Will COE Prices Increase Once the Bidding Exercises Resume?

(Photo Credit: Ministry of Transport)

The Land Transport Authority (LTA) has announced that the COE Bidding Exercise will resume on Monday, 6 July 2020 after a three-month suspension due to COVID-19. With an increase in COE quotas and accumulated sales over the Circuit Breaker, what might happen to COE prices moving forward?

The Certificate of Entitlement (COE) allows one to own a vehicle in Singapore, which can be used on the roads for 10 years. A limited number of COEs are released twice a month, making the price of COEs largely dependent on the demand of the market. In the midst of the COVID-19 crisis, how would demand be affected?

The COVID-19 pandemic has been said to hit “worse than SARS and the Global Financial Crisis” and “will likely last this year, and quite possibly longer”, leading to our hypothesis that demand for cars may actually drop.

(Photo Credit: Ministry of Transport)

No Car, No Problem!

In a country equipped with efficient public transport systems and ubiquitous ride hailing services, is a private car really that necessary for all of us?

Well, maybe for some but definitely not the majority. Owning a car is a huge financial investment that most of us are not able to make immediately. Not to mention that the listed price of the car is not even the final price you pay over the course of your ownership. There is still road tax, parking charges, fuel costs, insurance, and so on.

All these ‘hidden costs’ are not explicitly laid out on the table upon your purchase, and can amount to a lot of money. With the current situation, saving up and preventing any extravagant expense would probably be the preferred choice.

On the other hand, car companies have adapted to the social distancing measures and moved their services online. Chains of online promotions and slashed prices of cars have also been released by these car dealers, enticing many, maybe even yourself, to have bought cars and allowed car sales to continue despite the situation.

With motor dealerships and car showrooms now open, the sales of cars will probably continue increasing.

However, despite some people having saved more thanks to the Circuit Breaker, would the money really be enough to sustain owning a car?

Looking at Past Trends

Looking back to the Global Financial Crisis in 2008, the COE for CAT A cars fell to a ridiculously low price of $2, which is barely enough for a breakfast of kopi and kaya toast today!

Although reasons for the unusually low price remain unknown, the possibility that COE prices may dip remains high as the impact brought about by COVID-19 is on an even larger scale.

(Photo Credit: Outlook Money)

Some may argue that COE prices actually increased in 2003 during the SARS Outbreak, and with COVID-19 having a higher transmission rate, wouldn’t the same happen again?

Singapore’s healthcare system has advanced exponentially since 2003. With vigorous COVID-19 testing and constant contact tracing, the possibility of contracting COVID-19 has been kept to a minimum.

Thus, there is a lesser need for Singaporeans to opt for private cars to reduce contact with others in fear of contracting the significantly deadlier virus.

Effects of COVID-19 on COE Quotas

In addition, COE quotas have been raised to meet the built-up of orders during the suspension period. The COE quota for the bidding exercise in July will be 8,737, up from the usual 6,646. With an increase in supply, does this change anything?

With an anticipated drop in demand for COEs and an increase in supply, the prices of COEs in July may very well fall even lower. Afterall, the price of COE is determined by its demand in the market.

Should I Renew my COE or Purchase a New Car?

We think the answer to this depends on your personal situation. While buying a new car may possibly be significantly cheaper, some may be hesitant to make big ticket purchases with the looming economic recession.

Furthermore, if your car is in good condition, you should consider renewing your COE, since it is the cheaper option. On the other hand, if you have the financial means to get a new car, why not?

A multitude of factors will affect whether or not you should renew your COE or purchase a new car. Ultimately, we recommend that you consider the best financial option for yourself after weighing factors like your current car’s condition, and determine whether is it healthy enough to be renewed for another five or ten years?

Another consideration is whether you are in a good financial position to take up a loan for a new car given the long-stretching financial effects of the pandemic.

Read More: Should I Renew My COE or Buy a New Car?

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