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We're dangerously close, but we haven't gotten there again yet. What does it take for COE premiums to cross the $100,000 line?

07 Apr 2022

The angry Facebook reacts are out in full force. The fear is starting to creep in. On the lips of observers all around, the same question is starting to form: Will COE premiums hit 100k?

To be more accurate, that question was already floating around yesterday, as it also was two Wednesdays ago. We know how both eventually panned out, though. Cat B and Cat E ultimately didn't cross the dreaded six-figure line, although as some sort of perverse inside joke, the latter levelled out at $99,999 yesterday (What is this? A twisted version of the Great Singapore Sale?). The former, on the other hand, dropped slightly - by $500. 

We go back in time to the era of "SC"-plates - more specifically, to those starting with "SCG" (Credits: Wikimedia User / Jerry "Woody")
It's to be expected that many of us will gawk at the numbers now, but some (probably) older folk will remember: They don't actually represent the highest peaks premiums have ever scaled.

Rather, that unforgettable moment was close to thirty years ago. Digging deep into the archives, here's what we made of what happened in 1994.

The events of 1994: Lead-up to 100k

The lead-up to 100k back then wasn't so much a sudden twist as it was a slow build, begrudgingly recognised in the papers as an inevitable culmination of prices inflating across two years. 

It's difficult to pin the phenomenon down to any single event or reason, but we can broadly focus on two forces acting in relation to one another. 

It's not just that people were wealthy back then, but also that their funds had suddenly become more fluid (Credits: Unsplash / Jason Leung)
The first: Singapore's economy was booming. Without diving into an exhaustive list of what was happening, the general sensing one may get from the period is that folks were doing well financially. 

For example, CPF funds were liberalised for investment in 1993 (Ctrl + F 'Basic Investment Scheme' here). The stock market was on a good run. And bank interest rates were low. In essence, people had the cash to spare, and more importantly, they were willing to part with it. (On a side note, there's also the fact that a spanking new initiative - called the 'Goods and Services Tax' - had been recently announced for impending implementation... And at an exorbitant rate of 3% too. We know what occurs when people fear an incoming price hike.)

But there was another issue that cannot be ignored.

Introduced as part of the Vehicle Quota System (VQS), the COE system was only four years old back in 1994. We grumble about it now, but there was objectively more that was wrong with it back then.

Concerns had already been raised about vehicle population growth in the 80s, leading to the implementation of the VQS (Credits: Unsplash / Kylle Pangan)
Car loans at that point had yet to be restricted, meaning that one could effectively borrow close to the full amount for a car, then spread payments out over the entire 10-year period. More importantly, speculation and market manipulation was rife among distributors and dealers with deep enough pockets. For a while, this was even fine by the authorities, who were sold on the principles of free market economics. 

Flipping through the archives will reveal, in particular, that many believed regulations for the transference of vehicle ownership were too loose at that point. This enabled bigger market players to hoard COEs, and then bid aggressively to drive premiums skywards so that they could constantly offload their supply on hand at a profit. 

And so, skywards they went. In December 1994, premiums in Category 4 (for luxury cars, 2,001cc and above) reached an eventual high of $110,500. Category 3 (for big cars, between 1,601 and 2000cc) also managed to exceed $95,000.  

The fallout: $200,000 Honda Accords and Subaru Legacys, unhappy forum letters, and committee reviews  

A Subaru Legacy Wagon would have set a buyer back at least $200,000 at the end of 1994
One might assume, given that annual inflation has mostly held at 3% over the last two decades, that cars were much cheaper in the early nineties. 

But 1993 and 1994 were… a bit different.

The archives provide a fascinating insight into the automotive scene back then, featuring names that younger petrolheads may raise their eyebrows at. One October 1994 article notes that cars like the Ford Laser, Opel Omega, Renault Laguna and Mazda Familia were either newly launched or about to be released. Models that we're more familiar with - like the Honda Accord and Subaru Legacy - were also already around.  

As COE premiums for large cars eclipsed 100k, the Laguna, Accord and Legacy Wagon were all retailing with unbelievable price tags in the territory of $200,000 - and still finding buyers. The Mazda 929 - in all honesty not a car you'd kill to drive - cost $250,000.  

"40-year old professionals" were among the buyers of such cars during this peak, according to one report. Quite a few were buying their second car; some were buying their third. Incredibly too, the end-of-year launch of the new E38 BMW 730i at a starting price of around $460,000 was met with rapturous response, garnering approximately 200 orders.  

