Dealers say firm demand remains as COE prices for large cars hit S$100,000

[ASEAN NOW News]

Raj Nadarajan/TODAY A man looking at a car that was being sold in a showroom in Singapore.

 

SINGAPORE — An unwavering demand for cars in spite of high prices, coupled with an influx of high-income expatriates, have pushed the cost of Certificate of Entitlement (COE) premiums for large cars beyond the S$100,000 threshold on Wednesday (June 8), industry watchers said. 

 

They added that these factors would keep prices elevated for the rest of the year.

 

According to Today, the factors, as well as a tight supply of COEs, were raised before as contributing to COE prices reaching nearly 30-year-highs in April for the open category of vehicles.

 

Car dealers also noted that three weeks have passed since the last COE bidding exercise, which is longer than the typical two-week interval between biddings.

 

This means that car dealers would have collected more orders since the last bidding.

 

On Wednesday, COE prices for Category B hit S$100,684, up from S$95,889 in the last exercise, while prices for the open category hit S$100,697, up from S$95,901.

 

These were prices not seen since December 1994, when premiums in the then Category Four classification cost S$110,500.

 

Category B includes the larger and more powerful cars, while the open category premiums can be used for any type of vehicles except motorcycles but tend to end up being used for larger cars. 

 

The larger cars are often seen to be more luxurious and industry watchers said that the demand for them remains strong.

 

Mr Wong Kan Sing, managing director of Autolink Holdings car dealership, said that the high COE prices reflected the number of wealthy people in Singapore willing to part with such large sums of money to own a car.

 

“They are purchasing a lot of the Category B vehicles and are not really affected by the COE price. They just want to get their vehicles,” he said.

 

A COE is required to own and drive a vehicle in Singapore, and it is typically factored into the price of the vehicle being sold.

 

It is compulsory to get a Certificate of Entitlement (COE) to own and drive a vehicle or motorcycle in Singapore.

 

A COE is valid for a period of 10 years. A motorist may later renew the COE for another five or 10 years, depending on the vehicle category and its statutory lifespan.

 

COEs are available for five categories of vehicles: Two for passenger cars, one each for motorcycles and commercial vehicles, and an open category that can be used to buy any type of vehicles except motorcycles.

 

The COE system was introduced in the 1990s to manage traffic congestions and the rapid growth of vehicles on roads due to Singapore’s space constraints.

 

The yearly quota of COEs would be set based on the projected number of vehicles de-registered the year before, along with the addition of new COEs based on the percentage growth set for the vehicle population.

 

Bidding for COEs is done separately for each category, and the bidding exercise takes place twice a month.

A bidder will have to first submit the bid amount that he is willing to pay, also known as the reserve price.

 

The bidding system will then automatically raise the current price of COE by S$1. If the current price of COE exceeds the person’s bid, then he is out of the running.

 

The current price of COE will then continue rising and stop only when the number of bidders is equivalent to the number of COEs available.

 

The closing price or premium for the COE of each category is then calculated for successful bidders to pay.

COE prices are driven by supply and demand, as well as the economic situation.

 

Supply refers to the number of COE quota available and this is determined by several factors such as the number of vehicle de-registrations and the net increase of the total number of car population.

 

Demand refers to the number of people applying for the COEs.

 

Therefore, if more people join the bid, the price of a COE would increase.

 

With the Government’s zero-growth policy for cars, Mr Wong said that he expects COE prices for Category B, or large cars, to remain in the S$90,000 to S$100,000 range until around the end of 2023. 

 

That year, he said, will be the 10-year COE expiration mark for cars registered around late 2013. When they are de-registered, the COEs will go back to the quota for vehicles, bumping up supply and knocking down prices.

 

Transport analyst Terence Fan said that as Singapore opens its borders during the Covid-19 pandemic, there have been more expatriates relocating here from other cities such as Hong Kong where Covid-19 restrictions are tighter. 

 

Some multinational companies and foreign firms have also been relocating their senior employees who are used to having their own cars, the assistant professor at Singapore Management University said.

 

“So, it’s a given that once they come here, they would naturally want to have their own vehicle.”

 

Now that the COE premiums for Category B and open category vehicles have crossed the six-figure threshold, car dealer Fed Wu, who is also the publicity officer for the Singapore Vehicle Traders Association, predicts that some potential buyers will wait out until COE prices moderate and go down before getting their cars.

 

As for what lies ahead, independent car broker Steven Lim said that COE prices will continue its uptrend for the rest of the year. 

 

He added that although the demand for larger cars in Category B remains strong, buyers of such cars in the lower end of the category will be deterred from buying if COE prices keep climbing higher.

 

“A Toyota Camry is already S$180,000 to S$190,000. So, if it goes any further, the Camry’s going to shoot beyond S$200,000,” Mr Lim said. 

 

“Previously you could buy a Mercedes-Benz E-Class with that amount. Buyers of Japanese cars are not going to pay that price.”