COE supply expected to increase from May

After a shrink in supply for seven years, The Straits Times believes that the supply of Certificates of Entitlement (COEs) for cars are expected to increase from May. However, the local paper also predicted the increase is unlikely to suppress the high priced premiums fuelled by high demand.

The number of COEs available for cars in the May-July period should be roughly 25 percent more than the current quota - amounting to 2,240 monthly. The figure was tabulated based on the estimated number of cars that were scrapped in the first two months of 2014.

However, industry sources believe the imminent supply increase will not have a significant impact on prices.

Mr. Ricky Tay, the former President of the Singapore Vehicle Traders Association, told the English daily that it will ease pressure and cool down the market slightly, although the supply is still not large enough. He added it might take up to the later part of the year for premiums to ease further.

Mr. Ron Lim, General Manager of Tan Chong Motor, authorised local dealer for Nissan, echoed Mr. Tay's sentiments and predicted Category A COE premiums - currently above $78,000 - could fall to the low $70,000s but not further. He cited high replacement demand to be the key reason, as motorists are holding on to their cars right up to the end of their 10-year lifespan.

An estimated 30,000 cars will be scrapped in 2014, an increase from 18,000 cars last year, while more than 100,000 cars are expected to be scrapped annually from 2015 to 2017, according to estimates based on the age profile of vehicles here. This could increase COE supply between next year and 2017, while the current loan curbs and higher taxes for larger cars are expected to be eased further.

Still, motor traders believe premiums will not decline rapidly due to a time lag between the time a car owner starts shopping for a car and the time he actually scraps his car. This time lag creates a mismatch between demand and supply - the main reason why the Land Transport Authority (LTA) moved to a 'deregistration forecast' method in 2000 to determine COE supply.

Yet, due to its drawbacks, the LTA reverted back to formulating quotas based on past deregistrations, while the transport authority is studying, among others, a quota formula delinked from deregistrations for a more even supply pattern in the long term - as suggested by the motor trade and academics.