Mar 29, 2023
BMW, Mercedes Boom in Singapore as Rich Shrug Off Higher Taxes
(Bloomberg) -- A luxury car tax in Singapore is helping push the cost of owning a BMW or Mercedes to the equivalent of a typical local family’s entire income for the year.
In the city-state’s latest bi-monthly auction, 125 bidders successfully offered as much as S$116,020 ($87,000) just for the right to own an “open category” auto, which can be applied toward any vehicle type but frequently ends up being used for larger cars in the densely-populated island.
That means the cost of a 10-year ownership permit — the car isn’t included — is equivalent to 92% of the nation’s median annual household income.
The latest figures come despite government hikes on additional registration fees for cars valued at over S$40,000, a move expected to generate an additional S$200 million in the coming budget year while impacting the top one-third of newly registered cars by market value.
The higher government-imposed fee follows an influx of new wealth from places including Hong Kong, mainland China and India after Singapore became one of the first Asian financial centers to successfully emerge from the Covid-19 pandemic. But the latest bidding round shows that the higher tax isn’t having much impact.
Despite a widely lauded public transit system, in which a bus or subway ride can cost less than S$1, there will always be people in this city of 5.6 million who still want to own a private vehicle — or maybe more than one — and can afford to pay, said Song Seng Wun, an economist at CIMB Private Banking.
The pricey ownership rights are the result of a quota system that controls the number of autos allowed on the nation’s streets, helping limit congestion and pollution, through the twice-a-month bidding process. Bid successfully and your shiny new Mercedes-Benz becomes road-worthy.
When the overall quota of permits was reduced by 14% and premiums skyrocketed to a then-record high in November last year, luxury models benefited the most, with Mercedes vehicles surpassing Toyota models as the top auto brand registered. In fact, in recent months one in every four cars registered was either a Mercedes-Benz or BMW.
Rising prices have also been driven by a growing appetite for electric and hybrid models, which have accounted for more than half of new purchases so far this year. In Singapore, owning a car such as a Tesla Model 3 Performance could quickly surpass $200,000, depending on the vehicle’s features and the price paid for the permit.
For Singaporeans who just want an ordinary vehicle to get to their office or a weekend movie, the hope is that the supply of 10-year entitlements begins to stabilize, a shift that is expected after an adjustment the government’s Land Transport Authority recently made.
But for the time being, costs are still trending up. And if you need a car now, the next auction takes place April 5.
©2023 Bloomberg L.P.