Dec 24, 2013

    A year of living within one's means

    THIS year started off with savers being punished by low interest rates and high inflation.

    Certificates of Entitlement were trending towards $100,000, and property prices continued their surge.

    In the meantime, money in the bank account was not earning any interest.

    Borrowers, on the other hand, benefited from the cheap cost of borrowing and enjoyed the value of their debt being inflated away.

    Worried about rising debt, the Singapore Government introduced a series of significant cooling measures for the car and property market.


    Since 2003, car buyers had been able to purchase their vehicles without any payment upfront, taking a loan for 100 per cent of the car value over 10 years. On Feb 25 this year, the Monetary Authority of Singapore (MAS) reintroduced restrictions limiting the proportion of the car's purchase price that can be borrowed.

    Depending on the open-market value of the vehicle, the maximum loan buyers can take is 50 per cent or 60 per cent of the purchase price. Moreover, the maximum length of the loan was halved.

    The move was a bombshell. Buyers now had to stump up a substantial amount of cash upfront. Many people who planned to get a car had to put off their plans.

    Interest rates on car loans also rose as banks tried to recoup the drop in interest earnings after the curbs took effect.

    The message is clear: If you can't afford a car, don't buy one.


    Tapering, or the gradual reduction of bond purchases by the US Federal Reserve, was the investment theme that dominated the rest of the year.

    Although the Fed had pledged to keep interest rates low through mid-2015, the mere fear that loose monetary policy would end sooner than expected caused some interest rates to rise. On Wednesday, the Fed announced that tapering will begin in January next year.

    The gist for consumers is this: interest rates will eventually rise. Structured-deposit products with slightly more attractive rates are already appearing, a sign that banks think rates will go up too.

    Higher interest rates in the future are good news for savers, but will hurt borrowers.


    MAS implemented tough rules to prevent buyers from over-extending themselves on mortgages and other forms of debt. Under the total debt servicing ratio framework, or TDSR, a property buyer's debt repayments cannot exceed 60 per cent of his gross monthly income.

    The TDSR has arguably been the most effective property-cooling measure so far. The message for consumers is: Buy within your means.


    At the National Day Rally, sweeping changes were announced for Medishield, the national medical-insurance plan. Medishield will be renamed Medishield Life, made universal and cover people for life, instead of only until 90 years of age. The elderly and those with pre-existing illnesses will be included.

    The details are still being worked out. But the lifetime cover limit of $300,000 will likely be scrapped.

    Universal health coverage is a big plus for consumers. But what this also means is that health-insurance premiums will go up.


    Initiatives to improve service quality and lower costs for consumers in the financial-advisory industry are on their way.

    Key changes to come include:

    By mid-2014, basic life-insurance products are targeted to be available directly to consumers online, so they don't have to go through an agent. Competition can reduce distribution costs over time.

    A free website for consumers to compare life-insurance and endowment products is targeted for end-2014.

    A framework to check for infractions by financial advisers and take away their variable pay for major cases of mis-selling is targeted to be put in place by January 2015.