As cost of living rises, Singaporeans turn to pawnshops; Economist Intelligence Unit has ranked Singapore the world’s sixth most expensive city to live in.

As cost of living rises, Singaporeans turn to pawnshops

Agence France-Presse

Posted at 05/18/2013 12:31 PM | Updated as of 05/18/2013 12:32 PM

SINGAPORE – Singaporean housewife Siti Khadijah Abdul Rahman accumulated a few thousand dollars’ worth of gold accessories over the past two decades, but now a rising cost of living is forcing her to pawn them.

With a stretched household budget that must also cater to school expenses for her two teenaged children, the 49 year-old is pawning her gold to relieve pressure on her security guard husband, who earns Sg$1,500 ($1,211) a month.

“Pawning is better than going to friends or family when you have budget problems,” said Abdul Rahman. “When I have money, I will claim it back.”

She is one of a rapidly increasing number of people opting to take short-term pawnshop loans to try to keep up with rising prices, in what the Economist Intelligence Unit has ranked the world’s sixth most expensive city to live in.Singapore’s pawnshop industry has seen phenomenal growth at a time when rising prices and a slowing economy are putting pressure on the household budgets of middle- and lower- income families.

Loans surged to Sg$7.1 billion in 2012, up 43 percent on-year, according to industry registry data.

Singapore has one of the highest concentrations of millionaires relative to its population, but the city-state’s per capita income of more than Sg$65,000 in 2012 masks a sharp income gap between the richest and poorest.

The three major pawnshop chains — which make up the bulk of the nearly 200 pawnshops across the island nation of 5.3 million people — have sought to take the shame out of using personal property as collateral for short term loans.

“You look around you, this is probably one of the most expensive places in the world,” said Derek Da Cunha, a local socio-political observer.

“Without the stigma (of borrowing), pawnshops have become more respectable and we have working professionals using it as a means to get short-term loans to cope with their expenses.”

Families like Abdul Rahman’s in the bottom 10 percent of Singapore households had to weather a 1.2 percent dip in income adjusted for inflation last year, statistics department data showed.

Healthcare costs rose 3.9 percent on-year in 2012 according to government data.

A consumer group said the average price of a bowl of noodles with fishballs, a staple dish, was 20 percent higher in 2012 from a year ago at Sg$3.

Prices of basic food items like rice, meat, vegetables and dairy products have also risen.

Some public-housing flats in choice areas now cost more than Sg$1.0 million while car ownership also remains out of reach for many due to high taxes and a vehicle quota system.

— A better alternative ? —

People who pawn their goods have the items assessed by shop experts, and the loans the shops grant usually carry an interest rate of 1.0 percent in the first month, then 1.5 percent a month thereafter.

Items must be redeemed within six months or get forfeited, unless the borrower renegotiates a loan.

One borrower who declined to give her full name said pawning was a better alternative to seeking short-term loans from banks, which require paperwork and are not guaranteed to be approved quickly.

“For the older generation, if you have the gold, it’s better to get the loan from the pawnshop,” said the factory worker who renews her loans with a neighbourhood pawnshop every six months.

Valuemax and rivals Moneymax have thrived, both in fierce competition with the fast-growing Maxi-Cash, whose initial public offering in June last year raised Sg$16.8 million despite weak market conditions.

Grilled storefronts that used to be a mainstay in pawnshops have been replaced by outlets that boast uniformed staff and resemble commercial bank branches.

But younger and more affluent customers, unperturbed by the stigma once associated with pawnshops, have also become an important clientele for an industry that has softened its image with endorsements from local celebrities.

Apart from gold, they also pawn diamonds, rare gems and antique watches.

Singapore’s usually business-friendly authorities say they are closely watching the rapidly expanding industry, with some concerns that such accessible loans might help fuel gambling in the world’s third-largest gaming market behind Macau and Las Vegas.

In April, the law ministry called for public feedback on a proposed amendment to laws governing pawnshops in order to strengthen governance of the industry.

Da Cunha does not believe the government will impose any drastic measures.

“Pawnshops are already embedded in Singapore society. It is far better than the next alternative, which is for Singaporeans to seek loans from loansharks,” he said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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