Recapping the last six months of 2019 shows trends that will continue in 2020 – a sluggish market but quota cuts spell for moderate price rises
In the final round of Certificate of Entitlement (COE) bidding for 2019, December’s second round of bidding, COEs took a slight dip in all three categories related to passenger cars (A, B, and E).
Good news to round out the year, but let’s look back-forward to see what 2020 brings.
In a nutshell, there’s no reason to expect the same things we’ve experience in 2019, namely: Evolved consumer behaviour, a shrinking gap between A and B, the COE quota shrinking further, and moderate price rises.
Back in August, in issue 285, we examined how the pressure for car buying seems to have eased off in recent years. It’s not that Singaporeans aren’t buying cars, it’s that they are doing so with less violence. The quota is still fully subscribed each month – i.e. every COE issued by the Land Transport Authority is bidded for and taken, but it seems car buying is a far more strategic, deliberated-on issue than it once was.
We point to the expansion of the MRT network, car-sharing/ride-hailing and workable alternatives to car ownership popping up in the last decade. As the sales manager of a German luxury brand put it: “In recent years, buying sentiments across all brand have been weaker, we’re seeing a different phase of car buying in Singapore, one where cars are becoming even more of a lifestyle choice than a mobility necessity.”
That’s a good thing, because not only does it lead to lower COE prices overall, it also leads to smaller fluctuations in price as well – and that means far less of your dealer ringing you up to hear the dreaded words: “The COE has increased sir, you have to top up.”
It’s also good because the supply of COEs is shrinking, that means prices will rise, and this sort of relaxed buying attitude will help blunt big price jumps.
In October, Issue 287, we saw how the COE quota has been steadily decreasing in 2019. But the ‘Careful CarBuyer’s Market theory’ explains why the quota shrank 36 percent from Feb-Apr to the Jul-Oct period for Category A, but prices only jumped by 16 percent in the same period. For the latest period, Nov 2019-Jan 2020, Category A’s monthly quota has shrunk again by 2,112 down to 2,036 units, with smaller decrease for Cat B, 2,083 down to 2,023.
Figures from the LTA – the first column shows cars and how the majority of cars are less than five years old, and thus a glut of new COEs won’t be on the way for another five years.
And it looks like more of the same beyond that as well, due to the decade-long cyclical nature of the COE system, since COEs last ten years. As we explained last month, the majority current passenger cars on the road are less than five years old. The COE quota is made up entirely of cars that have been de-registered, one car out means space for one new car, since the vehicle growth rate is now zero percent for passenger cars.
With mostly new cars on the road now, the industry expects the COE quota to shrink as much as 30 percent. Whether that will lead to COE prices peaking above S$50k is hard to say, but given the not-so-rosy-not-so-disastrous predictions by economists, we think COE prices won’t hit that unfriendly level for some time.