November 2020 COE Analysis: The recent downtrend in COE prices reflects the tri-monthly nature of the COE Quota system, but it’s not going to continue 

SINGAPORE

We’ve said it here before: Over the next five years or so, Certificate of Entitlement (COE) prices are going to go up.

If that’s the case, why have COE prices been trending generally downwards since September? Fake news! You’re trying to make us buy cars against our will!

Sorry, too much poll watching.

But looking at the charts as usual:

Category A, for ‘mainstream’ cars with engines up to 1.6-litres in capacity and with less than 130hp, dropped from S$37,334 in September’s second round of COE bidding to S$35,990 in November’s first round, or S$1,344, which is 3.7 percent.

Category B, for ‘luxury’ cars with engines more than 1.6-litres in capacity or with more than 130hp, fell by S$1,990, from S$40,990 down to S$39,000. A drop of S$1,990 or 5.1 percent, over the same time frame.

That’s the micro view for this round, but let’s get back to the wider picture. If we think of the recent relaxation of prices as weather, then the general up-trend of rising COE prices we’ve predict over a longer period, can be seen as the climate. And just like the climate, it’s slowly getting hotter. 

What is the determining factor for COE climate? It’s the age distribution of cars on the road here. If there are lots of relatively new cars (below five years old) then there will be fewer de-registrations. 

That leads us to the weather – what determines COE ‘weather’? De-registrations.

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De-registrations, or scrapping, is when cars exit the system here and it’s the number of de-registrations over the current quarter determine the COE quota of the next quarter. Also, since there’s no room for car population growth anymore – the LTA has set the growth rate at zero – essentially it means one car must go out for a new car to come in. 

The current COE quarter’s quota, from November 2020 to January 2021, is higher than the preceding quarter’s because more cars were de-registered. The total vehicle COEs available on a per month basis went up, from 6,207 to 6,649. 

More supply means a price drop, right? Not so fast.

The quota for Category A actually went down – from 1,967 to 1,925 – although the opposite was true for Category B, which went from 1,729 to 2,014. Category E, the open category, which can be used to register anything on wheels but is almost always reserved for Cat B, the most expensive COE category, also enjoyed a slight bump to 926, up from 903. 

And that’s where things get interesting.

In recent years, the price gulf between Cat A to B – they’re perceived as mainstream and ‘premium’ car categories but this isn’t wholly true – has shrunk, and given that Cat A almost always has higher demand than Cat B, who knows, in the coming weeks we could have a situation where Cat B is higher. It’s rare, but not unprecedented. 

In any case, the recent COE price drops really aren’t that much in the big scheme of things. Cat A now holding at S$35,990 is still in the upper price range for 2020 and still more expensive than the first eight months of the year. 2020’s current high is $38,504, from September’s second round, and we’re only around S$2.5k off of that mark.

The same goes for Category B. Again its price of S$39,000 is higher than anything from before September, and it’s a mere S$1.5k away from 2020’s highest price of S$41,510. 

Looking forward, we could even have a stronger December than usual. In normal years, car sales dip in December because everyone’s on holiday. With the new normal, and everyone all gassed up with nowhere abroad to go, we could have a very interesting December. 

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