Parliamentary Replies
Published Date: 07 March 2013

Reply to COS Debate on Car loans

Date: For Parliament Sitting on 7 March 2013

Name and Constituency of MP

Ms Lee Li Lian, MP for Punggol East SMC


Car loans

Answer by Mr Lawrence Wong, Acting Minister for Culture, Community and Youth on behalf of Mr Tharman Shanmugaratnam, Deputy Prime Minister and Minister in Charge of MAS:

1   Ms Lee Li Lian asked about the restrictions to the motor vehicle loans. There are two reasons why we are doing this.  Number one, to encourage financial prudence among consumers number two, a more macro objectives at cool COE prices and its impact on inflation.  As the experience of advanced economies shows, overleveraged households are particularly vulnerable to adverse changes in economic and financial conditions.  The risk of over-leverage has been exacerbated by the current climate of low interest rates and high COE prices.  Buyers may be tempted to purchase a more expensive motor vehicle than what they would have under a normal interest rate environment.  The financing restrictions encourage financial prudence.

2   The second objective, on the macro side, is to ensure that the financing restrictions were aimed at exerting a cooling effect on COE prices.  COE prices for most categories have been on an upward trajectory since 2009, with the pace of price increase quickening since the beginning of 2010.  Higher COE prices contribute to a higher inflation rate and create spillover effects on the broader economy.  This affects all Singaporeans, not just car buyers.  In fact, many Singaporeans, including several Members, have called for measures to be introduced to address increasing COE prices.  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.

3   And the extent that these restrictions are temporary, the exemptions will also be temporary.  In other words, the exemptions are there as long as the restrictions are there. Ms Lee also asked if the exemptions could be broaden to other categories and other groups. I understand the concerns but to achieve the objectives that I highlighted earlier and DPM highlighted earlier, we do need a fairly tight regime and we should carefully consider the impact and look at how it develops. Details of the exemptions for disabled persons and the caregivers of the same household will be provided by MAS in due course.