New Reporter
02-01-24, 08:36
High COE prices will not hurt private housing demand
Leslie Yee
Jan 01, 2024
CAR buyers will heave a sigh of relief, especially those looking for higher-end cars.
Prices for all certificate of entitlement (COE) categories fell in December’s second round of bidding, with the largest reduction seen in the category reserved for more powerful cars. Prices for Category B fell 15.4 per cent, or S$20,099.
A bane of car buyers is the need to buy a COE, which has a finite life.
All vehicles in Singapore require a COE. To register a vehicle, one must first bid for a COE. A successful COE bid allows one to own a vehicle which can be used on the road for 10 years.
Compared to early 2020, when prices of Category A and B COEs were below S$40,000, Category A and B COEs have more than doubled to S$85,000 and S$110,001, respectively, in the latest bidding exercise.
Category A COE applies to cars with engines up to 1,600 cc in capacity and maximum power output of up to 97 kilowatts (kW), or for electric vehicles (EVs) with up to 110 kW. Category B is for cars with engines above 1,600 cc or maximum power output above 97 kW, or EVs with over 110 kW.
The COE price for Category E, the Open category, which can be used to register any type of motor vehicle except motorcycles, was S$118,388 in the latest bidding exercise.
Roads occupy about 12 per cent of land in land-constrained Singapore. To manage the number of vehicles using the roads, the vehicle growth rate has been zero for all categories except Category C, for goods vehicles and buses since February 2018.
COE prices could moderate further in 2024 due to an expected increase in supply.
However, given the government’s strict stance on managing the vehicle population growth, population increase and rising income levels as well as Singapore’s pull with the super-rich, COE prices, especially for larger cars, may remain high and possibly rise further over the long term,
Household budgets
Do high COE prices for cars hurt private housing demand?
A cash-rich buyer who pays more to buy a car may have to trim his budget on a home purchase accordingly.
Servicing the car loan is much costlier, with higher interest rates and car prices for a buyer who uses a loan.
Financial institutions have to compute the total debt servicing ratio (TDSR) of applicants for property loans. This is done by dividing the borrower’s total monthly debt obligations over his gross monthly income. The TDSR threshold is capped at 55 per cent of the borrower’s monthly income.
In short, a borrower, who takes on a higher burden of servicing a car loan, sees his borrowing capacity for a home purchase curtailed.
Weaning off car ownership
Nonetheless, counter-intuitively, high COE prices for cars might boost housing demand.
Recently, it was reported that around one-third of Singaporean and permanent resident households own cars here, down from 40 per cent in 2013, as the government nudges the country towards being car-lite.
Perhaps, as proportionately fewer households own cars, the premium for homes located close to MRT stations will rise.
Critically, more households may adapt and do away with car ownership or reduce the number of cars they own.
Many young professionals could drop car ownership aspirations because of high COE prices and going green. Some car-owning households may give up on car ownership and reap huge savings in the process.
Affluent households may forgo the convenience, which comes from owning multiple cars, or invest less in collecting cars amid high COE prices.
For many residents here, their quality of life is hardly affected from not owning a car, given the ever expanding MRT network and cycling paths as well as the widespread availability of ride-hailing services.
Even people not living near an MRT station can easily access it by public bus or bicycle as the rail network expands.
Many high earning potential private homebuyers may not be car buyers. Such households could in turn allocate more of their income to buying a dream home.
COE vs ABSD
For locals, paying Additional Buyer’s Stamp Duty (ABSD) on the purchase of a home for investment can be more palatable than paying for a car’s COE.
The ABSD rates applicable to a Singapore citizen are 20 per cent for buying a second home, and 30 per cent for buying a third and subsequent home.
For a buyer who pays ABSD of S$300,000 on a S$1.5 million leasehold home, the ABSD plus Buyer’s Stamp Duty payable amounts to about 23 per cent of the purchase price of the home.
https://i.imgur.com/S7wFWXr.png
Depreciating the total stamp duty payable over land lease outstanding of say 90 years, on a straight line basis, translates to annual depreciation of slightly over S$3,800.
In contrast, paying S$110,000 for a COE on a high-end car that costs S$250,000 excluding COE translates into the COE accounting for 44 per cent of the vehicle’s cost excluding COE.
Depreciating the COE over 10 years on a straight line basis works out to annual depreciation of S$11,000.
Possibly, the wealthy will prefer paying ABSD to buy multiple homes versus paying for COEs to buy cars, especially as homes could likely outperform cars in capital appreciation.
Housing developers here may gripe whenever the government intervenes to ensure a stable housing market.
Launch strategies of new condominiums have to adjust when property cooling measures are suddenly introduced. Hiking ABSD to 60 per cent for foreigners buying homes here has hurt demand for luxury condominiums.
Still, housing developers serve a growing market in Singapore, as the government releases more land to build private homes to meet population growth, rise in household formation and rising housing aspirations.
Developers may even be able to rely on many residents possibly spending more of their income on home purchases.
While many people grumble about high COE prices, having a car-lite Singapore can improve the living environment here and possibly benefit homeowners.
In future, property developments may use less land to build car parks and hence have more space for other uses. Also, existing condominiums might convert some car park spaces to more productive uses, thereby enriching home owners.
https://www.businesstimes.com.sg/opinion-features/high-coe-prices-will-not-hurt-private-housing-demand
Leslie Yee
Jan 01, 2024
CAR buyers will heave a sigh of relief, especially those looking for higher-end cars.
