COE and Car Prices – Is it time to buy a car now?
Singapore has one of the greatest population densities in the world with an average of almost 8,000 people squeezed into every square kilometre in the country. The US has just 33 people per square kilometre and the UK, 268. Singapore’s population density is even greater than that of Hong Kong’s.
The lack of space has prompted the government to restrict the number of cars in the country. It has done this by making vehicles prohibitively expensive. A car in Singapore costs approximately three to four times more than it would in another country.
In addition to paying the cost of the car and various duties and taxes, every car owner is required to purchase a certificate of entitlement (COE). This is issued by the Land Transport Authority and is valid for a period of 10 years.
The COE is a major component of a car’s cost. It could make up about 40% to 50% of the total price that you would have to pay. A Honda Civic that costs S$108,000 could include a COE component of about S$42,000.
It is obvious that if you can pay less for your COE, you could reduce the aggregate amount that you pay for your car.
What exactly is the COE and how does the COE mechanism work?
Understanding the COE process
A limited number of certificates of entitlement are auctioned by the Land Transport Authority every month. There is an online bidding process that every prospective car owner has to participate in.
How much should you bid? You can arrive at an approximate amount by checking the successful bid at the immediately preceding auction. As auctions are held twice a month, you can be fairly sure that your bid should be at or around the current market price for a COE.
COEs come in five different categories. As a car buyer, you would be concerned with Category A or Category B. The former is for cars with an engine capacity of up to 1,600cc and a maximum power output of 97kW (130bhp). A Category B certificate of entitlement is for cars that exceed this power output or engine capacity.
In the first auction held in July 2017, a Category A COE was available for S$42,801. This gives you an idea about how much you should bid.
The bidding process allows you to monitor the current COE prices on a real-time basis and revise your bid price if you want to. This provides a great deal of flexibility and ensures that you do not lose the opportunity to get a COE.
You can revise your bid as many times as you like during the bidding process.
Recent trends in COE prices
In recent months, COE prices have been moving downwards. Although the fall in prices is not consistent, it is indisputable that new car owners are not willing to pay inflated amounts for the privilege of buying a car.
The following table illustrates the declining trend.
|Auction month / 1st or 2nd auction||Category A COE||Category B COE|
|January 2017 – 1st||S$50,101||S$53,106|
|January 2017 – 2nd||S$50,889||S$52,807|
|February 2017 – 1st||S$48,401||S$48,209|
|February 2017 – 2nd||S$49,430||S$50,621|
|March – 1st||S$50,789||S$53,300|
|March – 2nd||S$51,765||S$54,000|
|April – 1st||S$52,000||S$54,405|
|April – 2nd||S$51,600||S$54,406|
|May – 1st||S$51,106||S$55,414|
|May – 2nd||S$46,489||S$53,001|
|June – 1st||S$45,201||S$50,110|
|June – 2nd||S$42,801||S$47,501|
|July – 1st||S$42,801||S$49,802|
In the last six months, Category A COE prices have fallen by almost 15%. The two and a half months from April to the 1st auction of July saw an even steeper fall of 17.7%.
The decline in Category B prices has been less steep. The first auction of January 2017 priced Category B COEs at S$53,106. By the beginning of July, the price had fallen 6% to S$49,802.
Will there be a further decline in COE prices?
It is important to understand that the amount that you finally pay for your certificate of entitlement is a function of demand and supply. The supply of COEs is relatively static. Even though it varies over the months, the number of COEs that will be available in the next quarter is publicised by the Land Transport Authority.
Consequently, demand plays a large role in determining the price. In the recent past, Singapore’s economic growth has been relatively subdued. As a result of this, many people have deferred their plans to buy a new car.
Since 2013, the number of private cars on Singapore’s roads has been on the decline. The annual vehicle statistics report for 2016 issued by the Land Transport Authority reveals the following figures:
|Number of private cars and station wagons on Singapore’s roads|
Note – in the same period, the number of rental cars has mushroomed from 16,396 to 51,336, but overall car numbers are still significantly down.
The rise of services like Uber and Grab has also contributed to the decline in demand from individuals for cars.
Is this the right time to buy a car?
COE prices cannot continue to fall forever. If the economy recovers, you can expect the demand for private vehicles to rise, leading to an increased amount that you would have to pay for your COE.
In fact, about a year ago, the Monetary Authority of Singapore (MAS) implemented certain measures to help strengthen the demand for cars. In May 2016, the loan-to-value (LTV) for motor vehicles of an open market value of S$20,000 or less was increased to 70% from 60%. Vehicles of a value greater than S$20,000 saw their LTV rise from 50% to 60%.
Simultaneously, the maximum loan tenure across both categories of vehicles was raised from five to seven years.
At the time that the car loan rules were relaxed, the deputy managing director of MAS announced, “In 2013, when we introduced the measures, our immediate aim was to help restrain escalating COE premiums …”
The COE premium for a Category A vehicle in January 2013 was a massive S$92,100. Since then, it has fallen to a little over half that amount. It is unlikely that it will fall very much more.
Car buyers would do well to go ahead with their purchase at the current COE rate. Although it is entirely possible that there could be a further decline, predicting COE price trends with any degree of certainty is impossible.
In fact, it is quite likely that there could be an upturn in COE prices in the immediate future as a reaction to the steep fall that has been witnessed in the last few months.