COE prices could ease in future

Thread Rating:
  • 0 Vote(s) - 0 Average
  • 1
  • 2
  • 3
  • 4
  • 5
Basically, cars were never cheap in Singapore and will never be!

Dec 12, 2010
COE prices could ease in future

Even if supply stays modest, likely rise in vehicle usage costs will cut demand
By Christopher Tan, Senior Correspondent

If you have a car, pamper it with premium oils, send it for regular maintenance, rotate those tyres and invest in a reliable grooming service.

With certificate of entitlement (COE) supplies having dwindled drastically this year (and premium levels more than doubling those from a year ago), changing cars has become quite prohibitive.

Next year's COE quota is expected to shrivel further. In fact, calculations point to fewer than 40,000 certificates being made available - the smallest number since the vehicle quota system started in 1990.

In all likelihood, COE premiums, which have moved past $40,000 for cars up to 1,600cc and $60,000 for bigger models, could touch $65,000 and $75,000 respectively by the second half of next year.

Barring the freak levels seen in 1994, when premiums breached $100,000 twice, $65,000 and $75,000 would be close to the highest prices recorded in normal times.

And these estimates are conservative, based on a 20 per cent quota cut that would shrink supply to fewer than 40,000 pieces. (This year, COE prices have just about doubled from those last year following a one-third reduction in quota.)

The upshot of next year's quota cut? A 1.6-litre Japanese family sedan could cost more than $100,000, and a Korean equivalent, over $80,000. Even the cheapest Chinese car - the Chery QQ - would be around $75,000 (it was about $33,000 in 2006).

So car owners are expected to hold on to their current vehicles, especially if these are relatively new. Even those with vehicles that are nearing 10 years in age might do the economically sensible thing and revalidate their COEs, so they can keep their carriages for another five or 10 years.

Younger people who do not own a car but have been eyeing one might have to rein in their aspirations. Being saddled with a $100,000 loan shortly after joining the workforce is an unenviable proposition - especially when the loan is not for a flat but a 10-year lease on a Toyota.

Buying second-hand is one option, but because used car prices follow new car rates closely, these models won't be all that cheap either - unless the car in question is very old.

Is this to be the lot for car buyers from now on? Or is the COE famine part of a cyclical trend?

There are two schools of thought.

The first says COE supply should start to rise from 2012, when a sizeable cohort of vehicles registered during the boom years of 2004 to 2008 become old enough to scrap. (COE supply hinges largely on the number of cars taken off the road.) More than 520,000 cars were registered during that five-year period.

The second school of thought says the high COE prices will force many owners to hang on to their vehicles, even if the paintwork has lost some of its lustre.

Both are probably right. Even if supply starts to rise, it is unlikely to return to levels recorded in the overheated years of 2004 to 2008. This is because the Government could adjust the allowable annual growth rate for the vehicle population. The rate was halved to 1.5 per cent two years ago, and will be reviewed after next year.

In my opinion, COE supply could reach a steady state of between 50,000 and 80,000 a year from 2015 or so.

By then, several new MRT lines will be ready, including the Circle Line, the Tuas Extension, and the Downtown Line Stages 1 and 2.

Commuting by train will then become significantly more convenient for more residents than is the case today - and possibly more comfortable because of the increased capacity that the new lines will bring.

Round about the same time, a new Electronic Road Pricing system based on satellite tracking could be up. It will be able to charge drivers for the distance they cover, on top of when and where they drive. Coverage will not be limited by physical gantries, so the system could literally go islandwide.

Also, parking charges will creep up as developers are no longer required to set aside as many carpark spaces as before.

Chances are, usage costs for motorists will rise substantially.

These developments should in some ways reduce Singapore's seemingly insatiable appetite for cars.

If so, the pressure on COE prices will not be as great as it has been - even if supply is relatively modest.

My Value Investing Blog:
Yes, MW. If we agree that land in Singapore (a city state) is a scarce resource with many competing usage, then we can certainly see why cars in Singapore WILL BE expensive.

A lot of our government policies (be it transport, housing, etc) comes down to the this land issue and how to price it properly.
(12-12-2010, 12:57 PM)egghead Wrote: Yes, MW. If we agree that land in Singapore (a city state) is a scarce resource with many competing usage, then we can certainly see why cars in Singapore WILL BE expensive.

A lot of our government policies (be it transport, housing, etc) comes down to the this land issue and how to price it properly.

So by this logic, can we say then that land and property prices will almost be going up as there is always scarcity of land in Singapore? Huh
My Value Investing Blog:
I think the author is very optimistic. If Singapore economy continues to throttle at 3-5% per year, the accumulated savings will maintain the COE price level.

I am not so concerned about car price. Car is not a necessity. But, housing may face another price increase if the $$$ has no where to go. The property price has already running ahead of salary and I think it is time to bring Lim Hng Kiang back to MND to build HDB flats like mad. With an oversupply of flats, it may be possible to hold on to 0% increase in HDB property price for the next few years.

Anyway, HDB had demonstrated the excellent ability of holding on to the excess flats without causing a subprime like crisis in the property market during 2000-2006.

Hi MW,

The point I mentioned about land scarcity is the macro background (and limitation) of Singapore. Of course, nothing ever moves in a straight line (except maybe for Madoff-type investment) and property prices will move either way in the short and medium term due to the prevailing supply and demand picture.

Since property is about "Location", we can evaluate Singapore as a location in the region/World. Is Singapore seen as a good location (for business, education, family, etc) ? I think a lot of surveys seem to support the view that Singapore is a good location (there are of course many reasons for this). Will this change? Of course - that's why Singapore needs to be on its toe if we want to maintain the curent status as an attractive city.

Forum Jump:

Users browsing this thread: 1 Guest(s)