Problems Brewing in the COE Market

[Seaweed]

yes you are absolutely right and manage to smell the difference...the 70% loan and max 7 yrs is the critical part why history won't be repeating....

[Galantspeedz]

There are problems brewing in the COE market - BIG problems that will need to be addressed - just what will happen in the next five years is anyone's guess.

 

Take a look at what is happening with the COE right now, I'll only look at Cat B here to keep things as simple as possible, but to my mind there is a huge buble forming that is going to cause a massive shakeout in the near future that the government is going to have to be very clever to counter.

 

The price at the last round was $95,000 - the conventional wisdom is that it will stay high until around 2014 when the "bumper crop" cars start to come up for deregistrations. What is going to happen when this comes about?

 

Well I think if the COE drops appreciably, there is going to be an issue.

 

First of all, a part of what is driving the current high price is the paucity of deregistrations - there are a whole heap of cars currently on the roads with $10-$30k COEs that will not buy at $50k and above. These people are holding onto their cars for all they're worth.

 

IF, with all the cars coming up the price of the COE drops back to say $15k in 2015. What will happen?

 

Let's take a worked example of a Toyota Wish from Borneo.

 

If I buy today, and sell in AUgust 2015, I will get back $82,625 from PARF and COE. Assuming the (factory) price of the car does not move in that time, and the COE is $15K, I will be able to replace it with a brand new car for only $88,000. Meaning I only need to get $5,300 for the body and I get a brand new car FOR FREE.

 

Who wouldn't do this? I certainly would.

 

how much is a wish now? 140k-160k?

 

your assumption is only correct if the buyer had paid a hefty downpayment or paid in full cash..... how many of this people is around?

 

2nd thing.... how you get your PARF of $83k.... COE is pro-rated so you get back $63k.. the balance 20k.... by working backwards ... OMV has to be $26k...

 

I think COE dropping to 15k is too optimistic....... should look at around 30k-40k.. meaning a new car is worth more than 88k

 

previous car price so low got few reasons not only de-reg.....

 

1) saturated market as loans get easier and easier to approved up to a point you get paid for buying a car (everyone already has a car thus COE not in demand)

2) lower ARF. (From 130% to 110% to 100%)

3) Cheaper yen (for jap cars)

4) the bad economy

 

[Liping24cn]

One thing for sure...is LTA is constantly changing the rule of COE quota allotment.

Who knows 2013 budget may announce ARF 10% to offset the high COE price car buyers are paying, as the ARF is not functioning as its original intended mission, that is to make people change car often aka to keep the car population young and trouble free.

The 10years COE rule has effectively made ARF redundant, and also as an added burden tax.

 

Clawback was the new game changer....and the latest was removing taxi from Cat.A.

 

When the mass deregistration does happen in 2015, we can be pretty sure LTA will not be caught sleeping.

 

We only need more owners/citizens to complain about the unfair ARF and sky high COE, changes will come.

Last night we already see for the first time in 47 years, the ministers change to wearing red color Clothings.

 

What else will change? I am very excited and looking forward to the future of Singapore.

 

 

[Darryn]

how much is a wish now? 140k-160k?

 

your assumption is only correct if the buyer had paid a hefty downpayment or paid in full cash..... how many of this people is around?

 

2nd thing.... how you get your PARF of $83k.... COE is pro-rated so you get back $63k.. the balance 20k.... by working backwards ... OMV has to be $26k...

 

I think COE dropping to 15k is too optimistic....... should look at around 30k-40k.. meaning a new car is worth more than 88k

 

previous car price so low got few reasons not only de-reg.....

 

1) saturated market as loans get easier and easier to approved up to a point you get paid for buying a car (everyone already has a car thus COE not in demand)

2) lower ARF. (From 130% to 110% to 100%)

3) Cheaper yen (for jap cars)

4) the bad economy

 

PARF = OMV x 75% if scrapped within 5 years

 

OMV annoucned on sgcarmart pricing

 

According to borneo price listing, Wish is now $168k

[Civic6228]

Did it not happen some years back (mid 2000?) That was the time when even 1 or 2 year old cars were scrapped to recover the expensive COE, then buying a new car with dirt cheap COEs? That was also the time when the PARF formula was revised by LTA to "punish" early scrapping of car.

