Boston, MA -- (SBWire) -- 08/12/2013 --The introduction of tough new car loan curbs by the Monetary Authority of Singapore (MAS) has caused us to re-evaluate our position on Certificate of Entitlement (COE) prices. We now expect them to dip in the short term but still remain higher than 2010 levels as car demand will continue to outstrip the supply of COEs. We see added support for our bullish view on motorbike sales given that the financing curbs do not apply to them. The impact of the curbs will be felt strongest by the middle-class given their genuine need for vehicle financing in order to afford a car.
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Possible Reasons For The Curbs
While consumers have clamoured for restrictions on car loans in the past few years to cool the overheated COE market, we see the introduction of the new curbs by the MAS as more of a policy to encourage financial prudence among buyers and lenders, than as a tool to target COE prices directly. As COE prices have gone through the roof in the past few years, it does not make good financial sense to take out a 100% loan on a new car whose value is going to depreciate at an accelerated pace in the first few years.
Surge In Category A COE Prices
The second bidding round for COEs in April saw the price of small car COEs ending up higher than those for big cars. This is the second time such a phenomenon has occurred since the new curbs on car loans were introduced.
COE prices have continued to trend downwards since the loan curbs were announced, in line with our view. Prices will continue to correct and find their new equilibrium in the coming months as the market slowly digests the new lending curbs. While it is probable that small car COE prices will go back to being cheaper than bigger cars in the next few bidding cycles, one major implication we see for the narrowed differential between the two categories is the continued support to premium car sales, which it will provide.
We also see the strong demand in Category A vehicles (small cars) showcasing the rising dissatisfaction with public transport among Singaporeans. Broadly speaking, there are two main forms of transport available in Singapore - public and private transport. Within private transport, the main categories are motorcycles, small cars and big cars. The strong demand for small cars suggests to us that some people taking public transport have now decided to spend the extra money and make the switch to private transport.
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"Singapore Autos Report Q3 2013" Published
Recently published research from Business Monitor International, "Singapore Autos Report Q3 2013", is now available at Fast Market Research