If there is one thing that Singapore is known for, it is the Certificate of Entitlement (COE) that all motor vehicles must have before they can be driven on the road.
Given the continuous increase in COE prices over the past few years, it is no surprise that vehicle ownership in Singapore has also significantly risen alongside these soaring prices.
Source: Channel News Asia
The supply and demand cycle
To many, it may seem absurd how much a certificate tied to a car for only 10 years can cost. However, it is essential to first grasp the fundamental principle of the COE.
According to the Land Transport Authority’s (LTA) website, COEs are allocated through bi-monthly open bidding exercises.
Typically, the open bidding exercise commences at 12 pm on the first and third Monday of each month and lasts for three working days.
During the open bidding exercise, both dealers and prospective vehicle owners have the opportunity to place their bids for the respective COE categories.
With this understanding, we can observe that the prices of COEs are determined by the supply and demand dynamics in each bidding round.
If the supply is low and demand is high, prices rise. Conversely, if the supply is high and demand is low, prices decrease.
What has happened to the COE supply recently
With the supply and demand cycle understood, it is worth examining the recent timeline of certain adjustments made by LTA, which resulted in the continuous surge of COE prices, eventually reaching a record high of S$125,000 for the open category COE in May of this year
COE supply shrunk between November 2022 and January 2023
Despite the upward trend in COE prices over the past few years, in October 2022, LTA made the decision to reduce the supply of COEs by 13.8%, equivalent to 3,040 per month (The New Paper)
This was a decrease from the quota of 3,526 COEs per month that was available from August to October 2022.
Increase in COE Quota from May 2023 to July 2023
The reduction in COE supply in November 2022 and January 2023 has significantly driven up COE prices.
In March of this year, the price of COE reached its all-time high of $116,020 for open category certificates.
Two months later, in May, LTA announced a one-time adjustment of COEs aimed at “reducing volatility for Categories A and B COEs.”
Source: LTA’s Website
The total number of available COEs for the period from May to July was increased to 10,431, averaging to 3,477 COEs per month.
During this time, the premium for Category A COE, which covers smaller cars up to 1,600cc and 130bhp, as well as electric vehicles (EVs) with up to 110 kilowatts of power, decreased from $101,001 to $92,000. (The Straits Times)
Similarly, the premium for Category B COE, applicable to larger and more powerful cars, also decreased by 5.33 percent, from $119,399 to $113,034. (The Straits Times)
However, in the same month, the COE for open category vehicles, which can be used for any type of vehicle except motorcycles, reached a record price of $125,000.
More COEs Available from the Month of August to October
Despite the decline in COE prices in May 2023, the prices of COEs remained high in June and July.
In the latest bidding exercises of July, which were released on July 19th, the Category A car COE closed at $95,202, the Category B car COE closed at $118,001, and the Open category COEs closed at $122,100.
COE price for Motorcycle was seen with an increase of 4% to S$10,501, up from S$10,090.
Despite the increased supply of COEs, it appears that the prices of COEs still remain high.
Considering the sustained high prices of COEs, it was announced by LTA last week that more COEs will be made available in the next three months.
Source: LTA’s Website
A screenshot taken from LTA’s website reveals an increase in COE supply for all categories.
In total, this amounts to 11,019 COEs available from August to November, marking a 5.6% increase from the 10,431 COEs available from May to July.
Looking ahead, while we hope for a decrease in prices, we can only wait and observe the future trajectory of COE prices.
Huge drop in COE renewal
ROADS.sg spoke to Galvin Khong, the Business Development Director at Vin’s Automotive Group, to gain insight into current industry trends.
He believes that despite the expected increase in COE supply in the upcoming months, the demand for COEs will remain strong.
When asked about the renewal of COE, Mr. Khong shared that fewer drivers would opt for this option, as it seems impractical to spend over $110,000 (based on the latest PQP) just to extend the lifespan of an old car by another 10 years.
Instead, he mentioned, “More buyers are now looking to purchase used cars with 2 or 3 years of COE remaining.”
New car sales hit hard by COE prices
However, he finds it evident that the sales of new cars have dropped drastically. Instead, buyers are now leaning towards purchasing pre-owned cars.
Mr. Khong also shared how the sales of new cars could go as low as just 2-3 per month, a significant decline compared to the 2-digit figures when COE prices were much lower.
When asked how he manages the challenge of high COE prices, he added, “Sometimes we have to pivot and focus on trading in more used cars instead.”
Moving forward from here
As COE prices continue to rise, it remains uncertain when they will peak or if they will ever do so.
Mr. Khong, however, holds the belief that the prices are “likely to stagnate over the next few months” due to the ongoing high demand.
Nevertheless, he remains optimistic that the supply of COEs will begin to increase more significantly in the first quarter of 2025.
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