 

I suppose LTA can always tweak the PARF formula again if it happens.

 

Exactly, nothing new really .... it is just a vicious cycle ...

 

The funny thing is that the initial intention was to encourage people to scrap early but they tweak the PARF to discourage car owners to scrap the car early .... they could tweak the PARF again and there have been discussion about removing the PARF altogether ..... that is to say zero scrap value at the end of ten years ......

[Celicar]

It had already happened before -

 

The batch of cars that had very high COE in the previous spike (1998-2002), the owners all happily deregistered their 2-3 year old cars for a new car at the dealerships at little to no cash outlay because of the high paper value (I recall the scrap value, PARF, etc were higher then). Which is why you hardly see any cars from those years on our roads anymore. What triggered it was probably LTA releasing more COEs onto the market, coupled by moving from 130% to 110% ARF which made cars cheaper. It probably started a chain reaction of deregistrations that gained momentum.

 

I'm not sure that in the next 5 years such a situation can re-occur, because back then, there was the 7 year 70% loan rule so no one was overly leveraged. In today's situation, too many marginal car owners are locked into 10 year 100% balloon loan schemes that renders them unable to move along with market fluctuations.

Correcto.

 

COE hit $100k before what, not as if we have no experience.

 

Plus, now the garmen thinking on COE quota diff already. 1 COE freed up does not mean 1 COE back into the system, because annual car growth % changed.

 

[Darryn]

One thing for sure...is LTA is constantly changing the rule of COE quota allotment.

Who knows 2013 budget may announce ARF 10% to offset the high COE price car buyers are paying, as the ARF is not functioning as its original intended mission, that is to make people change car often aka to keep the car population young and trouble free.

The 10years COE rule has effectively made ARF redundant, and also as an added burden tax.

 

Clawback was the new game changer....and the latest was removing taxi from Cat.A.

 

When the mass deregistration does happen in 2015, we can be pretty sure LTA will not be caught sleeping.

 

We only need more owners/citizens to complain about the unfair ARF and sky high COE, changes will come.

Last night we already see for the first time in 47 years, the ministers change to wearing red color Clothings.

 

What else will change? I am very excited and looking forward to the future of Singapore.

 

Who says the purpose of ARF is not simply to collect more tax?

 

There is always the "real" reason and the "politically palatable" reason

[Civic6228]

PARF = OMV x 75% if scrapped within 5 years

 

OMV annoucned on sgcarmart pricing

 

According to borneo price listing, Wish is now $168k

 

Well, it would meant, a 30k dep per year if the car is bot today and scrap in Y2015 ..... 3 years ownership...

 

168k-80k = 88k/3 = 29.3k

 

Would u do it even if the new car is only 80k in Y2015 ?

 

[Kweechang]

History repeat itself.

 

Why we have low COE Quota now? Reason is simple. During 2004-2008, a lot of cars before 2014 was scrapped due to high scrapped value (High PARF + High COE).

 

So when 2014 come, same thing will happen. Unless GOV do something, otherwise for every 10 year cycle of 20x0 --- 20x4 will have low COE quota. 20x5 - 20x9 will have excess COE. Then, the history will repeat and repeat and repeat until 20x0 --- 20x4 have no more COE quota to bid.

Edited August 10, 2012 by Kweechang

[Joseph22]

History repeat itself.

 

Why we have low COE Quota now? Reason is simple. During 2004-2008, a lot of cars before 2014 was scrapped due to high scrapped value (High PARF + High COE).

 

So when 2014 come, same thing will happen. Unless GOV do something, otherwise for every 10 year cycle of xxx0 --- xxx4 will have low COE. xxx5 - xxx9 will have excess COE. Then, the history will repeat and repeat and repeat until xxx0 --- xxx4 have no more COE to bid.

i dont know. but i think its better they dont do anything and let it happen.. if not, those AD all close next time want to buy car also no brand to buy.

