If there’s one thing we can be proud of in Singapore over the past 50 years of independence, it’s how the COE has made life better for everyone… said no one ever. It may seem fun at first to amaze friends from overseas (like what Razor TV once did in an interview with the cast of the Fast and Furious franchise) with the exorbitant prices of our vehicles, but for most of us Singaporeans, it’s just a daily reality that we love to complain about. Like public transport. Or ponding. Or DBSS flats. Let’s look at the highs and lows of the COE over the past 10 years. Literally.
But first… what is the COE?
If you’re asking this question, you’re probably not Singaporean, or not old enough to lose sleep over buying a car. We’ve tried to make it easy to understand the COE system in an earlier article, but very basically, the Certificate of Entitlement is a vehicle license that makes buying a vehicle more expensive.
The cost of the COE is dependent on a complicated bidding system via a bidding exercise that occurs twice each month. A limited quota of COEs are made available during these bidding exercises, thus controlling the number of cars on the road. COE prices rise when the demand for COE is high, or when the supply or quota is limited, or both.
15 December 2005: Quota of Category A COEs reaches a record high of 2,858
Although the highest number of Category A COEs made available in a single bidding exercise was on 15 December 2005, it was actually the following year which had the record number of available Category A COEs – at a total of 59,436 in 2006. Not surprisingly, it was also in 2006 when we saw the lowest average Category A COE price, at $11,187.
But individual COE prices were set to get lower… much lower.
19 November 2008: Category A COE price drops to $2
The 2008 financial crisis sparked fears of excessive vehicle de-registrations. In response, a total of 1,852 bids were received when the quota was 1,851, thus causing the COE price for Category A cars to crash to $2. Yes, you probably can’t even buy a plate of chicken rice with $2 now. While we’re not going to go into the many factors which led to this ridiculously low price – there’ve been accusations of unethical practices by dealers – the fact remains that it’s never happened again since.
In fact, since that freak price crash, the COE prices kept rising. This was mainly due to two policy changes. The first, in June 2009, led to vehicle growth rate being cut from 3.0% to 1.5%, and then subsequently to 1.0%, 0.5% and finally to 0.25% as of this year. The other policy change happened in April 2010, and resulted in a change in the way COE quotas were calculated. As a result, there was a sharp upward trend in COE prices. But no one quite expected how bad it would get. Well, almost no one.
9 January 2013: Category A COE price skyrockets to $92,100
I’m not saying we’re prophets or anything, but back in July 2012, we predicted that COE prices would be set to lunge soon. At first, the COE gods saw fit to mock us a little by causing the COE prices to subsequently drop in the following months. Eventually, our fears were vindicated when, in January of 2013, COE prices reached their peak since the COE Categories were adjusted in mid-1999.
Not only did the Category A COE price reach its highest of $92,100, but in the same bidding exercise, the Category B COE price also set a new record at $96,210. Not to be outdone, the Category E COE price hit $97,889 later that same month.
When that piece of paper costs more than the car itself, you know your system has a problem. The main cause of these insane prices, naturally, were the lowest available COEs in a year.
20 February 2013: Quota of Category A COEs reaches a record low of 333
As simple economics will tell you, a smaller supply means rising costs. While COE prices kept increasing, the number of available COEs kept decreasing. 2013 saw only 8,534 Category A COEs made available, with the record low of 333 available COEs in a bidding exercise happening a total of 3 times that year.
Wisely, the total number of bids also decreased, resulting in an average of about 707 bids per exercise that year.
So will we be seeing a significant drop in COE prices soon?
COE prices are currently on a downward trend. However, it’s too early to say if prices will drop significantly anytime soon. Here’s why:
While COE Quotas are going up…
Although the vehicle growth rate is currently 0.25%, we should be expecting to see the trickle-down effects of the large number of cars purchased between 2004 and 2008 being deregistered after 10 years of use. The quota for Category A COEs in the most recent bidding exercise was 1,688, the highest in the past 5 years. And this number is set to remain high over the next 3 months, and possibly beyond.
… so will the number of car buyers.
Perhaps it’s the good economy, perhaps it’s the increase in our population numbers, but this year has also seen a doubling in the number of COE bids during each exercise. And if many of these are car buyers rushing to replace their old vehicles, then the gentle drop in COE prices over the past few exercises won’t continue, as can be seen by slight increase in Category A COE prices in the latest bidding exercise.
What does this mean for us car buyers in the near future?
While it seems like a good time to buy a car while the COE prices are on a downward trend, it might actually be a better idea to wait. If everyone rushes to get a new car now, the increase in demand will only artificially inflate the COE prices. Although I guess we already know what happens when you tell Singaporeans to be patient. Oh well, no point fretting over that for now. In the meantime, stay with us as we follow developments by following us on Facebook!
With more cars expected to be deregistered over the next year, it’s not a pipe dream to expect COE prices to drop below $50,000. Just being patient could mean saving as much as $6,000 or paying up to $100 less in your monthly car loan payments.
How do you feel about the current COE prices? We want to hear your opinion.