CNA Explains: Will new loan limits for private-hire cars mean less COE demand or higher ride-hailing prices?

SINGAPORE: The Singapore government took action this week to close a potential loophole that some car buyers may have used to access a bigger and longer loan.

From Friday (Oct 30), individuals buying vehicles registered as private-hire cars can only borrow up to 60 per cent or 70 per cent of the car's purchase price, depending on the open market value. The loan tenures will also be capped at seven years.

Previously, individual owners of private-hire cars could potentially take a loan on 100 per cent of the purchase price, meaning they would not need to pay a lump sum upfront.

The authorities said on Thursday that some buyers may have been registering their vehicles as private-hire cars "primarily to access more permissive financing terms" without intending to provide ride-hailing services.

They pointed to a recent surge in registrations of self-drive private-hire cars owned by individuals, which had reached around 500 vehicle registrations per month.

CNA explains what the tighter loan limits mean for Certificate of Entitlement (COE) premiums and ride-hailing fares.

Who is affected by the new rules?

The tighter loan limits directly affect buyers who register their individually owned cars as private-hire vehicles (PHVs), whether they intend to provide the services or not.

NTUC Assistant Secretary-General Yeo Wan Ling said the changes to financing will affect genuine private-hire drivers' ability to earn a living.

Ms Yeo, who is also adviser to the National Private Hire Vehicles Association, said the association will need to monitor whether the change unintentionally makes sustainable vehicle ownership inaccessible to genuine drivers, increase their dependence on rental fleets or raise their operating costs.

Carro's Singapore country head Kyran Wong said the vast majority of the firm’s customers take on normal loans or pay in cash.

"It is not common for car buyers to register their car as a PHV just to take on a 100 per cent loan," he said.

As of September this year, there were 98,621 private-hire cars in Singapore, according to the Land Transport Authority.

Mr Vincent Ng, business consultant at Vincar Group, said his company has customers who own their vehicles and use them to provide ride-hailing services part-time, but the numbers are not significant.

However, in other segments of the market such as for parallel imported cars, he said some car dealers actively tout and promote the 100 per cent loan, meaning some customers may have made use of the loophole.

Will demand for COEs fall?

However, it remains unclear whether the changes will lead to lower demand for COEs.

On one hand, removing the financing advantage should reduce demand from buyers who were primarily using private-hire car registration to access larger or longer loans, said Assistant Professor Lee Kwok Hao of the National University of Singapore's (NUS) Business School.

"However, some affected buyers may still purchase private cars under the conventional financing rules, while others may consider company ownership or alternative financing arrangements," he said.

The net reduction in COE demand depends on how many buyers leave the car market rather than change their registration or ownership arrangement, he added.

The Singapore University of Social Sciences' Walter Theseira made a similar point: "It depends on the marginal decision taken by the prospective buyer."

Some buyers can still afford the same vehicle with a regular loan, said the associate professor of economics, noting that the lowered interest rate would mean lower overall cost. 

They may have registered the car as a private-hire vehicle mainly to maximise cashflow, and may still purchase the car.

Others may buy a car, but choose a cheaper vehicle so they can afford the downpayment, said Assoc Prof Theseira.

Lastly, some may now find themselves priced out of the market now that the option of a 100 per cent loan has been removed. 

At the same time, he believes the market is currently driven by more premium buyers who are able to afford buying cars under normal financing arrangements.