Prices for all certificate of entitlement (COE) categories fell in December’s second round of bidding, with the largest reduction seen in the category reserved for more powerful cars. Prices for Category B fell 15.4 per cent, or S$20,099.
A bane of car buyers is the need to buy a COE, which has a finite life.
All vehicles in Singapore require a COE. To register a vehicle, one must first bid for a COE. A successful COE bid allows one to own a vehicle which can be used on the road for 10 years.
Compared to early 2020, when prices of Category A and B COEs were below S$40,000, Category A and B COEs have more than doubled to S$85,000 and S$110,001, respectively, in the latest bidding exercise.
Category A COE applies to cars with engines up to 1,600 cc in capacity and maximum power output of up to 97 kilowatts (kW), or for electric vehicles (EVs) with up to 110 kW. Category B is for cars with engines above 1,600 cc or maximum power output above 97 kW, or EVs with over 110 kW.
The COE price for Category E, the Open category, which can be used to register any type of motor vehicle except motorcycles, was S$118,388 in the latest bidding exercise.
Roads occupy about 12 per cent of land in land-constrained Singapore. To manage the number of vehicles using the roads, the vehicle growth rate has been zero for all categories except Category C, for goods vehicles and buses since February 2018.
COE prices could moderate further in 2024 due to an expected increase in supply.
However, given the government’s strict stance on managing the vehicle population growth, population increase and rising income levels as well as Singapore’s pull with the super-rich, COE prices, especially for larger cars, may remain high and possibly rise further over the long term,
Household budgets
Do high COE prices for cars hurt private housing demand?
A cash-rich buyer who pays more to buy a car may have to trim his budget on a home purchase accordingly.
Servicing the car loan is much costlier, with higher interest rates and car prices for a buyer who uses a loan.
Financial institutions have to compute the total debt servicing ratio (TDSR) of applicants for property loans. This is done by dividing the borrower’s total monthly debt obligations over his gross monthly income. The TDSR threshold is capped at 55 per cent of the borrower’s monthly income.
In short, a borrower, who takes on a higher burden of servicing a car loan, sees his borrowing capacity for a home purchase curtailed.
Weaning off car ownership
Nonetheless, counter-intuitively, high COE prices for cars might boost housing demand.
Recently, it was reported that around one-third of Singaporean and permanent resident households own cars here, down from 40 per cent in 2013, as the government nudges the country towards being car-lite.
Perhaps, as proportionately fewer households own cars, the premium for homes located close to MRT stations will rise.
Critically, more households may adapt and do away with car ownership or reduce the number of cars they own.
Many young professionals could drop car ownership aspirations because of high COE prices and going green. Some car-owning households may give up on car ownership and reap huge savings in the process.
Affluent households may forgo the convenience, which comes from owning multiple cars, or invest less in collecting cars amid high COE prices.
For many residents here, their quality of life is hardly affected from not owning a car, given the ever expanding MRT network and cycling paths as well as the widespread availability of ride-hailing services.
Even people not living near an MRT station can easily access it by public bus or bicycle as the rail network expands.
Many high earning potential private homebuyers may not be car buyers. Such households could in turn allocate more of their income to buying a dream home.
COE vs ABSD
For locals, paying Additional Buyer’s Stamp Duty (ABSD) on the purchase of a home for investment can be more palatable than paying for a car’s COE.
The ABSD rates applicable to a Singapore citizen are 20 per cent for buying a second home, and 30 per cent for buying a third and subsequent home.
For a buyer who pays ABSD of S$300,000 on a S$1.5 million leasehold home, the ABSD plus Buyer’s Stamp Duty payable amounts to about 23 per cent of the purchase price of the home.
https://i.imgur.com/S7wFWXr.png
Depreciating the total stamp duty payable over land lease outstanding of say 90 years, on a straight line basis, translates to annual depreciation of slightly over S$3,800.
In contrast, paying S$110,000 for a COE on a high-end car that costs S$250,000 excluding COE translates into the COE accounting for 44 per cent of the vehicle’s cost excluding COE.
Depreciating the COE over 10 years on a straight line basis works out to annual depreciation of S$11,000.
Possibly, the wealthy will prefer paying ABSD to buy multiple homes versus paying for COEs to buy cars, especially as homes could likely outperform cars in capital appreciation.
Housing developers here may gripe whenever the government intervenes to ensure a stable housing market.
Launch strategies of new condominiums have to adjust when property cooling measures are suddenly introduced. Hiking ABSD to 60 per cent for foreigners buying homes here has hurt demand for luxury condominiums.
Still, housing developers serve a growing market in Singapore, as the government releases more land to build private homes to meet population growth, rise in household formation and rising housing aspirations.
Developers may even be able to rely on many residents possibly spending more of their income on home purchases.
While many people grumble about high COE prices, having a car-lite Singapore can improve the living environment here and possibly benefit homeowners.
In future, property developments may use less land to build car parks and hence have more space for other uses. Also, existing condominiums might convert some car park spaces to more productive uses, thereby enriching home owners.
https://www.businesstimes.com.sg/opinion-features/high-coe-prices-will-not-hurt-private-housing-demand