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Singapore Family Sedan Matches Cost of a U.S. Home

Singapore Family Car Matches Cost of a U.S. Home
Customers look at cars in a Volkswagen AG showroom in Singapore. Record economic growth in the city state is enabling buyers to splash out on Bayerische Motoren Werke AG and Daimler AG autos even as a 24-fold jump in the cost of a car permit inflates costs. Photographer: Munshi Ahmed/Bloomberg

Vinay Mathur gave up on buying a new car in Singapore as the cost of a permit rose to the highest in 17 years. He settled for a two-year-old BMW 3-series.

“By the time we began seriously to think of buying a car, license prices had shot up,” said Mathur, 42, referring to the so-called certificates of entitlement, which are auctioned by the city-state and used to control congestion.

At S$86,889 ($67,000) just for a permit, the total price of a Volkswagen Passat in Singapore is about the same as the median U.S. metropolitan home. A 25 percent jump in residents in seven years, coupled with the world’s highest proportion of millionaire households, has fueled a 10-fold surge in license prices over three years. The government said last week it will postpone plans to cut the number of permits available and slow traffic growth, responding to the outcry over soaring prices.

After the ruling People’s Action Party lost a by-election in the opposition-led Hougang district on May 26, Prime Minister Lee Hsien Loong reiterated a pledge to change the way the party governs a population that opinion surveys show is most concerned with issues such as high living costs and an influx of foreign residents. The PAP remained in power last year with the smallest general election victory since independence in 1965.

“The COE system is well-intended in that it does limit the traffic to some extent and pollution, but it bumps up the price of even entry-level cars to a ridiculous level,” said Mathur, a senior executive who moved to Singapore from Mumbai with his wife and young son two-and-a-half years ago. Mathur said he was entitled to an interest-free, five-year loan of S$130,000 from his company, and didn’t want to spend more than that.

Car or House?

A new 2012 Passat sedan made by Volkswagen AG, the world’s second-largest carmaker, costs about $152,000 in Singapore, including the license, according to classified ads website The median price of a U.S. metropolitan area home is $158,100, National Association of Realtors data show.

So-called open-category permit, which can be used to buy any type of vehicle, reached S$92,010 in April, the highest since the end of 1994 when a record of S$110,500 was reached. At the latest auction May 23, the licenses went for S$86,889, compared with S$8,501 three years ago. The permits give the right to own a car for 10 years. The next auction is tomorrow.

Besides having to bid for certificates at auctions that are held every two weeks, Singaporeans also pay registration fees and taxes that can amount to 150 percent of the market value of a vehicle, according to the Land Transport Authority website.

Delayed Cuts

In Singapore, an island of 248 square miles (642 square kilometers), the number of cars climbed to a record 603,723 at the end of 2011 from 405,354 a decade earlier. To limit congestion and pollution, the government had planned to reduce the growth of the vehicle pool from 1.5 percent annually to 0.5 percent starting in August.

That rate will instead be reduced to 1 percent in August, and then to 0.5 percent in February, the Land Transport Authority said last week on its website. Efforts to undo an oversupply of licenses in prior years will also be delayed for a year. The measures will increase the monthly supply of permits by 17 percent, or about 656, according to the authority.

“The government help might ease the pressure,” said Lynette Tan, a stocks analyst at DMG & Partners in Singapore. “I don’t think prices will plummet.”

Inflation Pressure

Transportation costs pushed Singapore’s inflation rate to 5.4 percent in April, the most this year, government figures show. The goverment said more than a week ago inflation will remain elevated in the next few months, and Prime Minister Lee said in his May Day speech that the No. 1 concern among union leaders is the cost of living.

“We must make a special effort for the low-wage workers, because they are the ones most affected by competition, by inflation,” according to a text of the speech. “We will continue to monitor inflation very closely to see when something more needs to be done, we will be ready to act.”

In the past year, Lee’s government has also introduced stricter immigration policies, imposed higher taxes on property purchases for foreigners and cut ministerial pay. Worker income in the island-state has risen 12 percent in five years after accounting for inflation, Lee said.

More than a third of the 5.2 million-population is made up of foreigners and expatriate permanent residents. Singapore’s unemployment rate averaged 2 percent last year, a 14-year low. Singapore was ranked as the Asian city with the best quality of life, according to a Mercer report in November.

Confident Buyers

Job security has made people more willing to buy cars, helping drive prices higher, said Song Seng Wun, an economist at CIMB Research Pte in Singapore.

“There’s a certain degree of speculation,” Song said. “Due to the COE, you can make money by buying a car and selling it one year later. In most other countries, we’d say a car is a depreciating asset.”

Song said he takes trains and buses, and “whoever wants to drive and pay through the nose, go ahead.”

Michael Gomez, who is 30 and works in Singapore’s banking district, said his permit has appreciated so much that he’s planning to sell it and downgrade to a cheaper car.

Gomez bought a 2009 BMW a year ago for S$145,000. The car is now worth about S$135,000, he said.

“The actual depreciation on the car should be about S$20,000, but I’ve only lost 10 grand” because of the appreciation of the permit, he said. “I’m getting a good price. If I downgrade, then I will save money.”

The government should amend the permit system because it favors the rich, Chee Soon Juan, head of the opposition Singapore Democratic Party, said before last week’s announcement.

Singapore’s millionaire households expanded 14 percent last year, according to a study by the Boston Consulting Group published May 31. Singapore’s proportion of millionaire households was 17 percent, the highest in the world, followed by Qatar and Kuwait, the study showed.

“You’re pitting the rich against the poor, and guess who wins?” Chee said in an interview. “People with needs, and the guy who runs a small family business, are pitted against this wealthy family that’s buying a third car for the teenage son because he had just done well in his exams.”

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