Business Times - 13 Feb 2008
Income that stretches a lifetime, under new scheme
Lifelong Income scheme to ensure Singaporeans have income as long as they live
By CHUANG PECK MING
(SINGAPORE) Singaporeans were yesterday given a detailed look at the scheme that could change the complexion of their retirement years. It comes with the promise that they will have a regular income, as long as they live.
For this, the annuity plan crafted by the National Longevity Insurance Committee will dovetail neatly with savings that members have in the CPF Minimum Sum scheme - their so-called Retirement Account.
On turning 65, a CPF member will first start getting a payout from his Retirement Account. Under the current scheme, this continues for 20 years. But now, at whatever age he chooses - and there is a host of options available - he can start receiving the same amount from the national Lifelong Income (LI) scheme. And this will continue for as long as he lives.
Related link:
Click here for NLIC's report
In fact, CPF members are likely to receive higher income from their Minimum Sum account without more top-ups, thanks to the extra one percentage point interest on the first $60,000 which CPF is offering and the benefit of pooling.
'The key point is (the LI scheme) will strengthen the CPF system to provide lifelong income,' the committee's chairman Lim Pin said yesterday when its report was made public.
In accepting the committee's recommendations on behalf of the government, Manpower Minister Ng Eng Hen said: 'The LI scheme will greatly enhance CPF savings for members. Under the old system, many would have depleted their savings after 20 years, with many more years to live. With the LI scheme, participants need not worry that they will outlive their CPF savings. They will receive an income for as long as they live.'
According to the committee, half of CPF members will outlive their CPF savings in the old system - and the number will rise as Singaporeans live longer.
In coming up with the LI scheme, the committee has taken in the views of a broad spectrum of Singaporeans - and addressed their main concerns. Its report says the scheme is fair and affordable; offers options and flexibility in meeting different needs and circumstances; provides a steady income for life; and will be run by a trusted administrator - the CPF Board.
The scheme also provides for refund of unused premiums (minus interest) upon early death - a 'first', according to Professor Lim, also the chairman of the National Wages Council. He said other annuity plans do not have such provisions.
CPF members may also opt for no refund in return for higher payouts. But they could lose all their money in the Minimum Sum if they die early, if they make this choice. This is particularly so if the members opt for their payouts to start at the age of 65, the payout age under the old Minimum Sum scheme. All their savings would have then been paid up in premiums to the LI fund, as premium payments start at age 55.
Members under the LI scheme could also opt for payouts at 70, 75, 80, 85 or 90, with 80 the default option. If they choose payouts beyond 65 with no refund, the portion of the Minimum Sum, or Retirement Account, still not paid up as premiums into the LI fund may return to their estate.
Where members opt for refund - and most are likely to do so - they will receive a higher income if they choose an early payout. The trade-off is they have to pay higher premiums and their refunds will be smaller than if they had opted for a later payout age.
The reverse is true if they opt for a later payout age. Actual payouts for individuals are proportional to their CPF balances in the Retirement Accounts.
The committee has ruled out inflation-indexed payouts because that would make the LI scheme expensive and require higher premiums to fund it.
'Taken together with the requirement to provide a reasonable minimum payout, it would mean that fewer members would be able to participate in the LI scheme,' its report explains.
The scheme, except for some exemptions, is compulsory and will come into effect in 2013. This means it will cover CPF members who are aged 50 and below this year. Older members will also be encouraged to join the LI scheme.
Some 35,000 CPF members will make up the first LI cohort, of which 60 per cent will have at least $67,000 in cash in their Retirement Accounts - or half of the full Minimum Sum - against a minimum requirement of $40,000 to join the scheme. They are expected to receive $600 a month for life.
The manpower minister noted that the LI scheme is 'correctly built on the foundations of self-provision and self-reliance which underpin our CPF system'. 'This is crucial to ensure the long-term sustainability of this scheme,' Dr Ng said.
