Despite the fact that Singapore is one of the world’s most expensive countries for car ownership, the city-state’s car showrooms these days are filled with customers willing to pay for a car the price of a house in other countries.
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According to Dow Jones, Singapore’s love for cars continues unabated despite the high prices, an uncertain economy and near-record joblessness. Last year, dealers sold 81,000 new cars, 29% more than in 2002.
Easier finance rules and the government’s willingness to open the roads to more cars means more will be sold in 2004 than last year and at prices much lower than in past years, dealers and analysts told the news agency.
As growth in Singapore’s car population in 2004 is expected to still be below the government’s annual 3% cap, the government can auction at least 30,000 more Certificates of Entitlement, or COEs, over the next few years.
The COE is a similar to a licence that gives its buyer the right to purchase a car and often costs as much as the car itself. More COEs means increased supply, which puts COE premiums, and in turn car prices, under pressure, Dow Jones noted.
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By GlobalDataThe Motor Traders’ Association of Singapore, whose members are the main vehicle distributors in Singapore, is also hoping for another bumper year, as economic growth gathers pace.
“We’re hoping for a bigger market this year,” association president Chia Yong Sian told Dow Jones, adding demand so far this year is “certainly” encouraging.
The report said a car in Singapore is as much a mode of transport as it is a status symbol. With Southeast Asia’s highest standard of living and income, Singaporeans aspire to the five “Cs” – cars, condominiums, credit cards, cash and country club memberships.
“It’s one of the five C’s. Do or die, Singaporeans feel they need to own a car. It’s one of the goals to achieve for a household,” Song Seng Wun, an economist at GK Goh Research Pte. Ltd., who refuses to buy a car because of the high prices, told Dow Jones.
A standard 1.6-litre Toyota Corolla costs as much as $S75,000, while a Mercedes E-class can cost as much as a quarter of a million Singapore dollars – enough money to buy a house in Australia. In contrast, the same models can cost about half that in the US and about 30% less in neighbouring Malaysia.
Dow Jones said the reason Singapore’s car prices are sky-high is because the government caps the number of vehicles plying the country’s 3,144-kilometre (about 2100 miles) road network, inflating the total price. The government also discourages car ownership because the city-state has an extensive mass transit and bus system for its four million residents to use.
However, according to the report, the government had a change of heart last year when Singapore’s economy was reeling from the SARS outbreak and the US-led war in Iraq. Joblessness hit 5.5% and the economy shrank by 3.7% in the second quarter.
Last April, the Monetary Authority of Singapore in a surprise move lifted the 30% minimum down-payment rule for the purchase of a car and increased the loan repayment period. Banks can now finance the entire purchase for up to 10 years, Dow Jones said.
“With the relaxed financing rules, it’s now more worthwhile to buy a new car than a second-hand, plus you have the added security of warranties,” a Ford SUV dealer told Dow Jones.
“The combination of low interest rates, and the aggressive push by banks ultimately make cars more affordable than in previous years, and brings that dream closer,” GK Goh’s Song reportedly added.
Dow Jones noted that last April was also when Singapore’s interest rates, particularly for car loans began to fall, triggering demand. From as high as 4% four years ago, interest rates for a car loan have dropped to as low as 2.2% now. In Malaysia, banks charge 4% for a five-year auto loan and 7%-8% in Australia.
The changes last year meant that cars became significantly cheaper to buy. For example, the highly popular 1.6-litre Honda Civic now costs about $S82,500, compared with $S102,000 four years ago. A newly launched two-litre Nissan now goes for just above $S100,000, while the previous model was sold for about S$150,000 in 1999.
Dow Jones said that, while lower interest rates and easier borrowing terms will continue to drive sales in 2004, the vehicle population growth may still not reach the 3% cap as the number of cars scrapped at junkyards or sold overseas, continues to exceed the number of new cars.
In 2003, 110,000 cars were de-registered, compared with sales of 81,000 new cars. On average, however, the vehicle population has increased by about 2.2% annually over the past 10 years, the report added.
Dow Jones said the decline last year reflects the fact that Singaporeans are updating their cars more often, creating new demand.
“People are buying new cars to minimise their depreciation costs. With the COEs much higher a few years ago, the cars they bought then have higher depreciation costs,” a Japanese car dealer told the news agency.
She reportedly said car owners now tend to want to replace their older cars after three years, just after warranties expire, and many prefer to scrap or export their old cars instead of reselling them in Singapore.