The E38 BMW 7 Series (left) is undoubtedly a fantastic machine. About that Dec 1994 price tag, though... (Credits: Unsplash / Philipp Katzenberger) 
We punched all these figures into a calculator provided by the Monetary Authority of Singapore (MAS) for inflation, under the 'Transport' category. Taking 2021 as the baseline (2022 is still work in progress), $200,000 in 1994 balloons to $292,000 now. $460,000 balloons to $672,000. Can we imagine forking out $300,000 for a Honda Accord or Subaru Legacy Wagon? Even $670,000 for a 7 Series is an eye-watering figure.  

But all this was not to remain permanently.  

The uproar was evident everywhere in the papers (and surely on the streets) where both fierce criticisms and earnest pleas for revisions constantly made their rounds. These were clearly heard by the government too, because within two months, a committee had been set up with the intention of trialling revisions to the system, including a curb on car loans as well as tighter transference policies.  

Then and now: The lingering shock of 100k, and where we're headed next  

Just as in the 2011 to 2013 period, family sedans are now ranging between $120,000 - $150,000
It's ridiculous to think that our economy currently possesses the same vitality that it did from 1992 to 1994, and especially so considering we're in the direct wake of the pandemic. So what exactly is moving the needle towards $100,000 right now? 

Let's look back first to 2011 to 2013, the previous period where COE premiums were nearing the six-figure range across all categories. On the one hand, that period is significant because it holds a mirror up to the situation facing us today: It marked a cyclical low in terms of the quota available for COEs. 

But on the other hand, it also came with its own set of issues. Car loans were less restrictive, while luxury makers like Mercedes-Benz and BMW were thriving in a pre-power-capped Category A, for which premiums crossed $90,000 at one point. Both issues were ultimately nipped in the bud.

Unfortunately, there seems to be even more going on today.

A 0% growth rate for Singapore's private car population comes in tandem with efforts to bolster public transport and car-sharing locally 
A probably indefinite freeze on vehicle population growth is now in place, forcing us into full dependency on de-registrations to alleviate COE supply shortages. To complicate things, however, COE revalidations picked up steam sometime in 2015 (although they are now tapering off), throwing expectations of cyclical highs and lows off balance. Combined together, both factors make it difficult to predict exactly when - or if - COE prices will start to become easier to swallow.

In addition, as any non-driver who's always running late will tell you, the idea of a taxi is no longer as it once was. Proper taxis have a separate COE category, but private-hire vehicles - responsible for the bulk of private passenger rides - don't. That's more competition, permanently, across Categories A, B and E. 

An often overlooked part of 1994 is what happened after the spike to $100k. In what is likely still the largest plunge known to COE history, premiums for luxury cars plummeted $45,000 from December to January in response to the news that the committee was being set up to review the system and trial cooling measures. 

The only reason why COE premiums would rise even higher is if demand doesn't fall - or worse, surges even further 
Given that liberal loan policies and speculation were seen as the largest inflators back in the day, waiting around for a similarly precipitous drop in 2022 is a fool's errand. (Unlike 1994, it's also hard to imagine most people freely flinging their money around when the economy is just recovering.) Coupled to that is the fact that the baseline Open Market Values (OMVs) of cars have risen over the years due to rising costs, and most recently, supply chain woes as well. Further reviews are also out of the picture for now; we've already had our fair share of revisions to car taxes over the last two months - albeit not the kind that most have wanted to see

An analyst noted in 1994, when premiums crossed $100k, that the resultant widespread displeasure was indicative that a "threshold of pain had been reached". 28 years on, as we still shake our heads, sigh, and stare in dread at that six-figure line, the same questions surprisingly - or unsurprisingly - remain. 

Is 100k still our threshold of pain? Will it forever be our threshold of pain? Or are people willing to bite the bullet and move the goalposts further (higher), even as a bubbling oil crisis continues to frustrate car ownership?

One can only hope it's the former.
Not ready to leave the complex world of car taxes behind yet? These COE-related articles may interest you! 
Renewing your COE? Here are the 5 key things you should take note of
Death by COE Cat B: Larger premiums work well to delineate luxury cars - unless they're not supposed to be luxury cars
Cars here are invariably depreciating assets - but do we regain some ground when COE premiums skyrocket?

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