By William Lim
Yesterday, Transport Minister Lui Tuck Yew announced changes to the 23-year-old quota system. Starting from Feb 2014, all vehicle under 1600cc with the horsepower of more than 130 Brake Horse Power (BHP) will be categorised under CAT B instead of current CAT A. ( Channel News Asia)
Let’s first look closer at the vehicles that will be affected by the changes (Source: LTA):
Based on what the Land Transport Authority (LTA) had highlighted during the media briefing and based on 2012 vehicle registration data, almost 50 per cent of CAT A vehicle was registered with a Open Market Value (OMV) more than $20,000.
Assuming that the statistic remain the same at present day, about 350 vehicles registered per month go to premium cars that are more than $20,000 OMV. I believe the number for this year to be higher.
Let us see how the recategorisation will affect COE bidding this Feb 2014.
Scenerio 1 –
More vehicles under the 130BHP - mainly Toyota, Honda, Suzuki, Hyundai etc, - will be sold due to lesser competition from premium vehicles.
Scenerio 2 -
Premium car buyers will purchase lower-range vehicles instead of premium cars.
The fall in COE premiums come Feb 2014 will mainly be a result of the increase in deregistration of vehicles which is expected to be around 20 per cent of the total population of 600,000. These are vehicles which are above 8-years old and not from the recategorisation of the COE bidding system.
The immediate effect of the changes will be the raising of COE premiums. This is due to three main reasons:
- The would-be premium car buyer will go into the market to purchase the vehicle before the changes kick in. Premium buyers in both categories will face uncertainty this Feb 2014. They will be faced with a low supply of COE certificates but higher demand from both CAT A (those premium cars that will be categorised into CAT B from Feb 2014) and CAT B buyers.
- Car dealers will be clearing their old stocks, which is a common thing to do at year-end.
- Festive season. With Christmas and Chinese New Year, sales of vehicles will typically increase.
Given the above, premiums for both categories of COEs should be between $80K to $90K till Jan 2014.
When the new system takes effect in Feb 2014, all buyers and even dealers will face uncertainty on how the COE price will move. Nonetheless, we should keep in mind that the
Feb to Apr period is typically a low season for sales of vehicles, and potential buyers would wait and see before jumping in.
We could therefore see COE prices drop 10 to 20 per cent for CAT A and increase by up to 10 per cent in CAT B in Feb 2014. Premiums should correct by around 5 per cent of Jan 2014 premiums.
My advice to all car buyers: if you are not in a hurry to purchase a vehicle, stay put till end-2014 or 2015 when COE prices will head downward as more cars are deregistered.
The changes announced by the authorities are disappointing because although it may seem that the ministry is cooling the COE prices for the general public, the main reason for the changes is apparently to encourage the sale of non-luxury cars such as Toyota and Honda.
However, it is not a bad reason to introduce the changes to the COE system, after all if the mass market dealers can't sustain their businesses, they will close shop and Singapore will lose such car dealers who offer vehicles for the masses.
With the number of COEs expected to be increased down the road, premiums should stabilise between $30,000 to $40,000. Once prices have stabilised, I hope that the Monetary Authority of Singapore (MAS) will raise the Loan Limit from 60 per cent to 80 per cent, making cars more affordable to the masses.
I was a car dealer for four years, selling new and used car. Being sensitive to COE premiums is very critical to us as we had to predict how the prices would move in order to sell the cars. Remember, prediction is always a guessing game and nobody will able to predict correctly always but we can make educated guesses.
It is disappointing to know that the changes are not immediate and will only take effect in Feb 2014. This is different from the changes announced by Deputy Prime Minister Tharman Shanmugaratnam, which imposed new loan restrictions on car purchase with immediate effect.
William Lim also blogs at his own site, http://mrnewbird.wordpress.com