COE premiums spike after government eases car loan curbs

Singapore

IN the first tender since the recent easing of car-loan restrictions by the government, the spike in demand for certificates of entitlement (COEs) drove up premiums to their highest levels since December last year.

In fact, premiums are expected to continue rising in the near term.

Raymond Tang, first vice-president of the Singapore Vehicle Traders Association, said: "The recent easing of car loan restrictions by the Monetary Authority of Singapore (MAS) is the biggest factor behind the increase.

"The move has pushed those previously on the fence into the car-buying market, and this will continue to be the case."

Premiums for COEs in category A, for cars below 1,600 cc or 130 hp, jumped by S$6,674 to S$53,694 on Wednesday. This was the highest since the second round of bidding last December.

For cars above 1,600 cc and 130 hp, Cat B premiums spiked by S$6,844 to reach S$56,000, the highest since the first tender in December.

In Cat E, the open category which can be used for any vehicle type but ends up being used mostly for bigger cars, premiums climbed S$5,400 to S$55,100. This was also the steepest since December.

COE premiums for goods vehicles, which fall into Cat C, rose by S$3,432 to reach S$46,434.

The only category where premiums fell was in Cat D, for motorcycles - but even so, the fall was just S$1 to S$6,302.

MAS relaxed the more than three-year-old vehicle financing restrictions for car buyers on May 27, following what it said was sustained moderation in COE premiums.

Now, buyers can borrow up to 70 per cent of the car price and pay it back over up to seven years instead of five.

CIMB economist Song Seng Wun said MAS' move comes after households' car loan debt eased, with auto-financing as a percentage of gross domestic product having fallen since 2004.

With households holding healthier balance sheets, potential car buyers will enter the market for COEs as loan restrictions ease, he said.

Mr Tang said that while COE bids put in by ride-booking companies like Uber and Grab boosted demand, the increase this time round was due to more buyers entering the market after the loan curbs were relaxed.

And going by the strong demand for COEs in the latest tender, premiums can only go up in subsequent bidding exercises, he added.

The strong demand was underscored by the number of bids received.

In particular, COEs for passenger cars in non-transferrable categories were oversubscribed by a factor of two. There were 4,545 bids for Cat A's 2,213 quota; Cat B received 3,436 for its quota of 1,463.

Taken together with the marked price increase, Mr Tang surmised that these bids were done deals rather than buyers putting in bids hoping to get lucky. This meant that more car buyers, prompted by the easing of loan curbs, have signed off on car-buying deals.

"With COEs being oversubscribed this time round, orders will have to be carried over into the next few rounds. Together with more buyers joining the fray after seeing what happened this time round, premiums can only go up," he said.