have gotten just a few months ago. Indeed, cars approaching 10 years are more likely to be scrapped then sold.

[movingtospore]

Would suck to be waking up as a car dealer today.

I would think it will also really hurt the new market. How many can afford to put $60K down on their $120K car? Not many.

I can understand them starting to cap loan values at say 80%, but 50 - that's like IMF shock therapy on the economy . I feel like I'm living in Venezuela these days.

[Pal]

Their message is clear:

- Only the rich can drive a car
- If you cannot afford to pay 40% to 50% of the car price, don't drive
- If you cannot afford the monthly instalment for the 5 year loan, don't drive

[zzm9980]

Holy crap... Looks like i'll be replacing my cheapo Honda Fit with a Vespa in ~5years.

[Strong Eagle]

When I first read the news article I somehow read that it was for used car loans only. Now, I see that I am wrong and this new ruling is for all car loans.

Holy moly! A $60,000 down payment on a $120,000 car? And only 5 years to pay? Without interest computations, that equates to monthly payments of $1,000 per month?

How does shortening loan life and increasing monthly note amounts keep people from getting into financial trouble?

How does having to take $60,000 in savings that could be used for so many other things, including new businesses, do anything for the financial stability of Singapore?

And, most of all, in a supposedly free market economy, why is MAS not allowing banks and finance companies to determine the risk factors like how much down, how long to loan, and credit worthiness?

More realistically, this move seems to be a barely disguised subterfuge to get cars off the road. The COE doesn't work... traffic is bad. But if no one can afford a car, then there won't be any cars... who cares about COE?

Question: Can public transportation keep up as people move out of their cars? I don't think so.

[morenangpinay]

Why dont we just get to the point. Its those damn foreigners!

[Wd40]

Holy crap... Looks like i'll be replacing my cheapo Honda Fit with a Vespa in ~5years.

Lot can happen over 5 years. There is no way to predict where prices will be, how the economy will be and whether as foreigners we will still continue to remain here.

SMS mentioned this before, that the COE prices had hit crazy levels of 90k back in the early 90s when a 2 bedroom flat costed that much. So to think of it, 90k then is 350k now.



Also people now talking about unaffordability of housing, I dont understand, back in 1997 house prices here much much higher(adjusting for inflation)

I dont understand why all the doom and gloom when we have seen much headier days back before the Asian Financial Crisis.

[zzm9980]

When I bought my car, the dealer told me they needed 20% down since I was a foreigner. I said no, so they just offered to write up the paperwork to the bank as if I had paid them the down payment and raise the price of the car on the paperwork (since the overall amount from the bank would be the same).

I wonder how much of that will be happening now and if MAS will do something to stop it?

[zzm9980]

Holy crap... Looks like i'll be replacing my cheapo Honda Fit with a Vespa in ~5years.

Lot can happen over 5 years. There is no way to predict where prices will be, how the economy will be and whether as foreigners we will still continue to remain here.

I was being slightly facetious. I realize the whole market for vehicles likely will be completely different in six months let alone five years now.

[zzm9980]

When I first read the news article I somehow read that it was for used car loans only. Now, I see that I am wrong and this new ruling is for all car loans.

Holy moly! A $60,000 down payment on a $120,000 car? And only 5 years to pay? Without interest computations, that equates to monthly payments of $1,000 per month?

A little over $900/month, but yeah. Forget the $120k car (which would be a new Honda Fit), but think about all of those 3-series BMWs we see on the roads. Those are $200-250k OTD, and PARF is also going up rather significantly. I now suspect that was increased to hedge against the potential COE drops from this new policy. Gahmen has to keep the revenue stream up!

[Saint]

This was written by a good friend of mine, local guy, and it makes sense and agree.

"For those worried that they may not be able to afford a new car henceforth, do not worry. The ingenious motor industry folks will come out with a bag of "counter measures".

Always remember. Take a step back, do not react, but take your time and respond accordingly.

Why 50% you may ask? Well, MAS learnt from history. In 1995, against a backdrop of the psychological limit of $100k COEs in late 1994, they imposed a 70% cap on loans and a 7 year loan cap. (Sounds familiar?)

All and well, and how did the motor industry and buying public respond in the months and years thereafter? Bingo... the industry players found ways to circumvent the ruling by offering overtrades and balloon deals which brings the downpayment down to 20% or even 10% or sometimes by offering free installments. (like in the newsclip from 11 years ago shown below)

But seriously, isn't this the same situation at most premium car dealerships now where a 10 to 20% downpayment is a norm and sometimes neccessary as a show of credit worthiness? (Unless perhaps if you are an iron ricebowl civil servant?) Come on, you are buying something a quarter of a million bucks, even if they could lend you 100%, they won't 'cos they wanna know that you are "ready" to own it! So if a minimum 10 to 20% downpayment is already the norm, why are we fretting? Perhaps it's the 5 year loan cap. But then, most people only take a max of 7 years for their loans anyway, so to me, it's more psychological than anything.

What it really does is to weed out the ones are the borderline so that they do not get themselves into a situation where they can't service the loan facility. I have been around the car forums, it is not uncommon to see young chaps earning less than $3k but spending more than $1.5k (road tax/insurance/petrol/installment) on their cars. This is 50% of their income, omg!!! Not wise... not wise... they will be poor all their lives if they do this... And how can they afford to get married or buy a house? You know everything is interlinked right? Low-birth rate, low marriage rate... anyone?

So MAS slapped the industry with a 50% loan cap so that even with the industry coming up with ingenious manner to circumvent the ruling, motorists would still have to cough up at least 10 -20% of the downpayment. That is somewhat more acceptable to most. This means that you only need to pay about $20k to $40k as downpayment. To me, this is financially prudent but will penalise probably first time car buyers. (unfortunately our younger folks again, sigh....)

Taking a broader view of the situation, it would appear that the govt is subjecting the coe cycle to a hard-reset. For those familiar in computer terminology, this would be self explanatory. But those those who do not understand, it simply means that the "machinery" is being reset to a restful position, after which the forces of demand and (limited) supply prevail before it overheats in X number of days/months/years down the road.

Looking forward from here, I would say that 3 to 5 year old cars would become very good catch down the road as they would be at the most optimal price point that people can afford. If you have one that is around this age, keep it, you won't go wrong.

When we are faced with impediments, always look back to history for guidance, for its our best teacher. For the time being, life goes on. Relax... Smile..."