The committee cautioned that operating the LI scheme involves significant mortality and investment risks over a very long time horizon. To ensure that it is financially sustainable over the long run, it said CPF 'must ensure at all times that assets can meet present and future liabilities'.
And 'premiums and payouts must be adjusted periodically to reflect actual mortality experience and investment returns'.
Wednesday, February 13, 2008
Saturday, February 9, 2008
BT: What you need is an investment policy
Business Times - 06 Feb 2008
What you need is an investment policy
Defining your asset allocation is the first step and disciplined rebalancing is the next
By JANE BRYANT QUINN
DO you have a personal investment policy? If so, you knew how to behave these past four months. If not, you voyaged from 'should I sell?' to 'too late to sell now' to 'what stock market? I'm too busy playing Second Life'. When equities rise again, you'll claim that your strategy always has been to buy and hold.
Excuse me, but that's the dumb money. Lower prices for stocks are a chance to buy at, well, lower prices. They might drop even further. OK, that's another chance to buy. In the next up cycle, 2008 prices will look cheap.
The question is, how to execute a strategy like this, which requires you to ignore the protests that come from your gut. The answer is: Create an investment policy. When markets rise or dive, the policy tells you exactly what to do. Investment policies come in two parts.
First, an asset allocation. You decide what percentage of your money you will keep in stocks and how much in bonds. A simple example would be 60 per cent stocks, 40 per cent bonds. Within those broad categories, you create subsets - a certain percentage allocation to large and small US stocks, international stocks, emerging markets, Treasuries, high-yield bonds and so on.
The second part - the one most individuals ignore - is rebalancing. That means keeping your allocations at the levels you originally chose. If stocks go up by enough to make them worth 65 per cent of your portfolio, you're supposed to sell that surplus 5 per cent and put the proceeds into bonds. If the value of bonds goes up, you sell the surplus and invest it in stocks.
Years of research show that rebalancing adds value and reduces risk. You cash in some profits from the assets that went up and reinvest them in the assets that underperformed. When the market turns around, those underperforming assets will rise again. By rebalancing, you bought them cheap.
There's one big problem with individual investment policies. No one wants to sell stocks when they're going up. You let them become an ever larger portion of your portfolio. As a result, your so-called asset allocation plan is imaginary. You've put yourself into the hands of chance.
Take the recent stock market embarrassment. According to the formula, you should have trimmed your US stock allocation in late 2006 or early 2007. But you probably didn't pull the trigger. You were into your fifth year of higher prices and nothing in the news implied hard times. So you sat tight. Stocks topped in July. Today the Standard & Poor's 500 Index sells for less than it did in late 2006. Investors who failed to follow the formula gave up all of the intervening gains.
They also lost the money they'd have made by reinvesting in bonds. Stock investors hate bonds. They know that bonds only limp along. But guess what? Intermediate-term Treasuries returned a total of 10.3 per cent in 2007, according to Morningstar, compared with 5.8 per cent for the S&P 500. Over the past eight calendar years, Treasuries yielded 6.8 per cent compared with 1.7 per cent for the S&P 500.
Investment policies work but only if you follow though. Rebalance when any of your allocations falls 5 per cent out of line. Do it automatically, without second-guessing the discipline. If you're rebalancing now, you'd be buying the S&P and selling bonds. Investment policies give you a strategy - just what you need, in times like these\. \-- Bloomberg
What you need is an investment policy
Defining your asset allocation is the first step and disciplined rebalancing is the next
By JANE BRYANT QUINN
DO you have a personal investment policy? If so, you knew how to behave these past four months. If not, you voyaged from 'should I sell?' to 'too late to sell now' to 'what stock market? I'm too busy playing Second Life'. When equities rise again, you'll claim that your strategy always has been to buy and hold.
Excuse me, but that's the dumb money. Lower prices for stocks are a chance to buy at, well, lower prices. They might drop even further. OK, that's another chance to buy. In the next up cycle, 2008 prices will look cheap.
