Cost of a car in Singapore which costs Rs. 775,000 here in India – Shockingly Very High at Rs. 7,000,000

by Shiv Kukreja on October 13, 2013

in Uncategorized

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

Wish you all a Happy Dussehra! Festive season has started here in India and though somewhat muted, usual festival activities are up and running now. People have started shopping for the festival stuffs and winter clothing here in North India.

These days are considered auspicious for various kind of consumer durable purchases also, like TVs, refrigerators, washing machines, furniture, cars etc. I am sure many people in India wait for these festive offers to finalize their buying decisions.

But, due to slowdown and high interest rates, people are trying to postpone their discretionary spending for quite some time now. Auto industry has also suffered one such blow here in India. On one hand, auto manufacturers are raising their product prices to maintain their margins and on the other hand, to attract the customers & beat this slowdown, they are trying different kind of things and showering various offers on the prospective buyers.

But, will you be interested in buying a car if the government today hikes the excise duty or import duty and imposes some kind of additional tax to make its price nearly 5-10 times its current market price? Yes, it is not 5-10%, it is correctly written as 5-10 times.

To be precise, I mean, will you be interested in buying a Honda City for Rs. 65,78,550 against its current on-road price of Rs. 10,58,196 for the same model?

Background to this Post

Last weekend, I, along with a friend of mine, went to Select CityWalk Mall in Saket, New Delhi. We had nothing lined-up in our agenda to shop for but to kill time and to quickly check if anything is there on the shelves for the coming winter season to match our spending budgets. If you are familiar with this area of Delhi, you must be knowing that Select CityWalk has two more malls besides it, one is MGF Metropolitan Mall and the other is DLF Place.

After we got exhausted with Select CityWalk, we decided to quickly roam around MGF Metropolitan Mall which is relatively smaller in size and not fully occupied also. While passing by the Volkswagen showroom, our eyes fell on a stunningly looking black Volkswagen CrossPolo. It is not that we saw Polo for the first time, but this recently launched sporty version of Polo, in the form of CrossPolo, was looking amazingly super hot.

Price of Volkswagen CrossPolo in Delhi

Just to satisfy our curiosity of knowing its price, we asked the sales guy for its price. He handed the price list to us, which was reading its ex-showroom price as Rs. 7,75,000 and the on-road price of Rs. 8,71,875, including RTO/registration charges & Road Tax of Rs. 69,750 and insurance of Rs. 27,125.

Though its looks were simply amazing, we felt it was much overpriced. We discussed with each other that one would rather buy a bigger sedan like Honda City or Hyundai Verna or an entry level SUV like Renault Duster or Ford EcoSport with such a price tag.

After wasting 3-4 hours there, I came back to my place and started checking my regular mails. While deleting my spam mails, a mail from one of the car blogging websites striked me. I decided to visit the site and started to research more about CrossPolo. Then somehow I searched about it on Google and saw a link which had its Singapore price.

I clicked on the link and what I saw was this:

Submodel                 Price          Fuel Economy     Power     Transmission     Detailed Info

1.2 TSI DSG (A)      $138,800       18.1 km/L            105bhp     7-speed(A) DSG      Specs/Features

Note: ‘$’ is Singapore Dollar or SGD here.

As I had an idea about the exchange rate of Singapore dollar vis-a-vis Indian Rupee, I quickly opened the calculator on my desktop and started pressing the keys of my keyboard. I was stunned to see the figure. At Rs. 49.50 to a Singapore dollar, it was Rs. 68,70,600.

I thought I was making some kind of mistake somewhere or I was missing something which should be there in the details of its price. To cross-check, I decided to check it on Volkswagen Singapore website. The price its “Price List” carried was quoted even higher at $1,54,300. So, probably there was nothing which I was missing. At $1,53,300, the price tag in Indian Rupee stands at Rs. 75,88,350.

Break-up of Volkswagen CrossPolo Price

Some other cars with huge price differences

So, why the cars in Singapore are so expensive?

Though the cost of car ownership is shockingly very high in Singapore, it has all the noble reasons behind it. Singapore is a relatively smaller country with a land area of only 710 square km, which is less than half of Delhi’s land area of 1,484 square km and just more than Mumbai’s land area of 603 square km.

