x Abu Dhabi, UAETuesday 25 July 2017

Big deposits curb supercar dreams

Low-cost car buyers feel the strain of new Central Bank rules on auto finance as years of excess come to an end.

New rules on car loans require a cash down payment of at least 20 per cent. Above, a Bugatti Veyron.
New rules on car loans require a cash down payment of at least 20 per cent. Above, a Bugatti Veyron.

If you fancy owning one of the world's most expensive cars and you live in the UAE, the Central Bank may have steered your ambitions into a ditch.

The Bugatti Veyron Super Sports has a price tag of about €2 million (Dh10.5m) which, until the Central Bank changed the rules on consumer lending this month, you could theoretically finance 100 per cent with a loan.

The new rules require a cash down payment of at least 20 per cent, however, meaning any would-be owner of a Bugatti Veyron would need to come up with a €400,000 down payment.

But Central Bank rules intended to protect consumers from racking up debts they cannot afford will hit the market for low-priced cars hardest, according to retailers and customers.

Bankers agreed the rules had to change. Allowing young graduates to buy the biggest and flashiest car on offer was a poor business model for the industry, said Suvo Sarkar, the general manager of consumer and elite banking at the National Bank of Abu Dhabi.

"That's absolutely unsustainable, and probably won't happen in many other markets," he said.

Retailers are already feeling the effect of the new regulations. Jan Kumar, a sales consultant at KIA Motors, said sales were slow in the first week of this month after the law came into effect. Often, customers walked into the dealership excited to purchase new cars but left disappointed when they found they could not afford to buy, he said.

"Some customers used to finance even the Dh300 registration fees. Now they are asked to pay Dh16,000 up front on an Dh80,000 car. This is a big burden on the customer," said Mr Kumar.

The Central Bank limits are among measures intended to reduce the incidence of bad loans, which rose sharply after the 2008 financial crisis.

Total provisions for bad loans rose to Dh59.4 billion in March, according to the most recent data from the Central Bank, although lenders say non-performing loans could soon peak.

The new law may not hit the luxury car market as hard because many of those customers pay cash, according to Basel al Farra a sales executive at Prestige Cars, a high-end specialist in the capital.

"I think that cheaper car dealers will suffer more, as their target customers prefer to finance 100 per cent of the price," he said.

Ahmed al Suwaidi, 28, a civil servant, was hoping to use a bank loan to buy a car.

"I was choosing a car to buy this summer, but with the new law, I might have to delay my purchase for a while," he said.

* with additional reporting by Gregor Stuart Hunter