The question is, how to execute a strategy like this, which requires you to ignore the protests that come from your gut. The answer is: Create an investment policy. When markets rise or dive, the policy tells you exactly what to do. Investment policies come in two parts.
First, an asset allocation. You decide what percentage of your money you will keep in stocks and how much in bonds. A simple example would be 60 per cent stocks, 40 per cent bonds. Within those broad categories, you create subsets - a certain percentage allocation to large and small US stocks, international stocks, emerging markets, Treasuries, high-yield bonds and so on.
The second part - the one most individuals ignore - is rebalancing. That means keeping your allocations at the levels you originally chose. If stocks go up by enough to make them worth 65 per cent of your portfolio, you're supposed to sell that surplus 5 per cent and put the proceeds into bonds. If the value of bonds goes up, you sell the surplus and invest it in stocks.
Years of research show that rebalancing adds value and reduces risk. You cash in some profits from the assets that went up and reinvest them in the assets that underperformed. When the market turns around, those underperforming assets will rise again. By rebalancing, you bought them cheap.
There's one big problem with individual investment policies. No one wants to sell stocks when they're going up. You let them become an ever larger portion of your portfolio. As a result, your so-called asset allocation plan is imaginary. You've put yourself into the hands of chance.
Take the recent stock market embarrassment. According to the formula, you should have trimmed your US stock allocation in late 2006 or early 2007. But you probably didn't pull the trigger. You were into your fifth year of higher prices and nothing in the news implied hard times. So you sat tight. Stocks topped in July. Today the Standard & Poor's 500 Index sells for less than it did in late 2006. Investors who failed to follow the formula gave up all of the intervening gains.
They also lost the money they'd have made by reinvesting in bonds. Stock investors hate bonds. They know that bonds only limp along. But guess what? Intermediate-term Treasuries returned a total of 10.3 per cent in 2007, according to Morningstar, compared with 5.8 per cent for the S&P 500. Over the past eight calendar years, Treasuries yielded 6.8 per cent compared with 1.7 per cent for the S&P 500.
Investment policies work but only if you follow though. Rebalance when any of your allocations falls 5 per cent out of line. Do it automatically, without second-guessing the discipline. If you're rebalancing now, you'd be buying the S&P and selling bonds. Investment policies give you a strategy - just what you need, in times like these\. \-- Bloomberg
BT: In the hills, yet in town
In and out: (Above) A Khmer bust, the outdoor pavilion furnished with a sofa, the dining room and study room as seen from across the 17-m-long pool clad in slick, shimmering black Italian glass mosaic tiles, and the dining area with Khmer art pieces
Business Times - 09 Feb 2008
In the hills, yet in town
Swiss Nicole Cavalli, who is in wine business, and her husband 'enjoy every minute' in their bungalow near the crest of a hill overlooking a residential estate in Braddell Heights, reports GEOFFREY EU
THERE are many things that Nicole Cavalli likes about being Swiss, but after a dozen years in Asia - seven of them in Singapore - she's fallen in love with the tropical lifestyle. It's certainly different from her hometown outside Zurich, but now that it's deep into the winter months in Europe she readily appreciates the simpler things in life, such as walking about barefoot in her garden or leaving open the doors and windows to her house and letting a warm tropical breeze flow through.
Since moving into her new home, a distinctive-looking, wonderfully proportioned modern bungalow perched near the crest of a hill overlooking a residential estate in Braddell Heights, Ms Cavalli has had daily opportunities to enjoy the panoramic view and the assorted joys of living in
this part of the world.
Prior to building their own home, she and her husband had spent a significant amount of time looking at other houses, searching for a suitable plot of land to build on and selecting an architect to help create their two-storey, glass-and-granite encased vision of the ideal tropical habitat. Being Swiss, they had a pretty precise idea of what they wanted and now, after 18 months of construction and eight months after moving in, she says she couldn't be happier.
'I love it, we really enjoy every minute here,' says Ms Cavalli, who actually rented a house within walking distance of the site so that she could have daily access during the construction period.