It is the policy of the Singapore government to discourage individual car ownership, make its people use public transport to the maximum extent possible and thereby prevent congestion on its limited road space.

The government there does not raise taxes to discourage vehicle buyers, rather it has Vehicle Quota System (VQS) in place, which helps its authorities in controlling the number of cars out there at any point of time. Thereafter, the demand and supply factors determine the price of Certificate of Entitlement (COE) via fortnightly auctions.

Land Transport Authority of Singapore (LTA) has set 0.50% as the annual growth rate of its vehicle population between February 2013 and January 2015. In India, we don’t even have a system of scrapping old cars, how can we think of controlling our vehicle population growth and set a target for the same. Our automobile industry gets disappointed if the import duty or excise duty on vehicles gets raised by the finance ministry.

Some other interesting facts about Singapore Car Market

* Average Life of a car is 10 years – As per the policy of Singapore government, you will be given a Certificate of Entitlement (COE) which remains valid only for 10 years, after which it gets expired and you are not allowed to run your car on its roads. After 10 years, you may choose to de-register your car or get your COE revalidated for another 5 or 10-year period by paying the prevailing Quota Premium.

We buy a Maruti 800 here in India for Rs. 52,500 (on-road price Delhi, 1983), make it run for 25 years and celebrate its Silver Jubilee. That ways the average cost of owning a Maruti 800 works out to be Rs. 2,100 per year. Now, if you buy a Honda City in Singapore at SGD 132,900 with a cap of 10 years running life, your average yearly cost would work out to be Rs. 657,855. I think this is more than what an average urban youth would earn in an entire year here in India.

* Average Interest Rate < 2% – Singapore is a developed country and the risks, which make loans costlier in a country, are in control there. So, the interest rate charged there on a new car loan is below 2% p.a. for 1-5 year tenors. I think it must be more than 12% average here in India.

* Maximum Loan Tenure of 5 Years – Even though the life of a car in Singapore is considered to be 10 years, the maximum tenure you can ask for a loan is 5 years.

* Maximum 60% loan, Rest Down Payment – If you are in Singapore seeking to buy a car, the maximum loan you will be able to get from a car financier is 60% and that too if the Open Market Value (OMV) of the car of your choice is less than SGD 20,000. Rest you will have to manage from your own pocket. For cars with OMV of more than SGD 20,000, the percentage of loan you can avail is even lower at 50% of the price. So, the higher the market value of your car, the lower loan is available at your disposal.

Let’s quickly take an example:

  • Honda City 1.5 AT Price – SGD 132,900 i.e. Rs. 65,78,550
  • Open Market Value (OMV) – SGD 16,120
  • 60% Loan Availed – SGD 79,740 i.e. Rs. 39,47,130
  • Tenure of the Loan – 5 years
  • Interest Rate – 1.88% p.a.
  • EMI works out to be SGD 969 i.e. Rs. 47,966 per month

* Yearly Road Tax – A car owner in Singapore is required to pay road tax on a yearly basis. For the same model of Honda City, it is SGD 684 i.e. Rs. 33,858.

* Petrol costs SGD 2.20 a litre – No, this will not cost you 5-10 times its price here in India, but it is still costly. It is SGD 2.20 a litre i.e. Rs. 108.90. I have taken this price from Caltex Singapore website and Shell Singapore website.

What makes up “Pump Price” there in Singapore? Here is the chart having the break-up of SGD 2.20 a litre. High quality and premium service standards come at a cost. Here in India, we keep playing politics in the name of poverty and providing subsidies to the poor Indians. Unlike India, oil marketing companies (OMCs) in Singapore are allowed to earn reasonable profits.

So, now you must be thinking that it is really very costly to own a car in Singapore and probably the government is crazy there to do that. But, then I think if these crazy policies of the government there have been successful enough to make that country such a beautiful place to live, work and enjoy your holidays, then these policies are perfectly superior to the policies of the Indian government here.

Finally, I am no expert of Singapore car market, so whatever I have mentioned here is just a small research work. So, if you find any major discrepancy in any of the information here, please let me know, I’ll correct it immediately.

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