The latest certificate of entitlement (COE) bidding exercise, which closed on May 7 2014, saw significant price declines in most vehicle categories, with only the commercial vehicle (CV) segment registering an increase. As the accompanying table highlights, small car COEs (1,600cc and below) saw the biggest fall in prices from SGD71,335 in the previous bidding round to SGD60,002 in this latest round.
Greater COE Supply Causing Price Declines…
This decline in prices has come on the back of a slew of vehicles being de-registered from May to July 2014. Since 2005, the supply of car COEs has been falling due to declining de-registrations. However, with many of the cars in Singapore's fleet now reaching the end of their 10-year COE cycle, we are going to see a greater COE quota in the next few months as these cars get taken off the country's roads.
For example, the supply for car COEs will increase by roughly 42% during the May to July period, which as the table above shows, has already had a knock-on effect on their premiums.
However, we caution that prices are unlikely to fall much further in the coming months. The fall in car COE prices needs to be put into context and prices are still more than twice their 2010 levels.
…But Prices Will Find Support
While we cannot rule out more price dips in the coming months due to the higher COE supply environment, we retain the view that prices will remain elevated by historical standards for now. Demand for new cars remains strong and many buyers were in fact waiting for this additional COE quota to come into the market before making their purchases.
Furthermore, dealers have responded to the higher COE supply by cutting their car prices and we see consumers rushing to lock in these lower prices in the next few weeks and months. Two other factors supporting prices will be car owners who recently de-registered their vehicles, jumping into the market for a new car, as well as owners who need to scrap their cars in 2015, securing a...