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S'pore car sales and prices up after policy change

SINGAPORE, Jan 28 (Reuters) - Automobile sales have surged in Singapore after the central bank relaxed rules on car loans last week, but auto distributors and market analysts said on Tuesday the buying could fade fast as prices leap.

The Monetary Authority of Singapore (MAS) last Wednesday dropped a policy of requiring financial institutions to finance a maximum of 70 percent of the purchase price of a car and for loans to be repaid over a period of no more than seven years.

The effect was immediate. Around 3,000 shoppers clogged showrooms over the weekend, according to local media reports.

Buying a car on the affluent but land-scarce island state has always been difficult. The government rations the availability of automobiles through a certificate of entitlement (COE), and only about 10 percent of Singapore's four million people own cars.

Singapore's worst economic downturn in nearly forty years took a big toll on sales last year, hammering car prices to 13-year lows. The rule change offered dealers some relief.

"Sales have been pretty brisk ever since the lifting of the rule. I can't reveal the numbers of cars I've sold but I think easily the jump has been three to four times the normal," said Ricky Teo, marketing manager at Kah Motor Co Sdn Bhd, a dealer of Honda Motor Co Ltd cars.

As the demand went up, so did car prices, he said.

"For Honda, we have raised our price by S$4,000 (US$2,310) - that's the car price package which means the car price plus the COE (certificate of entitlement)," Teo said.

G.K. Goh Securities analyst Teo Hiang Boon said the central bank move could boost COE prices in the short term, but the impact on profits for auto makers and dealers will be limited because demand still depends on Singapore's sputtering economy.

The impact on local banks may also be marginal.

"I don't expect banks to be too aggressive because car loans are not a major growth driver given the size of the market. Banks also know the risks if they offer zero downpayment," said David Lum, analyst at Daiwa Institute of Research.