Think owning a car is a ‘high maintenance’ relationship? You are probably not alone.
With high Certificate of Entitlement (COE) prices and low loan-to-value (LTV) ratio and loan tenure, it certainly takes a lot of money upfront to afford a ride in this island republic.
If you are a little new to the game, COE is a vehicle quota system implemented in Singapore, which grants car buyer the legal right to register, own and use a vehicle in Singapore for a period of 10 years.
What this also means is, when demand is high, the cost of a COE will also hike in tandem. This makes the cost of purchasing a car more volatile.
As the demand for cars has gone up significantly, many aspiring car buyers are unable to realise their goal of car ownership due to the high COE prices.
However, if you’ve been following up with the news, you would have heard that on May 27, the Monetary Authority of Singapore (MAS) has eased restrictions on motor vehicle loans by raising the maximum LTV ratio and loan tenure.
Is that good news for aspiring car owners in Singapore?
So, what are the changes to the motor vehicle financing?
In 2013, restrictions on motor vehicle loans by financial institutions were implemented by MAS to moderate the demand for cars and COEs and alleviate inflationary pressures. In the long run, these measures also discourage high household debt by encouraging financial prudence, as well as promote a car-lite society.
However, the new changes announced last month saw these restrictions being eased to the following:
Source: MAS* LTV is the amount of the loan expressed as a percentage of the purchase price of the motor vehicle. The purchase price includes relevant taxes and price of the COE.
Model name: Toyota Vios 1.5 Elegance (Auto)
The reasons behind such move are due to the sustained moderation in COE premiums and the resulted inflationary pressure over the last three years.
This adjustment posts great news for potential car buyers as the cost of entry to car market becomes lower. Despite being an on-going car-lite society, many Singaporeans still wish to own their first car. As a result, easing the restrictions makes it easier for them to own their first cars, or even to change their cars.
Will COE prices increase?
That’s all well and good. However, many of them fear that the COE prices will eventually be driven up which can cause them to pay more in the long term.
In a report by Straits Times, Government Parliamentary Committee for Transport chairman and MP for Potong Pasir Sitoh Yih Pin said that the restrictions are still not at their pre-2013 levels, when the maximum loan was 80% 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.”
What if lowering the financing restrictions is followed by a hike in the COE, like what most Singaporeans fear?
Latest 6-month COE Open Bidding Results
Based on the latest 6-month COE prices, they will be expected to be increased.
There would like be a spike in demand due to the easing of motor vehicles loan restriction, coupled with the fact that many, car dealers are slashing the car prices by as much as S$12,000, as well as giving out freebies like free servicing, petrol and insurance subsidies.
The higher the demand, the higher the prices of COE will go.
If COE prices do increase, will the easing of the financing still make it a worthwhile deal for car buyers?
Model name: Toyota Vios 1.5 Elegance (Auto)
Based on the table above, the eased restriction on motor vehicles loans by MAS is beneficial to potential car buyers. With longer loan tenure, they can now pay lesser on a monthly basis. They no longer required forking out a higher lump sum as down payment due to higher LTV.
If COE prices do increase as expected, the car demand will still be favorable. The reason is due to the lower upfront and monthly repayment as compared to last year when maximum LTV and loan tenure were 60% and 5 years respectively. Also, average car buyers should consider their overall financial situation before purchasing a car. They need to consider the factor of Total Debt Servicing Ratio (TDSR) as it will increase their commitment level, hence affecting future loan applications such as housing loan.
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