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The Big Read: Despite sky-high COE prices, Singaporeans’ car dreams never fade

SINGAPORE — Not long after getting his driving licence, car enthusiast Mohammad Izzraimy Mohammad Isham made an “impulsive” purchase — a second-hand Honda Civic for around S$28,800.

Premiums for Certificate of Entitlement (COE), which form a big chunk of a car’s final price tag, have been hitting new highs this year at various bidding exercises. Besides pushing up car-owning costs, the upward trend also indicates an increasing demand for cars.

All this is happening while Singapore is making inroads in improving its overall transportation system, and other commuting choices become more readily available.

Currently seven in 10 households are within a 10-minute walk to a train (MRT or LRT) station, with the proportion set to increase to eight in 10 by the next decade, said Transport Minister S Iswaran in Parliament in May. 

While the private car population had declined slightly — from about 535,200 in 2012 to 532,300 in 2022 — the number of private-hire cars grew significantly over the same period: From under 15,000 to about 72,600.

This has prompted calls to carve out a separate COE category for such cars or to put a cap on its population, to which the Government has said it would continue to monitor the impact of such cars on the premiums.

Industry players and observers as well as car owners themselves told TODAY that the strong desire for car ownership can be attributed to the convenience and time savings offered by a car as opposed to other transport options as well as non-tangible factors — and how much Singaporeans are willing to pay for that difference.

Though as Singapore remains steadfast towards becoming a car-lite society, inevitably many who aspire to own a car in the future may not be able to. While frustrations may arise, the impact may be limited as Singapore still has a strong transport system in place serving the majority. 

COST OF OWNING NEW OR USED CARS 

In the latest bidding exercise on Oct 4, prices hit record highs for large cars and vehicles in the Open category for the fifth consecutive time.

Category B premiums for large cars (above 1,600cc or 97kW) or fully electric cars with output over 110kW saw premiums jump from the previous high of S$140,889 in the last bidding exercise to S$146,002. 

Prices leapt by 5.09 per cent from the previous high of S$144,640 to S$152,000 for the Open category, which can be used for any type of vehicles except motorcycles.

Premiums in Category A for small cars (up to 1,600cc & 97kW) or fully electric cars with output of up to 110kW was the only category that saw a drop in the latest exercise, going down by 0.95 per cent to S$104,000.

Based on the latest figures in August compiled by Onemotoring, here are the recent price tags of some cars, before and after COE:

The Open Market Value (OMV) refers to the price payable for a car when it is first imported into Singapore, and is the actual price of the vehicle before all taxes and other surcharges.

A Honda Jazz, a Category A car, had an average OMV of S$22,315. Inclusive of various surcharges, its basic cost without COE amounted to S$37,511.

After adding the prevailing COE of S$99,499 for its category, the cost would jump more than 265 per cent to S$137,010.

A BMW 735I, a Category B car, had an average OMV of S$101,743, basic cost of S$362,787 before COE, which eventually amounted to S$489,676 after COE.

Some Singaporeans who took the car-plunge recently told TODAY that they had bought second-hand vehicles, as it made “more sense” than buying brand new cars, given the prevailing premium prices.

Mr Syahiran Masli, 33, bought a 13-year-old Mitsubishi Lancer in October last year for slightly under S$90,000.

The prevailing premium for a new car in that category that month was already over S$80,000.

The car owners who spoke to TODAY generally spent up to 30 per cent of their monthly income on car-related expenses, which would typically include monthly instalments for car loans, electronic road pricing and parking charges, petrol as well as other outlays for insurance, road tax as well as maintenance and repairs. 

Rising interest rates — which would bump up refinancing costs — as well as higher pump prices (from about S$2.50 per litre in October 2021 to around S$2.90 earlier this month) make the price of owning a car all the more prohibitive.

A father of two, who wanted to be known by his first name Calvin, spends about S$3,500 a month on such expenses. The financial adviser, however, told TODAY that his monthly income is not fixed as it is tied to commissions.  

Meanwhile, Mr Ben Tan, 40, spends about S$800 a month on expenses related to the car that he had bought just before Chinese New Year this year.

However, the project manager said he used about nine months’ worth of savings to pay in cash the full price of S$90,000 for his 13-year-old Mercedes. 

HOW MUCH IS TOO MUCH FOR A CAR?

To encourage prudent borrowing and spending, the Monetary Authority of Singapore (MAS) has limited car loan tenures to seven years, with a downpayment of 30 to 40 per cent required depending on the car value.