She adds that it was worth taking the time to go through every painstaking detail with her builders. 'The Swiss are very meticulous,' she says. 'After being a supervisor at a construction site for 18 months, I said to my contractor: 'There is a reason why we are so good at making watches'.'
Ms Cavalli has also turned her ability to communicate with people into a fledgling business - she is the local distributor for Quinta do Zambujeiro, a line of fine Portuguese wines. The winery is located in south-east Portugal and is owned by a Swiss wine enthusiast who has been resident in Singapore for the past 30 years. Its prestige label - Zambujeiro - was recently given a rating of 95 points by wine guru Robert Parker.
'People here are very receptive to wines, and Portuguese wine is something different,' notes Ms Cavalli, who has lived in Vietnam and Hong Kong and makes it a point to start a business and keep herself occupied wherever she lives. She was also a competitive swimmer during her high school years, representing Switzerland at events like the 50m and 100m sprints. 'Then I realised that studying was more important than swimming,' she says. She studied law but never practised.
As might be expected, however, water still plays a significant part in Ms Cavalli's life. She worked closely with Rene Tan of RT + Q Architects on the design, and specified the importance of a lap pool. The architect drew up a plan that includes a 17-m-long swimming pool that runs along the length of the living room then wraps itself in an 'L' shape next to the dining area. The pool, clad in slick, shimmering black Italian glass mosaic tiles, has also been integrated into other parts of the house, most notably near the front entrance and in the guest powder room, which has a cool indoor-outdoor quality to it.
The environment outside - in the form of clear overhead panels that allow natural light to stream in and strategically placed openings in the roof - has also been incorporated into the other bathrooms in the four-bedroom house. Between the living and dining areas is a cozy study 'cube', lined with bookshelves and finished from floor to ceiling in wood. Meanwhile, a large water-feature wall finished in black slate runs alongside one of the boundary walls.
The main design features include an aluminium roof, matte surfaces finished in fair-faced concrete, and large sliding and folding glass doors throughout that allow natural light to stream in and open up to allow for natural ventilation. 'We wanted to have it as open as possible,' says Ms Cavalli. 'You can't have this in Switzerland. We wanted to have a proper garden and to have an open concept because we enjoy sitting in the outdoors.'
In the far corner of the garden, there is a pretty modern pavilion furnished with an outdoor sofa to lounge in and great views of the valley spread out in the near distance below. From the pavilion, it is also possible to enjoy views of the main house, especially during the evenings when it glimmers like an outsized light box.
Ms Cavalli employed the services of an Australian lighting consultant to ensure the house shines in more ways than one. In addition, all the rooms in the house, the kitchen as well as the outdoor pavilion are wired for sound, with high-tech Bang & Olufsen speakers throughout. There are more than half a kilometre of speaker cables running through the house, she says.
Perhaps the most commendable feature of Ms Cavalli's house on the hill is the fact that although the plot size is only about 8,300 square feet, there is a great sense of open space throughout, thanks in part to the unobstructed views and glass doors, but also to the fact that the building area occupies less than 30 per cent of the total plot. 'We realised that people like to build to the maximum allowable limit, but we were able to meet our space requirements and still have enough left for a nice garden,' she says.
'You hear birds and crickets - we are surrounded by nature, yet we are only seven minutes from the city centre,' she points outs. Ms Cavalli adds that because she and her husband didn't rush the construction stage, focused on getting the details right and insisted on using high-quality materials throughout, they are now reaping the benefits. 'It has been a very pleasant experience all the way,' she adds.
Tuesday, February 5, 2008
CIMB: CSC TP $0.57
CSC Holdings (S$0.25) - Undervalued
- CIMB 31st-Jan-08
CSC's recent acquisitions and a 70:30 JV with Malaysia's IJM Corp are positive moves to expand its business and expertise, and should support future earnings growth.
The industry outlook remains robust with activities likely to accelerate in the coming months.
