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Why Cars Are Becoming More Costly

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In 2021, Singapore was voted the world’s second most expensive city to live in. We also hold the record for being the most expensive place to buy a car — with no sign that prices will ease any time soon.

The current global situation where war and viruses rule the headlines has caused disruptions in supply lines, leading to rising costs. This has affected crude oil prices, making owning a car that much more expensive. However, that hasn’t diminished Singaporeans’ appetite for cars. And Certificate of Entitlement (COE) prices are also heading northward, a sign that people are still buying cars even at sky-high prices.

As a tiny island, space is at a premium; that means the car population has to be controlled. To do that effectively, the government had to introduce measures like fees and taxes for those who want the luxury of owning one. Cars here are subject to additional fees, such as the ARF (Additional Registration Fee), the Excise Duty, emission surcharges, and the GST. It is the COE, however, that takes up a major chunk of those charges.

The COE is a uniquely Singaporean invention: it’s a certificate that gives the holder the legal right to register, own and use a car in Singapore over a period of 10 years. It’s also the main reason why cars here are so expensive. As of June 2022, the average cost of the COE for a typical car was more than S$70,000. As such, the year-on-year increase in car prices rose by S$20,000 or more, depending on the model.

The price of a small hatchback such as the Suzuki Swift was S$97,000 in 2021. Today, that same model will set you back by S$122,000! A Toyota Camry that used to be S$173,000 last year will now cost at least S$188,000. Across the board, we are seeing prices in all car categories increase by quite a big margin from last year. In fact, COE prices have hit six figures this year in at least two categories.

One of the reasons behind the price increase is the tight supply of COEs. With a smaller pool of COEs up for grabs, competition for them will be very keen indeed. The government has adopted a zero-growth policy for cars, which means the quota for COEs is effectively determined by the number of old COEs deregistered. Most drivers will hold onto their COEs until they expire after 10 years, unless COE prices fall enough to make it worthwhile to deregister earlier.

With vaccination programmes rolled out globally, the worst of the pandemic has come to pass. This has led to the opening of borders, and businesses recovering as the economy opens up. As the economic recovery accelerates, spending power goes up — and that impacts the demand for COEs from private car owners as well as commercial fleet owners.

The reality is that there are people willing to pay more because they can afford to. As long as the economy is doing well and businesses are thriving, the demand for COEs will be strong; that will, unfortunately, impact the price of COE premiums. In today’s world of million-dollar HDBs, it really will not be surprising to see COE prices breaking even more records.

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