Financial advisors who spoke to TODAY generally advised capping car expenses to under 15 per cent of one’s monthly income or lower. 

Mr Joel Koh, content manager at personal finance platform Seedly, said one should aim to spend “no more than 15 per cent of your monthly take-home pay”.

He said one could spend more, provided they still have enough to pay for other necessities and save at least 32 per cent of their take-home pay, based on the national personal savings rate for the second quarter of the year.

“But that might not be the best thing to do as you might need to spend more for certain months due to unforeseen circumstances,” he added.

Managing editor and co-founder of personal finance site Dollars & Sense, Mr Timothy Ho, suggested a cap of 10 per cent of one’s monthly salary or a year’s worth of one’s income for car-related expenses.

“For example, if we earn S$10,000 a month, we can look to consider getting a car that is not more than S$120,000, which I am not sure if there is any brand-new car we can purchase today given the budget,” said Mr Ho.

“Or not to spend more than S$1,000 a month on our car, which is also extremely difficult today given the high COE cost.” 

However, he said it ultimately depends on the individual’s circumstances and their financial commitments, such as existing debt and money allocated for family members, among others.

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WHO IS WILLING TO FORK OUT ON CARS… AND WHY?

People usually own cars for two broad reasons: For a faster and more convenient means of transportation; or they enjoy driving or believe certain cars “provide a certain social status”, said transport economist Walter Theseira.

“In reality, many Singaporeans buy cars for both reasons in some mixture,” said the associate professor from the Singapore University of Social Sciences (SUSS).

Mr Iswaran in his May statement in Parliament said that as of Oct 31, 2022, there were 471,000 households that owned cars — or 36 per cent of all households in Singapore.

Mr Raymond Tang, managing director of Yong Lee Seng Motor which deals in pre-owned and used cars, said that a majority of his customers are existing car owners.

“Only about 20 per cent of my customers are getting cars for the first time,” he said.

“Some of these new buyers, their parents give them a down payment to get a car. (Others) are young parents themselves, who want cars for convenience to bring the family around.”

Similarly, Mr Desmond Chan, deputy editor at online car portal and marketplace Sgcarmart, said existing car owners make up “a large proportion” of car buyers.

“For existing car owners, purchasing a new car is largely consequent on being accustomed to the convenience and practicality of car-ownership,” he said.

Meanwhile, Mr Kuanyu Tan, country head for Singapore at online car marketplace Carro, said: “Despite the rising cost of car ownership, about 60 per cent of our customer base are first-time buyers.”

He added: “We’re seeing demand on the rise. We sold over 3,000 cars in Singapore during our financial year 2023 (April 2022 till March 2023) and are on track to see numbers grow for financial year 2024.”

However, some industry players observed that the demand may not be even across all customers.

Mr Amos Wong, general manager of Autolink Holdings, said that prices of second-hand cars are also rising as existing car owners know that a new car of similar model now can fetch a much higher price than when they bought it a few years ago.

“So the more price conscious buyers looking for smaller, ‘bread and butter’ type of cars are slowly being priced out,” said Mr Wong.

Based on TODAY’s interviews, some common reasons for buying a car are: 

Necessity for family and work

Like Romulus, it was fatherhood that prompted Calvin the financial adviser to have his own car.

“Sometimes if around midnight you suddenly find yourself needing to rush to hospital because your kids are sick, you won’t want to be waiting for a cab or going around finding a car-sharing vehicle,” he said.

Earlier this year, he had to rush his younger daughter to KK Children and Women’s Hospital at 1am when she ran a 40°C fever.

Having the assurance of his own car was worth the premium that he had to fork out for, Calvin said.  

For Mr Amirul Azam, director of photography at media company Blissful Studios, he initially relied on rented cars to bring his equipment around for shoots.

But as his business recovered after the Covid-19 pandemic, it made more sense to buy his own car, he said, which he did sometime in April 2022.

“Renting a car with a similar usage pattern, just rental costs alone would reach around S$2,000 (a month),” said the 33-year-old. 

“If I were to take taxis or PHVs, it would amount to around S$1,300, though I would be at the mercy of the car availability, or lack thereof.”

Comfort and convenience

Mr Syahiran told TODAY that he managed to get by for about a year with just public transport when he had his first child.

He decided to get a car a year ago as he had switched to a new job that offered more income, and at the same time his wife was expecting their second child.  

