Cars on display at a showroom along Jalan Bukit Merah on March 24, 2022. – TODAY pic

SINGAPORE, April 9 – Certificate of Entitlement (COE) premiums for cars are expected to continue to climb, possibly into next year, industry watchers and players have said, after premiums for the open category hit nearly six figures in the last offering this week.

Current conditions such as tight COE supply and relatively elastic demand for larger, luxury cars could see prices for these vehicle classes continue to climb, or at least hover around current levels for the foreseeable future. they stated. TODAY.

Other factors such as the shift of more powerful electric vehicle (EV) models up to 110kW to Class A, as well as Singapore’s economic recovery, could also drive up COE prices.

COE premiums increased for almost all categories on Wednesday April 6, reaching 99,999 Singapore dollars (RM309,632) for vehicles in the open category, i.e. for any type of vehicle.

This was the highest price in nominal dollars since December 1994, when the premium vehicle for those then known as category four cost S$110,500.

Experts have noted, however, that S$100,000 in 1994 was worth much more than the same figure today, given the impact of nearly three decades of inflation.

Premiums for Class A cars or small cars (up to 1,600cc or 97kW) rose 2.01% on Wednesday to S$72,996.

Premiums for Class B or large cars (over 1,600cc or 97kW) B fell slightly on Wednesday to S$98,389 from S$98,889 in the previous bidding exercise.

Key driver of “zero growth” for COE awards

COE’s tight supply is a permanent cause of upward pressure on premiums, experts say TODAY.

The government has adopted a zero growth policy for cars, which means that the number of COE allowances issued is limited by the number of former COEs deregistered.

Ms Sabrina Sng, Managing Director of Wearnes Automotive, a regional distributor and dealer of premium and luxury vehicles such as the Swedish brand Polestar, said: “COE quotas have been down since last year, there is no It is therefore not surprising that COEs (prices) have continuously increased with the decrease in supply.

Associate Professor Walter Theseira, an economist at Singapore University of Social Sciences, said people generally keep COEs until the certificates expire after 10 years, unless COE prices drop enough that “the value of the paper, the reimbursement they get for scrapping it”. It is worth unsubscribing earlier. That’s why, he added, COE’s offering is largely shaped by a 10-year cycle.

Strong demand for luxury cars

During the last call for tenders, the increase in premiums was not uniform in the different categories.

The Class A premium rose from S$45,600 at the first auction in April last year to S$72,996 on Wednesday, a jump of 60%.

Over the same period, Class B premiums jumped 88% from S$52,309 to S$98,389. For the open category, the jump was 92%.

Mr. Raymond Tang, General Manager of Yong Lee Seng Motor, said, “The reason is that these are luxury vehicles. People aren’t particularly worried about the S$5,000 or S$10,000 increase in premiums.

Mr. Wong Kan Sing, Managing Director of Autolink Holdings, said that high premiums for Class B cars would also have ripple effects on Class A, as some potential buyers may have been squeezed out of the price of the first and instead turn to smaller cars.

Impact of electric vehicles

Wong said Tesla electric vehicles, which are in “very strong demand right now,” are also contributing to the COE’s rise in luxury categories. All Tesla cars require Category B or Open Category COE as they exceed 97kW power output.

However, that could change as the government will adjust the maximum power threshold for Class A electric cars from 97kW to 110kW, from May.

Tang said some may even be rushing to submit bids for the second fiscal year two weeks before the EV policy change takes effect.

Discounts offered for registering an electric vehicle could worsen demand for Class A cars, Wong said.

“Savings (from rebates) will be passed on to COE auctions; they will use this saving to secure the WCC,” he explained.

On the other hand, independent car broker Steven Lim said any short-term increase in demand for electric vehicles among mass consumers could be tempered by the charging infrastructure still under development here.

Incentives to grow in tandem with the economy

The reopening of Singapore’s border and its economic recovery would also put upward pressure on COE premiums, experts said.

Mr. Wong of Autolink Holdings said the point-to-point transport industry will start making aggressive bids for COEs to increase its fleet of vehicles again, as an influx of visitors would increase demand for such services.

SMU’s Assistant Professor Fan pointed out how a wave of high-income expats moving here would have already driven up rental prices. A similar impact can be seen in COE bonuses, he said.

Prof Assoc Theseira said this is compounded by growing local incomes, “particularly at the high end”.

“You add it all up, it’s basically demand growth in exactly the population that can afford cars and can afford to pay high premiums for cars,” he said.

Will prices rise to 1994 levels?

Experts and gamers, however, had differing opinions on how long the premium rally would last.

Assistant Professor Fan expects the overall increase in COE to be “moderate”, as demand for vehicles may come mainly from those who did not previously own one.

It would also be difficult to compare prices seen in 1994, he said, because “the dollar values ​​are similar but the underlying factors are very different.”

Professor Assoc Theseira pointed out that “1994 levels are significantly higher than current levels, given that there has been significant inflation and real income growth”.

“It makes no sense to talk about 1994 levels when HDB apartments cost today what landed properties cost in the 1990s,” he added.

Ms Sng of Wearnes Automotive predicted the COE premium will remain high “at least until next year”, due to limited supply.

Autolink’s Mr Wong said that “from 2014 to 2019 we saw a great supply of COEs”.

“So the next increase in supply is 2024. So I think the high COE will stay for at least two years, before it starts to subside,” he said.

Ultimately, Professor Assoc Theseira pointed out that despite some people’s complaints, the high COE premiums are really increased by people who “are happy to pay the price necessary to drive a car”.

“And so, as long as the economy is doing well, there are more wealthy people in Singapore. Unfortunately, this means pressure on COE prices. It’s reality. – TODAY