Financing restrictions to car loan by MAS hit car growth in Singapore

COE trends

The Monetary Authority of Singapore (MAS) will re-introduce financing restrictions on motor vehicle loans granted by financial institutions from Tuesday, 26th February 2013.

The maximum motor vehicle loan amount will depend on the Open Market Value (OMV) of the motor vehicle purchased. For a motor vehicle with an OMV that does not exceed $20,000, the maximum loan-to-value (LTV) is 60 percent of the purchase price, including relevant taxes and the price of the Certificate of Entitlement (COE).

For vehicles with an OMV of more than $20,000, the maximum LTV will be capped at 50 percent.

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

According to The Straits Times, the MAS said, “The financing restrictions are necessary to encourage financial prudence among buyers of motor vehicles. In this prolonged environment of very low interest rates, there is greater risk of buyers over-extending themselves on motor vehicles.”

The financing restrictions will not apply to loans for the purchase of commercial vehicles or motorcycle.

The restriction saw COE tender results for the first bidding after the announcements dipped. Category A premiums, for cars up to 1,600cc, dipped $3,612 – from $78,301 to $74,689.

Premiums for Category B, for cars larger than 1,600cc, saw the greatest drop of $34,577 or 37 percent, and ended the bidding at $58,090.

As a result, it will be the first time that buyers of an economy car, like a Toyota Altis, will pay almost $20,000 more for a COE than the buyer of a luxury car like a BMW 7 Series.

Meanwhile premiums for the open category decreased to $65,001, a drop of $26,909 from the previous tender.

Car dealers have in response started to reduce prices of their cars – in some cases by as much as $30,000. The move by the car dealers has saw the crowd return to the show room and increases in sales. With the strong demand, COE premium are likely to return to its previous level.

It seems that it will be some time before the COE prices start to stabilize.


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