Transportation

Will COE Prices Drop? We Don’t Think So

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Ryan Ong

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Our Minister for Transport, Mr. Lui Tuck Yew, has been talking to the LTA about COE issues. Right now, we can afford cars like the S-League can afford good players. Drivers have been feeling the squeeze since 2011, and our out-of-control bidding means the only accelerators we’ve been stepping on are our inflation rates. But when Mr. Lui’s proposed changes kick in, will we see a price drop for COEs?

 

How Will The COE Be Controlled?

With grenades, if I had any say (which is also why I don’t. I’m not even allowed near hand tools any more). But our transport minister proposes calmer (read: boring) methods, such as:

  • Staggering the quota reduction
  • Deferring the claw-back of COEs from 2008 to 2009

 

Staggering the Quota Reduction

The COE is determined by the existing car quota. The more cars are permitted, the more COEs are available (and the cheaper they become). We’re expecting a sharp quota reduction this August, down to 0.5% from the current 1.5%.

Since COE prices are already high, a drop in quota now is the equivalent of downing an espresso during a heart attack. To prevent a social condition known as “Run, the angry mob is burning everyth..aaargh”, Mr. Lui wants the quota reduction to be staggered; by decreasing the quota a small amount each month, the mad scramble for COEs should be diminished.

 

Junk yard
“I think we made a mistake scrapping those cars so fast. Next time, let’s wait till the drivers get out.”

 

Deferring the Claw-Back 

Drivers tend to de-register their cars early (to get a COE rebate); it’s a minority that uses the full 10 years on their COE. In 2008-2009, the projection of early de-registrations was optimistic.

But for assorted reasons (one of them being, ironically, the rising COE costs) the number of de-registrations in 2008 – 2009 fell short of projections. No one wanted to give up their cars. And since LTA has no interest in seeing the ECP become Singapore’s largest car park every rush hour, efforts have been made to claw-back COEs.

The current proposal is to defer those claw-back efforts, which should ease COE prices somewhat. So if all that’s approved, COE prices will drop, right?

Sort of. But the thing is…

 

1. There are Backlogs to Be Cleared

 

Empty notebook
“Uh, yeah, long backlog. Very long. It’s not like we price fix or anything.”

 

Car dealers have a backlog of COEs to acquire; either for cars that clients have purchased, or for open category vehicles. We have no idea how long these backlogs are, but until they’re cleared, COE bids will stay high.

As always, auto dealers are the main cause of rising COE prices. Not because they’re card-carrying villains (they hate high COE prices as much as you do), but because the logistics of their business require it. With luck, their backlogs aren’t too long, because cars haven’t been too affordable lately. But don’t count on it.

 

2. The Car Quota is Going Down

 

Cars in a parking lot
“Issue a quota that = the total number of parking lots, +1. Because we’re asshats that way.”

 

Whether it’s staggered or sudden, the fact remains that car quotas are going down. If the quota decreases gradually, we won’t see a massive spike in COE prices come August. But there’s no assurance that prices will drop either.

It’s possible the decreasing quota will slow or maintain COE prices, rather than bring them lower. Singaporeans have always shown a desire to drive, regardless of the prevailing COE rates. The ones who are rich enough don’t care about a $90,000 COE; and the others have motives beyond price, such as medical conditions or school placement for children.

So we have a situation where demand remains strong, but supply (in the form of the car quota) is being steadily squeezed. Elementary economics (any sort your lecturer didn’t have a nerdgasm explaining) makes it hard to predict a price decline.

 

3. The Public Transport System Is Not In Best Shape

 

SBS buses
“Sure it’s reliable. You can rely on a fight to start every rush hour.”

 

Effective public transport is a major deterrent to car ownership. If you can get anywhere you need on a $20 a month fare card, you wouldn’t feel a need to buy a car.

Problem is, public transport isn’t looking too good. Taxi fares are high, buses seem to recreate scenes from Fight Club every alternate day, and the MRT is behaving like a wheezing asthmatic in the last leg of a marathon. Without significantly improved infrastructure, the clamour for cars is not going to die down.

And since SMRT hasn’t even started its $900 million facelift, we don’t see that happening any time soon.

Image Credits:
MyLifeStory, Horia Varlan, JASON ANFINSEN

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Ryan Ong

I was a freelance writer for over a decade, and covered topics from music to super-contagious foot diseases. I took this job because I believe financial news should be accessible and fun to read. Also, because the assignments don't involve shouting teenagers and debilitating plagues.