We upgrade our net profit forecasts for FY08-10 by 32-116% to capture better margins as well as higher revenue recognition from a robust order book of S$330m.
We upgrade the stock from Neutral to Outperform with a new target price of S$0.57 (previously S$0.36), after rolling forward our target price to CY09 but based on a lower 10x P/E compared to 15x previously.
- CIMB 31st-Jan-08
CSC's recent acquisitions and a 70:30 JV with Malaysia's IJM Corp are positive moves to expand its business and expertise, and should support future earnings growth.
The industry outlook remains robust with activities likely to accelerate in the coming months.
We upgrade our net profit forecasts for FY08-10 by 32-116% to capture better margins as well as higher revenue recognition from a robust order book of S$330m.
We upgrade the stock from Neutral to Outperform with a new target price of S$0.57 (previously S$0.36), after rolling forward our target price to CY09 but based on a lower 10x P/E compared to 15x previously.
Friday, February 1, 2008
Bloomberg: India grows 9.6% in FY07 at fastest pace since '89
Business Times - 01 Feb 2008
India grows 9.6% in FY07 at fastest pace since '89
(NEW DELHI) India's economy expanded 9.6 per cent last fiscal year, the fastest pace since 1989, as rising incomes spurred demand for cars, mobile phones and motorbikes.
The growth rate for the year that ended March 31, 2007, was revised up from 9.4 per cent estimated earlier, the government said in a statement in New Delhi yesterday. The government also raised growth in the year ended March 31, 2006, to 9.4 per cent.
Faster growth may enable Prime Minister Manmohan Singh to cut the budget deficit and spend more on plans aimed at reducing poverty in a nation where the World Bank estimates more than half of the 1.1 billion people live on less than US$2 a day.
Asia's third-largest economy has expanded at more than 9 per cent since April 2005, as Ford Motor Co, Tata Steel Ltd and other companies increase output at the quickest pace in a decade to meet soaring demand from a growing Indian middle class.
'It is a matter of considerable satisfaction that despite global turbulence and heightened uncertainties, our economy has been growing at the rate of 9.4 and 9.6 per cent,' Finance Minister Palaniappan Chidambaram said in New Delhi yesterday. He expects the economy to expand about 9 per cent in the current fiscal year despite 'global uncertainties'.
Incomes in India are rising as companies like Intel Corp, the world's biggest semiconductor maker, and Accenture Ltd, the second-largest consulting firm, hire more people to benefit from technically skilled workers and lower wage bills.
Indians got the second-highest salary increase in the Asia- Pacific region last year. Wages rose an average 14.8 per cent in 2007 from 14.4 per cent in the previous year, according to human resources consulting firm Hewitt Associates Inc. -- Bloomberg
India grows 9.6% in FY07 at fastest pace since '89
(NEW DELHI) India's economy expanded 9.6 per cent last fiscal year, the fastest pace since 1989, as rising incomes spurred demand for cars, mobile phones and motorbikes.
The growth rate for the year that ended March 31, 2007, was revised up from 9.4 per cent estimated earlier, the government said in a statement in New Delhi yesterday. The government also raised growth in the year ended March 31, 2006, to 9.4 per cent.
Faster growth may enable Prime Minister Manmohan Singh to cut the budget deficit and spend more on plans aimed at reducing poverty in a nation where the World Bank estimates more than half of the 1.1 billion people live on less than US$2 a day.
Asia's third-largest economy has expanded at more than 9 per cent since April 2005, as Ford Motor Co, Tata Steel Ltd and other companies increase output at the quickest pace in a decade to meet soaring demand from a growing Indian middle class.
'It is a matter of considerable satisfaction that despite global turbulence and heightened uncertainties, our economy has been growing at the rate of 9.4 and 9.6 per cent,' Finance Minister Palaniappan Chidambaram said in New Delhi yesterday. He expects the economy to expand about 9 per cent in the current fiscal year despite 'global uncertainties'.
