Reply to Parliamentary Question on Car Loan Policy
QUESTION NUMBERS 1102 AND 1087
NOTICE PAPER NOS. 131 AND 122 OF 2013
FOR ORAL ANSWERS
Date: For Parliament Sitting on 8 April 2013
Name and Constituency of Member of Parliament
Q 1102. Mr Lim Biow Chuan, MP for Mountbatten SMC
Q 1087. Er Dr Lee Bee Wah, MP for Nee Soon GRC
Q 1102. To ask the Prime Minister when will MAS review its car loan policy to ensure that Singaporeans will have reasonable opportunities to purchase a car with adequate financing.
Q 1087. To ask the Prime Minister in view of the recent changes to car ownership policies (a) how has this impacted the livelihood of used car dealers; (b) how many used car dealers are there currently in Singapore and how many workers do they employ; (c) what is the current stock of used cars held by these dealers; and (d) what measures will the Ministry take to ease the financial hardships faced by these used car dealers.
Answer by Mr Lawrence Wong, Acting Minister for Culture, Community and Youth on behalf of Deputy Prime Minister and Minister in Charge of MAS:
1 As MAS had explained in its press statements, and as I elaborated during the COS last month, the restrictions on car loans were introduced for two reasons. First, to encourage financial prudence among consumers, particularly in light of the current prolonged period of low interest rates. Second, to moderate the demand for cars, which has been driving up prices of Certificates of Entitlement (COE) and car prices sharply, including over the last year. Higher COE prices contribute to a higher inflation rate and create negative spillover effects on the broader economy.
2 Er Dr Lee Bee Wah highlighted the plight of used car dealers during the Budget debate.
3 As members would know, to help the used car industry adjust to the new environment, MAS announced last Friday that it would lift the financing restrictions for two months for used cars that were acquired by dealers prior to the introduction of the restrictions.1 In making this decision, MAS gave consideration to the fact that demand had fallen more significantly for used cars, and also that the used car industry found it challenging to dispose of the inventory that was acquired at higher in-built COE values before the introduction of the restrictions.
4 However, it is not possible to relieve the industry from the impact of the restrictions on a continual basis without undermining the policy objectives of promoting financial prudence, moderating the demand for cars, and cooling COE prices. So MAS will not be extending the concession beyond the two-month period.
5 The two-month relaxation of the rules will in fact provide a good window for the used car industry to clear much of its previous inventory. Data from LTA indicates that of the 11,000 used cars acquired before the introduction of the restrictions, 4,000 were sold in the one month since the financing restrictions were introduced.2 Based on this trend, and with the temporary lifting of the financial restrictions, dealers should be able to sell most of the remaining 7000 used cars within the two months window.
6 MAS will continue to monitor developments in the COE market and will re-calibrate the financing restrictions for all cars, new and old, in response to market conditions, in particular a sustained moderation in COE prices. But we will not for some time revert to the pre-February situation of having no financing restrictions on car purchases.
7 We understand that the used car business has grown in recent years and many dealers have done very well, especially when COE prices were moving up. The industry should take advantage of the temporary reprieve for its inventory, and adjust to the new reality in the car market. If the industry should eventually consolidate and employees are affected, the Government will do its part to help them through the transition, and to find new jobs in other industries.
***1 This is applicable to the pool of used motor vehicles which are registered under the Land Transport Authority’s Temporary Transfer Scheme on or before 4 March 2013.
2 Based on data provided by Ministry of Transport.