COE Prices. They Have Plunged To an All Time Low. So... What Now?

Certificate of Entitlement (COE),is a scheme that has been one of the most controversial and hotly debated public policies ever implemented in Singapore. In short, anyone wishing to buy a car or motorcycle has to bid for a Certificate of Entitlement (COE). Wary of the fact that uncontrolled growth in the number of vehicles will result in traffic jams in tiny Singapore, the government implemented a range of measures to manage car ownership and one of them is obtaining a COE before you can buy a car.

Each month, a certain number of COE's are released for bidding and if successful, the vehicle entitlement is valid for 10 years from the date of registration of the vehicle. The scheme aims to peg long-term vehicle population growth at 3 per cent a year. Certain classes of vehicles like public buses, school buses and emergency vehicles are exempted from the scheme.

For those who are new to Singapore be warned:

It is very expensive to own and drive a car in Singapore. All motor vehicles imported into Singapore are slapped with a customs duty of 41 per cent ad valorem. There is also a Registration Fee to be paid. The fee is $1,000 for private vehicles and $5,000 for company vehicles. In addition, when a car is first registered (whether new or used), an Additional Registration Fee (ARF) of 150 per cent of the car's Open Market Value is payable.

All these make the price of cars here artificially inflated compared to those in the States or Europe.

In the past COE's were purchased under a "Close Bidding System" meaning anyone who wants to own a car, bid for a price without knowing what is the current highest bid. So at that time, that paper cost about SGD 40,000 - 50,000. Together with tax, owning a 1.5 litre Honda Civic will rip you off SGD 100,000 in total! Back to modern day Singapore. We are using an open bidding system now, anyone can find out what is the current highest bid and thus the price normally will not go outrageous.

Given the slump in COE prices, it may seem to make more sense to buy a new car than a pre-owned (used) car...but is that really the case?

Lower COE prices means new car prices are lower. Hence, buying a new car seem to make more sense as the difference with used car prices are relatively smaller now. E.g. A brand new Toyota Corolla Altis will only cost $60,388 now while a pre-owned late-2003 Corolla is still going at $55k-$60k!

However, lower COE prices also means lower COE rebate values if you intend to either resell, scrap or export before the end of your COE's 10-year lifespan.

Will Singaporeans be buying cars now? Now that the government has switched more to a usage based structure, it will be interesting to see the car buyer's market reaction now that the COE has plummeted to these levels.

The good news for potential car buyers is that dealers have been busy slashing prices over the last few days. The bad news is that the real winners are already at home enjoying their windfall, having booked their cars just before the COE crash.

For example, a Suzuki Swift 1.3 cost $47,500 last week, packaged with a $8,000 COE rebate. Having secured a $2 COE, the dealer would have refunded $7,998 to the buyer so the final price of the car was just $39,502. But post-COE crash, the same car is priced at $44,900 – just $2,600 less than before – and the COE rebate is now $5,000.

This is the unique thing about car buying in Singapore – dealers are forced to price cars in advance of knowing what it will actually cost them to put on the road. Most of them have dropped prices of their Cat A models by between $2,000 and $6,000, indicating that they expect the premium to rebound to at least $5,000 in a fortnight’s time.

Knowing that the plunge in COE premiums is likely to drum up a general interest in car buying, some dealers are taking the opportunity to try and shift selected models through comparatively big price cuts. Toyota distributor Borneo Motors, for instance, has lowered the price of the Vios G Sports by $7,000 but that of the Corolla Altis 1.6 by only $5,000, even though both fall under Cat A.

Over at Volkswagen, you can now book a Beetle 1.6 from as low as $61,800 with COE, down from the previous retail price of $74,800. That is of course a headline price which would restrict the company’s bidding strength in the next round, but the car’s adjusted retail price of $67,800 with COE is still very attractive.

I believe there will still be a great number of people going in to get their dream cars this coming two weeks when the $2 COE becomes the talk of the town.To them, it's a great time that can hardly happen!

It's the typical Singaporeans' thinking; Just grab it first and worry later! These low prices means its great news for anyone who intents to keep their new car till its COE'S 10yr life-span expires, but if you are someone who changes your car every few years then this are bad times for you as the low prices devalues your car and you might have to sell off your car for a huge loss in the future.

Different People, Different Strokes. Hopefully the smarties would benefit from this blip rather then fall into a depression in the future by buying blindly now.