669 reasons why high COE prices won’t last




COE Prices, July 2014, 1st Round
Category A (Cars up to 1.6 litres and 130bhp) $61,990 – up $101
Category B (Cars above 1.6 litres or 130bhp) $64,889 – down $811
Category E (Open) $63,001 – down $2,300

SINGAPORE — Don’t despair. Price changes for COEs (or Certificates Of Entitlement) may have ended up mixed this week, but that is most likely due to a quirk in the Quota System. Long-term, the picture looks rosy for people hoping for lower COE prices.

The Category A COE ended July’s first auction at $61,990, a tiny $101 increase over the price set at the last COE auction. But this time around, there were three weeks between COE auctions (instead of the usual two), and even with the extra time to pick up orders, car dealers didn’t see enough action to bid the price up significantly.

All the more reason to cheer Category B’s drop in price to $64,889, a fresh low for 2014 and $811 cheaper than in mid-June.

The Category E COE had the decency to do the same, dropping by a hefty $2,300 to land at $63,001, the lowest level for the year.

If you like the look of that, then there’s even better news: the worst seems to be over for COE prices, and the trade is looking forward to seeing prices drop below $50,000, perhaps as soon as next year.

This won’t be because demand for cars is going to dry up in that time, but because the COE supply is poised to expand.

MORE COES FOR ALL
The main reason is a demographic one: a large number of cars is turning 10 years old soon. When that happens they will be due for COE renewal or deregistration, and every deregistered car makes way for a fresh COE.

Next year, more than 100,000 cars will hit that ten year mark.

“We expect deregistrations to come in, and therefore with more COEs, the gap between demand and supply will not be so much,” says Koh Ching Hong, the managing director of Borneo Motors. “Therefore we expect prices to come down.”

He also pointed out that the current COE supply has been artificially tightened because the Land Transport Authority has had to correct for over-projections in 2008 and 2009 by clawing a few hundred certificates from the monthly pool.

This clawback is set to end in January, and should see an extra 669 Category A, B and E COEs added to the monthly quota.

So, the trade is looking forward to an extra 669 COEs a month from January onwards, plus more replenishment COEs from rising deregistrations.

That being the case, unless there’s a sustained and serious increase in demand, there seems to be no way that COEs will stay at today’s high prices.

RETURN OF THE $40,000 COE?
“It will not come down to the $10,000 level, but it has come down from above $80,000 now to today around $60,000…” says Mr Koh. “Hopefully, it’ll come down to $40,000 to $50,000. Hopefully.”

It’s perhaps worth mentioning that Mr Koh spoke to CarBuyer not directly on the subject of COEs itself, but in the context of Suzuki’s two new models, both of which will thrive only if prices come down. Consider their launch a marker of his conviction that COEs really are set to become cheaper.

It’s worth pointing out too, that in addition to running Borneo Motors,  he is also the managing director of Champion Motors. When a man who rises to the post of managing director for not one but two car companies says something about COEs, you should probably listen.

 

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