Yet, he opined that a car is not strictly necessary to lead a family life.

“I mean, at the end of the day, some people grew up without cars, even with  three, four children. So it’s not impossible — (it is) just what kind of comfort level we want,” said Mr Syahiran, who recently switched jobs again and is now a financial advisor.

Similarly, Mr Ben Tan the project manager, who lives in Pasir Ris, uses his car mainly to travel for work and for leisure sports activity. 

“It’s definitely something you can do without, it’s just more convenient,” he said.

Passion and Image

Associate Professor Nitin Pangarkar from the National University of Singapore Business School said that one cannot discount the “face” factor behind some Singaporeans wanting to own a car.

Such was the case for entrepreneur Aaron Rylan Keder, 35, who earlier this year bought a used Lamborghini Aventador Superveloce, a limited edition supercar, which he paid in excess of S$1 million for.

He said that when one goes for a business meeting, chances are the other party would have already done a background check on the person.

“With me buying or owning a supercar, it gives a sense of trust, sense of accomplishment to this individual, way before he meets me in person,” said Mr Aaron, who has businesses in finance advisory, renovation and property facilities management.

He said that owning certain cars also gives one membership to some enthusiast groups and exclusive clubs, which provides invaluable business networking opportunities.

Mr Chan from Sgcarmart noted that the luxury car segment has seen “the most notable growth” over the last 10 years.

“This is especially true in this current high-COE climate. The luxury segment is typically less price-sensitive when it comes to COE changes,” he added.

Assoc Prof Theseira said that the aspirational factor behind wanting to own cars has remained important to some buyers.

“The fact is that luxury car brands in Singapore continue to do well, even though today, mass market brands often have similar levels of safety, equipment, quality, and features,” he said.

Underpinning all these was the fact that, according to some observers like Assistant Professor Terence Fan from Singapore Management University, Singapore’s overall economy did relatively well in spite of the Covid-19 pandemic.

“This is reflected in this statistics, that the income for Singaporeans in general, the median or above seems to be increasing,” he said, adding that such individuals would be more willing to pay to save time on travelling.

MAKING CAR PURCHASES MORE PALATABLE

As COE premiums soar, the market is reacting in various ways to allow people to own — or at least effectively own — their cars in ways that seem more manageable.

Some dealers like Mr Tang of Yong Lee Seng would advise their clients who already have a car to trade in their cars every two years or so.

“That way, the car will still retain value because it’s not too old. Then, you just have to top up a little more to get a newer car — better than using a car until the end of life and then forking out a big sum to get another car afterwards,” Mr Tang said.

However, as car owners expect that their existing cars can fetch higher value due to the high costs of COEs today, some dealers have no choice but to sweeten the deal to entice these owners to sell their car — before these owners go on to buy a new one.

Chief operating officer of CarTimes Group, Mr Benjamin Loo, said his firm has to offer higher prices to these owners, which would naturally cut into the company’s margins.

“We also offer things longer warranty, lifetime warranty for their vehicle as well — anything that we can throw in, basically,” he added.

Besides turning to the second-hand market, some, like Mr Izzraimy, spend a few extra hours after work to monetise their car as carpool or PHV drivers.

“Everyday they (Ryde carpool app) allow you to do four carpool pick-ups. I’ll use an hour maximum for each pick-up, so up to four hours (extra) a day,” he said.

Mr Izzraimy added that he typically earns around S$10 a trip, which goes to offsetting his car-related expenses.

Under the law, a motorist is allowed to make only two paid carpool trips a day.

Ryde said on its website: “We advise our drivers to adhere strictly to LTA (Land Transport Authority) regulations. Carpool drivers may accept up to two pick-ups along the way for each trip.”

Ride-hailing platforms that TODAY reached out to declined to share the proportion of their driver partners who are driving on a part-time basis.

Car owners who spoke to TODAY highlighted that some dealers offer zero-per cent down payment options when buying cars on loan, though this would typically entail higher monthly repayments.

The car owners, however, were not sure how dealers do this in view of the minimum down payment requirement set by MAS. 

The issue was also brought up in Parliament in May, when Leader of Opposition Pritam Singh asked if the Government was looking into loopholes in the car loan curbs “because it is not uncommon to hear of dealerships offering 100 per cent loans and things of that nature”.

In his response, Minister of State for Trade and Industry Alvin Tan said: “The short answer is MAS will work with MOT (Ministry of Transport) to monitor the situation in the COE market.” 