[Darryn]

Well, it would meant, a 30k dep per year if the car is bot today and scrap in Y2015 ..... 3 years ownership...

 

168k-80k = 88k/3 = 29.3k

 

Would u do it even if the new car is only 80k in Y2015 ?

 

Past depreciation does not matter - the money has flown away.

 

If I could "get back" $82k from gubermint for a 3 year old car, and a brand new one of same model cost $88k - absolutely I would do it. You'd be foolish not to.

 

If I could change from $9,500 per year to $2,000 per year depreciation for COE its a big incentive - that $7,500 would cover a lot of other things

[Darryn]

History repeat itself.

 

Why we have low COE Quota now? Reason is simple. During 2004-2008, a lot of cars before 2014 was scrapped due to high scrapped value (High PARF + High COE).

 

So when 2014 come, same thing will happen. Unless GOV do something, otherwise for every 10 year cycle of 20x0 --- 20x4 will have low COE quota. 20x5 - 20x9 will have excess COE. Then, the history will repeat and repeat and repeat until 20x0 --- 20x4 have no more COE quota to bid.

 

Feast / famine or boom / bust cycles are bad for the economy and efficiency.

 

They are bad for people, cause imbalances in market etc etc - a "steady" market will create a "better" (more balanced, more total utility) outcome.

[Blurblur89]

No i support pap decision to have more foreigners.

 

This create demands for everything and keep business alive.

 

You can survive good for you. You cant survive, you can either drown or ask your family to help you

[Civic6228]

Past depreciation does not matter - the money has flown away.

 

If I could "get back" $82k from gubermint for a 3 year old car, and a brand new one of same model cost $88k - absolutely I would do it. You'd be foolish not to.

 

If I could change from $9,500 per year to $2,000 per year depreciation for COE its a big incentive - that $7,500 would cover a lot of other things

 

There is also one major consideration ...... the car is bot at no loan or max of 3 years loan ...... 82k would not be enough to cover the outstanding loan ...... especially for those with high loan and long term repayment...

Edited August 10, 2012 by Civic6228

[Maz0608]

History repeat itself.

 

Why we have low COE Quota now? Reason is simple. During 2004-2008, a lot of cars before 2014 was scrapped due to high scrapped value (High PARF + High COE).

 

So when 2014 come, same thing will happen. Unless GOV do something, otherwise for every 10 year cycle of 20x0 --- 20x4 will have low COE quota. 20x5 - 20x9 will have excess COE. Then, the history will repeat and repeat and repeat until 20x0 --- 20x4 have no more COE quota to bid.

I think they should keep some COEs in the bumper crop years and release them in other years when there is a drought in COEs. This will help keep car prices consistent and at the same time acheived the objective of keeping car population in check.

[Royho1979]

Any thoughts?

 

My concern is how the increasing COE will have an impact on the aggregate demand that would impact the economy, at a time when the whole economy is heading into stormy waters. COE works like a tax, and we all know that taxes impact the economy negatively, unless the gov uses the revenue and spend it back into the economy to keep the money in circulation.

 

I understand the intent of COE, but at the end of the day, the number of cars on the road is really limited by the number of COEs the gov is issuing, not the price. The price decides where the COE goes to.

 

We need a brand new system of allocation.

[Liping24cn]

I think they should keep some COEs in the bumper crop years and release them in other years when there is a drought in COEs. This will help keep car prices consistent and at the same time acheived the objective of keeping car population in check.

 

How can play cheat like this? It will never be accepted by car buyers.

The idea that COE is fair because it's due entirely to demand and supply must be shown to be true!

 

Cannot anyhow hold back supply to create artificial demand spike. Car buyers not stupid leh. Many will make alot of noise if authority dare to do it so openly.

 

[Duckduck]

Supply demand forecast is fine for an steady state world, but u cant forecast a global recession & when it hits. When it happens, even garmen cant do anything abt it. Scrap value will also drop due to less demand overseas.

 

easiest way to survive here is to buy car during recession, & so far for the last century, it has happened abt every 10yrs, so the next to hit is prob 2017-2019.