Incomes in India are rising as companies like Intel Corp, the world's biggest semiconductor maker, and Accenture Ltd, the second-largest consulting firm, hire more people to benefit from technically skilled workers and lower wage bills.
Indians got the second-highest salary increase in the Asia- Pacific region last year. Wages rose an average 14.8 per cent in 2007 from 14.4 per cent in the previous year, according to human resources consulting firm Hewitt Associates Inc. -- Bloomberg
CIMB: Construction sector
Construction Sector
CIMB Research, Jan 31
IMPACT of Land Transport Review: In the last part of the review, the government continues to emphasise one thing: building up the public transport system in Singapore as a viable alternative to the car. Congestion is to be addressed urgently as the car population had increased by 10 per cent between 1997 and 2004, while the number of car trips had expanded 23 per cent over the same period. Congestion levels have risen 25 per cent since 1999.
Road development plans: On the heels of the expected full completion of the Kallang-Paya Lebar Expressway in September 2008, a proposed $2.5 billion Marina Coastal Expressway will be built, by 2013, to support the development of the Marina Bay area. The government has also approved a budget of $7 billion-$8 billion for a new 21 km North-South Expressway, to be built by 2020.
Massive $50 billion infrastructure spending till 2020: For road development, a total of $10 billion is expected to be spent over the next 10-12 years, which translates to $0.8 billion-$1.0 billion per year. Added to that rail development of another $40 billion from now until 2020, potential contracts that can be awarded to construction companies are significant.
Construction beneficiaries: Typically, large projects in Singapore are awarded to established foreign contractors from Korea, Japan and China. However, because of the current shortage of construction companies, we believe some of the local construction companies with relevant track records could stand to benefit.
Recommendations: We maintain our 'overweight' position on the Construction sector, with 'outperform' ratings for the following stocks: OKP (target price $1.21), Lian Beng (target price $1.67), Hong Leong Asia (target price $5.54), CSC Holdings (target price $0.57), and Tat Hong (target price $5.00).Sector - OVERWEIGHT
CIMB Research, Jan 31
IMPACT of Land Transport Review: In the last part of the review, the government continues to emphasise one thing: building up the public transport system in Singapore as a viable alternative to the car. Congestion is to be addressed urgently as the car population had increased by 10 per cent between 1997 and 2004, while the number of car trips had expanded 23 per cent over the same period. Congestion levels have risen 25 per cent since 1999.
Road development plans: On the heels of the expected full completion of the Kallang-Paya Lebar Expressway in September 2008, a proposed $2.5 billion Marina Coastal Expressway will be built, by 2013, to support the development of the Marina Bay area. The government has also approved a budget of $7 billion-$8 billion for a new 21 km North-South Expressway, to be built by 2020.
Massive $50 billion infrastructure spending till 2020: For road development, a total of $10 billion is expected to be spent over the next 10-12 years, which translates to $0.8 billion-$1.0 billion per year. Added to that rail development of another $40 billion from now until 2020, potential contracts that can be awarded to construction companies are significant.
Construction beneficiaries: Typically, large projects in Singapore are awarded to established foreign contractors from Korea, Japan and China. However, because of the current shortage of construction companies, we believe some of the local construction companies with relevant track records could stand to benefit.
Recommendations: We maintain our 'overweight' position on the Construction sector, with 'outperform' ratings for the following stocks: OKP (target price $1.21), Lian Beng (target price $1.67), Hong Leong Asia (target price $5.54), CSC Holdings (target price $0.57), and Tat Hong (target price $5.00).Sector - OVERWEIGHT
BT: Lower ARF won't mean cheaper cars
Business Times - 01 Feb 2008
Lower ARF won't mean cheaper cars
Rise in COE premiums may offset tax cuts, say industry players
By VEN SREENIVASAN
(SINGAPORE) If you are holding out for lower car prices, now that the government has confirmed a 10 per cent reduction in Additional Registration Fees, you may be disappointed.
