COE supply set to rise from next month after 7-year slide

But 25% increase unlikely to ease pressure on premiums significantly

The supply of certificates of entitlement (COEs) for cars is set to rise from next month after shrinking for the last seven years.

The increase, however, is unlikely to quell overheated premiums fuelled by pent-up demand - at least not significantly.

According to estimates based on the number of cars scrapped in the first two months of the year, the number of COEs available for cars in the May-July period should be around 2,240 a month - or around 25 per cent more than the current quota.

COE supply, formulated quarterly, is based largely on the number of vehicles deregistered in the preceding three months.

After a seven-year slide, the supply of car COEs is now about one-fifth of its peak in the mid-2000s. The increase from next month will be the first upturn since supply started shrinking in 2007.

But motor industry players warn that the imminent supply increase will not have a significant impact on prices.

Mr Ricky Tay, the immediate past president of the Singapore Vehicle Traders Association, said: "It will ease pressure and cool down the market slightly, but the supply is still not big enough."

The veteran motor trader said it will take up to the later part of this year for premiums to ease further.

Mr Ron Lim, general manager of Nissan agent Tan Chong Motor, concurs. He said the premium for Category A (for cars up to 1,600cc and 130bhp) - now hovering above $78,000 - could fall to "the low $70,000s", but not further.

"This is because replacement demand is high," he said, noting that motorists have been holding on to their cars right up to the end of their statutory lifespan of 10 years.

An estimated 30,000 cars will be scrapped this year, up from 18,000 last year.

And between next year and 2017, more than 100,000 cars will be scrapped each year, according to estimates based on the age profile of vehicles here.

This, in turn, means COE supply will surge between next year and 2017. Together with the car loan curbs and higher taxation for bigger cars, premiums should ease further.

Again, motor traders said prices will not fall as fast - or much - because there is a time lag between the time a car owner starts shopping for a car and the time he actually scraps his car.

This time lag creates a mismatch between demand and supply. It was precisely why the Land Transport Authority (LTA) moved to a "deregistration forecast" method in 2000 to determine COE supply.

But that method had its pitfalls too, as forecasts were seldom accurate. That was why it has reverted to formulating quotas based on past deregistrations.

The motor trade and academics have been advocating a quota formula delinked from deregistrations for a more even supply pattern in the long term.

The LTA said it is still studying that proposal, among others.

Meanwhile, Mr Tay said "only the rich are buying cars today", echoing the observation of other motor traders.