SINGAPORE - Car buyers can look forward to lower prices in the coming months, on the back of a substantial increase in the certificate of entitlement (COE) quota.
According to figures released by the Land Transport Authority (LTA) yesterday, there will be 11,298 COEs available to car buyers in the February to April period - 23 per cent more than in the previous three months, and more than double the supply for the corresponding period last year.
The biggest beneficiaries will be those buying smaller cars, as the supply of Category A COEs (for cars up to 1,600cc and 130bhp) will be 41.3 per cent bigger than now.
Supply of Category B COEs (for cars above 1,600cc or 130bhp) will increase by nearly 27 per cent.
Dr Park Byung Joon, an urban transport management expert at SIM University, said the new quota should result in lower premiums for Category A "for sure", and "a little bit for Category B".
He envisaged Cat A premiums falling by more than 10 per cent.
Mr Ron Lim, general manager of Nissan agent Tan Chong Motor, noted that the Category A quota is now "pretty close to the magical number" of 1,000 COEs per tender, which he said would result in a meaningful drop in prices. "It'll be interesting to see if a correction will set in," he said.
Mr Lim added that the enlarged supply is "timely" because the Singapore Motorshow starting today is likely to lead to higher car sales. "It should absorb the increase in demand," he said.
Including certificates of entitlement for commercial vehicles and motorcycles, the February to April quota will have 14,114 COEs. This is 18.3 per cent more than the previous three-month quota.
The new quota is the first with a reduced 0.25 per cent cap on annual vehicle population growth.
The cap has been lowered systematically in recent years - from 3 per cent to 1.5 per cent in 2009, then to 1 per cent in 2012, and 0.5 per cent in 2013 - as the Government addresses what it deems to be an unsustainable vehicle population growth rate.
If the growth rate had remained at 0.5 per cent, it would have bumped up the new quota by almost 5 percentage points.
The LTA said that the latest quota includes a smaller Open category, which is now made up of 10 per cent of COEs from each of the other four categories, instead of the previous 15 per cent.
This is to address a vehicle population growth pattern that has been skewed in favour of cars.
Even though the Open category was originally meant to be a "safety valve" to prevent overheated prices in the other categories, it quickly became the sole domain of cars, especially bigger models. This is because sellers of big cars had bigger profit margins and could outbid others.
Dr Park of SIM University pointed out that the February to April quota is just the start of more liberal quotas.
Like other industry watchers, he expects the next several quotas to be even bigger, with supply peaking some time next year.
This article was first published on January 15, 2015.
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