So say industry insiders, who point out that the impending cut-back in Certificates of Entitlement quotas could more than offset any savings to be had from lower registration taxes.
'Car prices will go up,' said Cheah Kim Teck, chief executive of Cycle & Carriage, which distributes Mercedes, Kia and Mitsubishi cars.
'What they (the government) haven't said is how drastically COEs will be cut,' he said. 'If you take the average OMV (Open Market Value) for a car at $20,000, a 10 per cent ARF reduction saves you only $2,000. But if the number of COEs is cut significantly, as we believe will be the case, you are talking about a potentially much greater jump in COE premium prices. Overall, the pain will be greater.'
All this comes after the government yesterday announced a slew of measures to reduce road congestion, including higher Electronic Road Pricing, lower vehicle ownership taxes and improvements in the public transport system.
Among the initiatives is a reduction in the ARF from the current 110 per cent of OMV to 100 per cent in March. Road taxes for vehicles will also be reduced by 15 per cent from July.
However, the number of new cars registered could be reduced as COE quotas are cut back over three years starting from 2009.
'The impact will depend on whether people hold back purchases,' said Say Kwee Neng, managing director of Vantage Automotive, which sells Peugeot, LandRover and Ford cars.
'On one hand, the reduction in COEs will raise premium prices. But on the other hand, demand could fall if people become more circumspect about purchasing big-ticket items in the current uncertain economic conditions. So it all depends on how these factors play out.'
The savings from ARF are also lower when they are spread over the life of the car, up until it is scrapped.
Currently, the Land Transport Authority pays a reducing percentage of the car's original OMV when the owner takes the car off the road permanently. This PARF ranges from 75 per cent of the original OMV for a car under five years old to 50 per cent for a car which is almost 10 years old.
Under the current system, a car with $10,000 OMV will attract an ARF of $11,000 (110 per cent). This means the owner will get a scrap value of $5,500 (50 per cent of original $11,000 ARF) when he scraps it in its 10th year.
But when ARF is reduced to 100 per cent of OMV in March, this ARF will be $10,000. But on reaching the 10th year, the scrap is $5,000 (again, 50 per cent of original ARF).
So the owner gets $500 less at scrap. And if this is factored into the original $1,000 he saved as a result of his ARF reduction, the net ARF savings work out to only 5 per cent .
So, the bottom line, say motor traders, is that the reduction in ARF is too minor to factor in buying decisions.
'All things being equal, the reduction in ARF should reduce the cost of buying the vehicle,' said Victor Tan, general manager of Champion Motors, which sells Suzuki vehicles. 'However whether the consumer ultimately benefits from this ARF reduction in terms of overall car price depends on the movement of the COE premiums, and when he scraps his car. Given that the government wants to cut the vehicle population on the road, the chances are that COE premiums will rise by a greater amount than the ARF reduction.'
He noted that a typical Category A vehicle (1600cc and smaller) would see a $1,200 to $1,600 reduction in ARF. But a $2,000 increase in COE premiums would wipe out this benefit.
Could buyers of larger cars benefit, then?
'Not likely,' said C&C's Mr Cheah. 'The reduction in the ARF for the Mercedes C200 would be about $3,500 lower. But if the COE premium goes up to $20,000, as was the case last year, from the $14,000 average now, you can say goodbye to your savings.'
Some motors traders pointed to what they saw as 'inconsistency' in the COE quota policy.
'They say there is overcrowding on the roads,' said Mr Say. 'But who was responsible for letting this happen in the first place? Why was the market flooded with COEs over the past two years? Yes, there is the replacement cycle, but surely one must be able to anticipate the results ahead, rather than make motorists suffer through this kind of feast and famine every few years.'
Traders said the fact that over 70 per cent of the cars on the road are under three years old further pointed to a sharp reduction in COE quotas.
Lower ARF won't mean cheaper cars
Rise in COE premiums may offset tax cuts, say industry players
By VEN SREENIVASAN
(SINGAPORE) If you are holding out for lower car prices, now that the government has confirmed a 10 per cent reduction in Additional Registration Fees, you may be disappointed.
