New versus second-hand car

WHEN it comes to purchasing a car, one is often confronted with one main decision – whether to buy a brand new or second-hand car.

Each one has its own pull-and-push factors but ultimately, the potential buyer needs to decide what best suits his needs. How much is the potential buyer willing to spend? Is the buyer facing budget constraints? Is the buyer stretching the finances all for the sake of a brand new wheel?

Clearly, if you’ve got a limited or tight budget, then purchasing a used vehicle would be a preferred option. However, even if it cuts your cost by half compared to buying a new car, used vehicles are not risk-free.

Driving a new car gives you more peace of mind.

 

First, you won’t really know the extent of the car’s wear and tear. The appearance of the car is rarely a good gauge, as a neat-looking, 10-year-old jalopy could just be firing on one-and-a half cylinders, be up for a transmission overhaul and be a ticking time bomb on wheels.

As such, a used vehicle may require higher maintenance and expensive repairs compared with a new one. What’s more, such repairs won’t be covered by warranty.

Apart from being costlier than its old-aged counter part, owners of new cars can relish in the fact that their vehicles are unlikely to unexpectedly break down in the middle of nowhere for no apparent reason, says Kay Vee Auto car salesman Johnson Low of Petaling Jaya.

“A new car is covered by warranty, so even if you have problems within the (warranty) period, it can be fixed without any additional costs because its their (manufacturers/distributors) responsibility.”

Low noted that many luxury cars especially, offered vehicles with warranties that extended to as long as five years.

“Also, new cars won’t need new parts for a long time. A used car on the other hand may need a lot of things that need changing.”

Low also pointed out that in the case of a break down for new vehicles, many car manufacturers offered towing assistance.

“Basically, driving a new car gives you more peace of mind compared with a used one. Furthermore, one also tends to look good driving a brand new vehicle that just hit the market rather than one that’s been defunct for years,” he says.

Another advantage of a newer car is that it would command a slightly better resale value versus an older model,” Low adds.

Buying a used car

The immediate benefit of buying a used car is that it’s cheaper than a brand new one. Furthermore, a used car also depreciates a lot lesser than a new one.

“New cars lose about 30% to 50% of their value within the first three to four years, at which point the depreciation starts to slow down,” says Used Autos Sdn Bhd owner Peter Wong, a Segamat-based used car dealer.

“In the case of used cars, the previous owner would have absorbed the largest portion of the depreciation cycle. By the time you purchase a used car, nearly all of the costs of owning and operating the car would have been reduced,” he adds.

Jeremy Yeoh, a Kuala Lumpur-based used car dealer says that owning a used car also means lower financing costs, reduced registration and license fees as well as insurance premiums.

According to him, cheaper, fuel efficient cars tend to have better resale value, such as Perodua Kelisa, Kancil and Toyota Vios models.

“Each year, there are new drivers coming onto our roads, and these are mostly students who are often incomeless; it’s their parents who buy them their first cars, mostly used cars that aren’t too expensive.”
Yeoh adds that many people with multiple cars tend to go for used models as an alternate or second household vehicle.

By EUGENE MAHALINGAM
eugenicz@thestar.com.my

A roof over our heads: Should we buy or rent?

PERSONALLY speaking, I have been faced with this question – to buy or rent a house – many times in my life. While I haven’t quite found a clear answer to that, I have decided to go with both. I have bought a house (or rather acquired one through financing) but am renting it out while I live in a rented premise with my family.

It is a known fact (if not compounded by our parents, and uncles and aunties) that one should, if they can, own a house. Generally speaking, renting somehow has some negative connotations. Ideally, we should buy a property early in our lives to take advantage of the longer loan financing period and if we can, try to settle the financing early.

While there may be no straight forward answer here, there are several pertinent questions we need to ask ourselves. Where do we see ourselves, five, 10, or 30 years down the road?

First, let us exclude investors from our category as they would naturally fall under the ‘buy’ status, and let us delve into the lives of the average man-on-the-street manifested in these four individuals – Robroy, Rizal, Rowena and Rossindra, who face a similar dilemma.

Robroy is 35 years old, married with two children, and works as an senior accountant. He works for a multinational company and therefore is required to travel, and at times is posted overseas for a few years. He also has chalked up some credit card debts from all the travelling, and have been delinquent in payments during his absence in Malaysia. Most recently, he was posted to New Zealand and is now considering migration.

Rizal is 30 years old, married with two wives and six children and is a businessman who owns several restaurants. His income is good, but it fluctuates, and he currently has some savings which he plans to invest. His big family helps him runs the business.

Rowena, is a 28 year old care-free person, whom after graduation could not hold a steady job, but is very happy with part-time jobs that give her the freedom to travel as she loves travelling. She has a boyfriend and plans to get married in a year or two.

Rossindra is 25 years old; she is a social science university graduate who has decided to dedicate her life helping the needy and healing the world. She is currently working under one of the Unesco projects in Myanmar. She gets paid pretty well, and with food and lodging fully provided at her workplace in Myammar, she saves almost all her salary. She recently took over the rental tenancy of her parents who live in a rented house, and is considering alternative options.

Of these four individuals, who do you think should buy a house or rent? The following represents my take, which of course, is open for discussion.

Robroy should rent, mainly because of his work commitment. His work requires overseas posting, which includes his family, especially since he is considering migrating to New Zealand. Furthermore, he has been delinquent in his credit card payments, and this may not go well for his loan financing if he wants to buy.

