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Monday, 8 June 2009
Too many players make a pawn of profits
The atmosphere is tense, there’s dead silence and an air of intense expectation at the end of a fierce bidding war. It’s not Sotheby’s or Christie’s; just a regular scene at the monthly pawnbrokers’ auction.
(SINGAPORE) The atmosphere is tense, there’s dead silence and an air of intense expectation at the end of a fierce bidding war. It’s not Sotheby’s or Christie’s; just a regular scene at the monthly pawnbrokers’ auction.
The contested object? A Rolex watch that eventually sold for a cool $11,000.
Pawnbroking is seen as a business that thrives in bad times as consumers seek quick cash - but the view from the inside is quite different.
The road to a pawnbrokers’ auction invariably starts with someone pawning an item (otherwise known as a ‘pledge’) for cash, for which they receive a pawn ticket that is valid for six months. At the end of this time, they can redeem the pledge by repaying the loan plus interest - which happens 90 per cent of the time. Another option is to renew the pawn ticket.
But some people do neither, and this is where things get interesting. If the loan was for $50 or less, the pledge becomes the official property of the pawnshop. But for loans above $50, the pawnbroker has to send the pledge for auction the following month, conducted by an appointed agency.
One such auction was held recently. Besides the Rolex, many other items were snapped up: diamonds, precious stones, and gold in various forms, such as anklets, pendants, rings and assorted accessories. Pawnbrokers say the most common item pledged is gold, followed by diamonds and watches.
Who attends these auctions? Dealers and traders looking to make a quick buck, who zero in on items they can re-sell for a profit, depending on such factors as the movement of gold prices.
And then there are walk-in bidders, who go to auctions for jewellery that is often cheaper than they could buy elsewhere. Auctioneers say that, lately, they have seen more such people at auctions. And some are even big spenders from India and the Americas.
The pawnbrokers themselves do not earn as much money from auctions as some people think. When an auction closes, payment must be made directly to pawnshops by way of cash or a crossed cheque. But here’s the surprise: none of the surplus raised from an auction goes into the pawnbroker’s pocket.
The Pawnbrokers’ Act states that any amount above the reserve price - that is, the pawn value and accrued interest - must be returned to the pawners to protect them against exploitation.
This effectively means that pawnshops earn their margins solely on interest, with the maximum limit set by the Registry of Pawnbrokers at 1.5 per cent a month. So they make money by generating as much volume as they can.
With more jumping into the business, pawnbrokers’ margins are being eroded. Five more pawnshops were registered in the first three months of 2009 - quite a jump from just three shops between 2007 and 2008.
‘Even if there’s an increase in people seeking short-term loans, we may not have more business,’ complained the owner of a pawnshop in Geylang Road. ‘The cake is already so small, but there are so many applying for a pawnbroker’s licence that our slice and profit is getting even smaller.’
Singapore now has 119 pawnshops.
The Singapore Pawnbrokers’ Association says the increase in the number of shops is bound to reduce the average volume of business per shop.
‘Pawnshops are taking in similar items such as gold and diamond jewellery as collateral, so competition is very keen,’ said an association spokesman. ‘From experience, pawnshops generally need to be operating for three years before they start to break even. An adequate capital outlay is essential to ensure business survival over the short to medium term.’
A word of caution for aspiring pawnbrokers, perhaps. For the rest, there’s live action at the next pawnbrokers’ auction on June 20.
1 comment:
Too many players make a pawn of profits
By BRITTANY KHOO
8 June 2009
(SINGAPORE) The atmosphere is tense, there’s dead silence and an air of intense expectation at the end of a fierce bidding war. It’s not Sotheby’s or Christie’s; just a regular scene at the monthly pawnbrokers’ auction.
The contested object? A Rolex watch that eventually sold for a cool $11,000.
Pawnbroking is seen as a business that thrives in bad times as consumers seek quick cash - but the view from the inside is quite different.
The road to a pawnbrokers’ auction invariably starts with someone pawning an item (otherwise known as a ‘pledge’) for cash, for which they receive a pawn ticket that is valid for six months. At the end of this time, they can redeem the pledge by repaying the loan plus interest - which happens 90 per cent of the time. Another option is to renew the pawn ticket.
But some people do neither, and this is where things get interesting. If the loan was for $50 or less, the pledge becomes the official property of the pawnshop. But for loans above $50, the pawnbroker has to send the pledge for auction the following month, conducted by an appointed agency.
One such auction was held recently. Besides the Rolex, many other items were snapped up: diamonds, precious stones, and gold in various forms, such as anklets, pendants, rings and assorted accessories. Pawnbrokers say the most common item pledged is gold, followed by diamonds and watches.
Who attends these auctions? Dealers and traders looking to make a quick buck, who zero in on items they can re-sell for a profit, depending on such factors as the movement of gold prices.
And then there are walk-in bidders, who go to auctions for jewellery that is often cheaper than they could buy elsewhere. Auctioneers say that, lately, they have seen more such people at auctions. And some are even big spenders from India and the Americas.
The pawnbrokers themselves do not earn as much money from auctions as some people think. When an auction closes, payment must be made directly to pawnshops by way of cash or a crossed cheque. But here’s the surprise: none of the surplus raised from an auction goes into the pawnbroker’s pocket.
The Pawnbrokers’ Act states that any amount above the reserve price - that is, the pawn value and accrued interest - must be returned to the pawners to protect them against exploitation.
This effectively means that pawnshops earn their margins solely on interest, with the maximum limit set by the Registry of Pawnbrokers at 1.5 per cent a month. So they make money by generating as much volume as they can.
With more jumping into the business, pawnbrokers’ margins are being eroded. Five more pawnshops were registered in the first three months of 2009 - quite a jump from just three shops between 2007 and 2008.
‘Even if there’s an increase in people seeking short-term loans, we may not have more business,’ complained the owner of a pawnshop in Geylang Road. ‘The cake is already so small, but there are so many applying for a pawnbroker’s licence that our slice and profit is getting even smaller.’
Singapore now has 119 pawnshops.
The Singapore Pawnbrokers’ Association says the increase in the number of shops is bound to reduce the average volume of business per shop.
‘Pawnshops are taking in similar items such as gold and diamond jewellery as collateral, so competition is very keen,’ said an association spokesman. ‘From experience, pawnshops generally need to be operating for three years before they start to break even. An adequate capital outlay is essential to ensure business survival over the short to medium term.’
A word of caution for aspiring pawnbrokers, perhaps. For the rest, there’s live action at the next pawnbrokers’ auction on June 20.
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