It’s the beginning of the year, and while we are still looking forward to Chinese New Year, let’s take a short glance back at 2018 before we move ahead with our first prediction this year for the month of February 2019 PQP! For those new to our predictions, January’s PQP was predicted and the results out in December of 2018 – that’s how the PQP or COE renewal works
COE prices and PQP (which is the actual price you pay to renew the COE, not the COE bidding price) for those who are here looking into COE renewals, have been on a downward trend for the entire year of 2018, with only slight bump along the way of a very small amount for Cat A from May to June. Cat B saw not a single rise in PQP for the past year!
This is probably a reflection of the overall soft business environment and stagnant incomes (some would argue lower), but in equal fact, also due to some other factors such as new government regulation introduced which made cars more expensive, namely the CEVS transition to VES on the 1st of January 2018 and further being tightened on 1st of July 2018 to include other emission gases other than CO2.
From the list here highlighted by SGCarmart, there is not one car that benefited tax wise from the change to VES. The best cases are neutral – paying the same tax as before – but some cases such as the Toyota Prius Hybrid 1.8 CVT losing their $30,000 registration rebate, effectively means the Prius’ registration cost has increased by that amount.
Mainstream car models such as the Toyota Corolla Altis, Honda HR-V and Nissan Qashqai 1.2T were also hit but a $5000 increase in cost and these are market volume sellers. So you can imagine the impact on the COE bid values? Every car distributor with models affected by increased cost had only two options, sell at a higher price or lower their bids for COE. And looking back at the trend for 2018, my guess is they lowered their bids!
COE & PQP As We Moving Forward
Will it be the same happy news for those hoping to renew their cars this year? As the year 20119 rolls along will we see even lower prices?
Perhaps if we looked at the the factors that are visible as of now for and against a rise in COE prices. Though we keep our eyes open to market sentiment, we are not COE gods and do not know all factors affecting COE bids so do let us know if you think there are other factors you think we should be considering as well!
Factors For COE Fall in 2019
Factor 1: More Motorists Choosing to Renew Their COE
If more people are choosing the renew, it also means that less people are in the market for new cars, and the statistics prove it as our vehicle population’s average age is moving upward. COE renewal is the more budgetary prudent choice, which while more expensive than taking a bus, is not much more so at the current PQP prices for a Cat A 10 year renewal if you ignore the variable maintenance cost that could be low for a Toyota but quite high for an Audi.
Effect: Short term effect of weakening COE bidding, but however, the more renewals in the current quarter, the less number of COEs are released next quarter for bidding. So while the PQP rate is low, and the number of renewals are up due to the attractive pricing, it will result in tightening COE quantity and probable eventual COE price rising in the following quarter. So this is a matter of timing – it is low now, good to renew, but will be a factor to raise COE prices in the coming quarter. Is your car coming up for renewal these two months or after?
Factor 2: Continued Economic Weakness
We’ve already seen the less than perfect economic sentiment we are experiencing right now, but moving forward? It could get worse. The trade war between the US and China don’t seem to be letting up and Singapore is caught in between. Europe is not doing too great either, and we are seeing Brexit unfold. Is there a chance it will not happen? Could be. But the uncertainty of not knowing is not giving a boost to businesses. Stocks and shares are down, and those who advise the rich are saying “look at bonds”.
Cat C weakness, which you could also read as a proxy for commercial activity, since this is the category for commercial vehicles such as vans and lorries, is showing lackluster pricing and vans are going for low prices, while the used commercial vehicle market is ending up with fewer takers for vehicles over ten years as the new ones are looking increasingly better value.
Effect: Longer term weak bidding due to this economic situation, as we don’t see where the sun is shining yet while we are still in this storm. This overall negative effect on the COE should last through 2019 unless we see an unexpected economic upturn.
Factors For COE Rise in 2019
Factor 1: Chinese New Year is around the corner…
and dealers are rushing to deliver cars for the COE, may bid higher for cars due to deliver before the New Year of the Pig rolls in. However, this is short lived and even if it gave a positive bump to COE levels, it may only be temporary and is definitely seasonal.
Effect: Not expected to last, however, if your COE is expiring in say March, then it will definitely affect you since the higher bid will be used in averages for PQP calculation for the 3 months after the bid.
Factor 2: Shrinking supply of COE
Now this is a major factor for the upcoming prices in the COE bids, as we have seen in the current quarter for COE released for bidding, there was a small reduction in the number of pieces of Cat B that is available, and this has been a stabilizing effect on the bid prices. It has been projected that the coming months of 2019, there would be a 10% reduction in the number of COE released for bidding.
Effect: This can be similar for Cat A should the supply of COE also similarly shrink for Cat A. Already we see that Cat B is moving slightly up, and this could mean a plateau or a new uptrend for Cat B. Longer term effect and could be significant in price change should the COE numbers drop by more than expected (could happen if there are more and more COE renewals, which means less COE released for bidding)
Factor 3: Motor Show…
is just over and the response is… Well take a look at the pictures.
Plus, they put it right after the December bonus period, so that more people would have the cash in hand to part with for a down-payment to get that shiny new car. COE bidding could be more competitive in the coming bids after the show depending on the sales achieved. But while it may be crowded, but the key question is how many signed on the dotted line?
Effect: This should similar to Factor 1, be a temporary increase only and will taper off as the cars are delivered and the order books go back to normal.
Factor 4: GoJek’s recent arrival in Singapore…
could result in more new cars on the road for them, should they find the environment conducive for profit. We have been here before, when Uber was the new kid playing up COE prices, and to significant effect as they bid for thousands of cars.
Effect: While Uber did contribute to stubbornly high COE prices and inflated resale prices of cars when they were operating, I believe GoJek management would be well aware of the failed business that Uber was and avoid the same strategy of aggressive asset accumulation through a subsidiary. The effect of GoJek would be muted if any, as there are still ex-Uber cars somewhere around waiting for drivers to step in and drive.
Factor 5: GST Increase…
Will kiasu Singaporeans hope to purchase their cars before the GST goes up to 9%? If we understand this mentality well enough, yes, it will have some effect on the sales of cars prior to the increase, when the salesmen nudge the potential buyers with “but now or later it will be more expensive”.
Effect: While we do see an effect, we believe it will only be one of small effect, with the kiasu being nudged into an earlier purchase instead of later, but not overall increase in sales if averaged out over a longer period. We also do not know for sure when this GST increase will be. So we can likely leave this out of the picture in our considerations.
So What’s Our Verdict?
Stay Tuned to Find Out!
We will reveal our prediction for February’s PQP in the coming few days! February 2019 PQP Prediction is now out! Need someone to talk to now? Contact us using the form on the right or click below for more info!