Rizal should buy, mainly because the nature of his income is uncertain and he has amassed some savings, which should aid in his down payment for a house. He had originally wanted to buy a house in cash but given the size of his family, he decided to buy a bungalow for which he has settled 50% of the payment while the remainder is financed through a loan. As he rents his restaurant outlets and the returns from his business is used to settle the rent, he is confident that buying a house is a much better option for him.

On the other hand, Rowena, quite clearly falls under the rent category. First, she does not have the financial ability and second, she has not quite decided what she wants to do in life. Furthermore, her part-time jobs may not provide her with a good credit standing with the banks. Her boyfriend whom she intends to marry happens to be rich.

So, naturally, if things go as planned, she may be able to solve, to some extent, her financial issues.
Rossindra, on the other hand is in a real predicament. While her position and work do not necessitate her to rent or buy a house, she is undertaking the obligation to pay rent for the house her parents stay in. She is considering the option of buying a small house and naturally, her parents are overjoyed to finally live in their own house.

Buying a house is usually, for many, a once-in-a-lifetime decision. So don’t rush into it. Take your time evaluating the possible scenarios and outcomes and of course, make sure you choose a suitable property. Whatever it is, you must try to avoid putting significant pressure on your financial status.

COMMENT 
By RAYMOND ROY TIRUCHELVAM

● The writer, a business planner with SABIC Group of Companies says: I would rather my parents choose my house than choose my wife.

Ringgit, government bond yields up on rates hike

KUALA LUMPUR: The hike in interest rates, which the market now expects to be the last for the year, drove the ringgit up and saw a rise in yields of short-term government bonds.

The ringgit appreciated against the dollar yesterday following the 25-basis-point rise in Bank Negara’s overnight policy rate (OPR) to 2.75%, with traders now expecting the local currency to continue to strengthen in the short term.

CIMB Investment Bank regional rates and foreign exchange strategist Suresh Kumar Ramanathan said the ringgit, which rose to 3.19 against the dollar yesterday, was pointing towards further strengthening.

He said the hike in interest rates made the ringgit an interesting carry-trade proposition for traders.
“Interest rates are pretty high to attract more capital flows into the market,’’ he said.

The monetary policy statement on Thursday was dissected by the market and the general consensus is that Bank Negara would most likely stand still now after raising domestic interest rates by 75 basis points this year.

Analysts said the previous statement, which alluded to further normalisation of interest rates, was omitted this time around.

They said this was replaced by a fresh stance whereby the Monetary Policy Committee (MPC) now considered the new level of the OPR to be appropriate and consistent with the current assessment of growth and inflation prospects.

“Taken together, these signals suggest that rate hikes are unlikely to come through in the future,’’ said Barclays Capital in a note yesterday.

“It appears that Bank Negara has created enough monetary policy buffer to respond to any downside risks.”
While the MPC’s assessment is for the global recovery to continue, it noted that there was increased risk that the global growth momentum could moderate.

But it pointed out that for the domestic economy, recent trends in key economic indicators such as industrial production, financing activity, labour market and external trade showed that economic activity had remained robust in the second quarter.

“While external developments may result in some moderation in the pace of growth, the domestic economy is expected to remain strong with continued improvement in private consumption and investment, and augmented by public investment spending,’’ MPC said.

Barclays Capital said the statement noted that recent economic indicators and trends would remain strong despite the recent gains in the ringgit. “This suggests that they are comfortable with the recent normalisation in the currency and would not stand in the way of further appreciation, provided this is fundamentally dictated,’’ it said.

RAM Holdings Bhd chief economist Dr Yeah Kim Leng believes the strong domestic economic indicators might have pipped Bank Negara’s decision to let interest rates go up for the third time.

The market was divided over the prospects for such a hike, given the economic situation globally.

“The central bank is confident that domestic growth momentum can be sustained despite the slowdown in the second half-year in the European Union economies,” Yeah said.

Although the current level was still below the historical average, Yeah called it the “new normal” considering the benign inflationary concerns and the weak economic condition globally.

He felt that the hike was important to nip asset price inflation, especially in the property sector which was driven by super-low interest rates, before it got out of hand.

“The double-digit increase in some property segments is of some concern,’’ he said.

While households have seen a debt build-up in recent years to levels considered high for Malaysia, Yeah said the current level of interest rates was seen as a balance between what households could shoulder and what the business sector found it could live with.

“It’s a fine line. We believe this level will stay for the rest of the year,” he said.

Should interest rates plateau at this level, Maybank Investment Bank head of debt capital markets Michael Oh-Lau said the rally in the bond market, which had seen yields dropping as a result of foreign buying of Malaysian Government Securities, should continue.

The impact on the bond market is expected to be positive but Oh-Lau said one risk that could emerge from interest rates remaining stagnant was a rotation of money out of the Malaysian capital markets to other countries that had not raised their rates. “There might be some risk of the exit of foreign investors if this is the last hike,’’ he said.

With interest rates now projected to remain firm for the rest of the year, analysts said all eyes would now be on the yuan and its movement against major currencies.

“The ringgit is seen as a close proxy to the yuan and further strengthening of the ringgit will come from the pace of strengthening of the yuan,” said Yeah. “This will fit in nicely for Malaysia getting a slower pace of strengthening.’’

By JAGDEV SINGH SIDHU

jagdev@thestar.com.my