Such motor vehicle loan financing rules apply to car loans offered by financial institutions regulated by MAS.

Non-financial institutions like car dealers, however, are still subject to similar restrictions regulated by Registry of Moneylenders under the Ministry of Law.

Another way for Singaporeans to enjoy the benefits of having their own car without a hefty upfront outlay is via car leasing.

Mr Tan of Carro said that car leasing has always been popular on its platform.

“We’ve seen an increase for long-term leases, as COE trended upwards in the past few months,” he said.

“Consumers are willing to lock in their leasing rates for at least one to two years to fix their financial commitment towards car ownership and to protect themselves from a price hike from the rising COE prices.”

However, industry players explained that the rental price is typically higher than the monthly instalment for buying a similar car, as the rental would also cover costs such as insurance and maintenance. 

For example, car dealer Wearnes lists a VolvoXC90 for lease from S$6,900 a month.

In comparison, a similar new car listed on Sgcarmart costing S$441,000 can be bought with a down payment of S$176,000 and a monthly instalment of around S$3,800 for seven years.

Mr Chan of Sgcarmart said that the platform does not have specific figures to indicate demand for car leasing.

“However, based on LTA data, the population for ‘company cars’, which car leasing falls under, has grown a fair bit in recent years. So certainly, at least from a supply side, car leasing is on the uptick,” he added.

LTA data showed that the number of such cars had grown incrementally from 21,403 in 2012 to  24,610 in 2019. It then surged by about 26 per cent in a year to 30,966 cars by 2020, before growing even further to 35,109 in 2022.

Industry players such as Mr Tang of Yong Lee Seng also said that they have seen some users turn to lease-to-own arrangements.

This is done with some dealers offering to sell back a car to its customer after a lease period, sometimes at a preferential rate.

One perceived advantage is that such schemes offer the driver a quasi form of car ownership minus the hefty down payment.

Another perk for consumers, according to the websites of some of the car dealers offering such arrangements, is that the amount paid through lease-to-own arrangements does not count towards an individual’s total debt servicing ratio, a threshold of a borrower’s monthly income set by MAS to encourage prudent borrowing. 

TODAY understands that lease-to-own financing arrangements are not subject to motor vehicle financing rules as they are more akin to car rental.

As such lease-to-own arrangements are unregulated, the terms and conditions will be different across companies.

Buyers should therefore be cautious of any arrangements which purport to confer ownership of a car with no down payment or provide a 100 per cent loan when in effect consumers are merely leasing it. 

They should also be clear about what the transaction and lease entail, such as the requirement to make repairs to the vehicle which may mean higher costs for the lessees.

THE ROAD AHEAD

As the Government continues its push for a car-lite society in land-scarce Singapore, it is inevitable that many would not be able to fulfil their dreams of owning a car, some experts noted.

Dr Tan Ern Ser, an associate professor of sociology from the National University of Singapore, said that such unfulfilled aspirations might be a cause for concern.

“But Singaporeans are also pragmatic people who could make the adjustments, especially if our public transport system has last-km convenience,” he said, referring to the distance between one’s residence and public transport.

Agreeing, Asst Prof Fan of SMU noted how Singapore has build up many new residential areas in recent years, which may not yet be well-linked to public transport nodes.

Improving such connectivity could go a long way in improving travelling experience and disincentivise residents there from turning to private cars, he said.

Mr Loo of CarTimes said that at the end of the day, cars are not strictly necessities for most people.

“Whoever can afford the luxury to pay for convenience and time saved, they will continue buying cars,” he said.

While Assoc Prof Pangarkar also noted that not owning a car may lead to some frustrations, he added: “This is not that big (a) frustration. I think if (more basic things) like Housing and Development Board flats or public transport become unavailable, that would be a bigger problem.”

He added that even if not everyone can afford a car in the future, “so be it”, as the revenue collected from COEs by those who are willing and able to pay for them would eventually be chanelled back to fund public goods for the wider community.

Assoc Prof Theseira of SUSS said that there are still tweaks that can be made to usher the society towards a more car-lite direction — including continuously improving the user experience of other modes of transportation, and even tweaking the way we lead our lives to involve less commuting.

“But ultimately, you cannot tell people that it’s better to go car-lite; they have to find that it is genuinely so, because they get the travel they need done more cheaply and conveniently without a car,” he said.

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