Cooling measures for car sales next?

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http://ride.asiaone.com/news/wheels/story/loan-curbs-slam-brakes-car-demand

Speculation is rife in the motor industry that the government may re-introduce restrictions on vehicle financing to cool strong demand for cars amid surging COE premiums.

The talk has been circulating since late last year but grew stronger this month when the authorities apparently asked some banks to submit their loan data.

Earlier speculation had centred on whether the government may be planning to limit car loans to 80 per cent of the purchase price with a loan repayment period of not more than eight years.

If these conditions are introduced, it would mean a return to an earlier period when COE premiums were equally high and the 70 per cent and seven years rule was imposed in 1995.

This condition was dropped in 2003, when the Monetary Authority of Singapore liberalised the industry and financial institutions began offering 100 per cent loans with 10-year repayment periods.

Some motor distributors see the benefit of such tightening.

"Theoretically, a 100 per cent loan doesn't make sense because once you drive the car out the showroom, its value has already depreciated. It is prudent to limit the loan amount so that buyers are not overstretched," said the sales manager of a Japanese dealership.

There are no industry statistics but going by anecdotal evidence, at least 70 to 80 per cent of car buyers take some form of financing. More interestingly, it appears that those who buy bigger and more expensive models seek less financing than those who buy entry-level alternatives.