So say industry insiders, who point out that the impending cut-back in Certificates of Entitlement quotas could more than offset any savings to be had from lower registration taxes.
'Car prices will go up,' said Cheah Kim Teck, chief executive of Cycle & Carriage, which distributes Mercedes, Kia and Mitsubishi cars.
'What they (the government) haven't said is how drastically COEs will be cut,' he said. 'If you take the average OMV (Open Market Value) for a car at $20,000, a 10 per cent ARF reduction saves you only $2,000. But if the number of COEs is cut significantly, as we believe will be the case, you are talking about a potentially much greater jump in COE premium prices. Overall, the pain will be greater.'
All this comes after the government yesterday announced a slew of measures to reduce road congestion, including higher Electronic Road Pricing, lower vehicle ownership taxes and improvements in the public transport system.
Among the initiatives is a reduction in the ARF from the current 110 per cent of OMV to 100 per cent in March. Road taxes for vehicles will also be reduced by 15 per cent from July.
However, the number of new cars registered could be reduced as COE quotas are cut back over three years starting from 2009.
'The impact will depend on whether people hold back purchases,' said Say Kwee Neng, managing director of Vantage Automotive, which sells Peugeot, LandRover and Ford cars.
'On one hand, the reduction in COEs will raise premium prices. But on the other hand, demand could fall if people become more circumspect about purchasing big-ticket items in the current uncertain economic conditions. So it all depends on how these factors play out.'
The savings from ARF are also lower when they are spread over the life of the car, up until it is scrapped.
Currently, the Land Transport Authority pays a reducing percentage of the car's original OMV when the owner takes the car off the road permanently. This PARF ranges from 75 per cent of the original OMV for a car under five years old to 50 per cent for a car which is almost 10 years old.
Under the current system, a car with $10,000 OMV will attract an ARF of $11,000 (110 per cent). This means the owner will get a scrap value of $5,500 (50 per cent of original $11,000 ARF) when he scraps it in its 10th year.
But when ARF is reduced to 100 per cent of OMV in March, this ARF will be $10,000. But on reaching the 10th year, the scrap is $5,000 (again, 50 per cent of original ARF).
So the owner gets $500 less at scrap. And if this is factored into the original $1,000 he saved as a result of his ARF reduction, the net ARF savings work out to only 5 per cent .
So, the bottom line, say motor traders, is that the reduction in ARF is too minor to factor in buying decisions.
'All things being equal, the reduction in ARF should reduce the cost of buying the vehicle,' said Victor Tan, general manager of Champion Motors, which sells Suzuki vehicles. 'However whether the consumer ultimately benefits from this ARF reduction in terms of overall car price depends on the movement of the COE premiums, and when he scraps his car. Given that the government wants to cut the vehicle population on the road, the chances are that COE premiums will rise by a greater amount than the ARF reduction.'
He noted that a typical Category A vehicle (1600cc and smaller) would see a $1,200 to $1,600 reduction in ARF. But a $2,000 increase in COE premiums would wipe out this benefit.
Could buyers of larger cars benefit, then?
'Not likely,' said C&C's Mr Cheah. 'The reduction in the ARF for the Mercedes C200 would be about $3,500 lower. But if the COE premium goes up to $20,000, as was the case last year, from the $14,000 average now, you can say goodbye to your savings.'
Some motors traders pointed to what they saw as 'inconsistency' in the COE quota policy.
'They say there is overcrowding on the roads,' said Mr Say. 'But who was responsible for letting this happen in the first place? Why was the market flooded with COEs over the past two years? Yes, there is the replacement cycle, but surely one must be able to anticipate the results ahead, rather than make motorists suffer through this kind of feast and famine every few years.'
Traders said the fact that over 70 per cent of the cars on the road are under three years old further pointed to a sharp reduction in COE quotas.
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