It’s been a strange, unpredictable year so far. No one could’ve predicted that Sentosa summit would happen. And no one could’ve predicted that COE prices would continue to fall in 2018, despite two major changes that have happened this year.
The first is the move from Carbon Emissions-based Vehicle Scheme (CEVS) to the more holistic Vehicular Emissions Scheme (VES) which takes into account another 4 pollutants.
Unfortunately, this means that cars which used to enjoy rebates due to lower carbon dioxide emissions, may now cost more due to surcharges thanks to VES. The addition of the 5th pollutant, particulate matter, in VES was expected to cause a rise in COE prices due to increased demand, as buyers scrambled to buy vehicles before costs increase in July. That didn’t happen.
The other change is the announcement that vehicle growth rate would drop to 0%, effective February 2018. This essentially means that no new COEs would be issued for cars and motorcycles, only replacements of de-registered vehicles would be allowed. The drop in vehicle growth rate was expected to lead to a rise in COE prices due to reduced supply. That also didn’t happen.
With these two changes in mind, how is it that COE prices have dropped to their lowest in 8 years? As of the latest bidding exercise on 20 June 2018, here are the current COE prices.
|A (Cars up to 1,600cc)||$34,110|
|B (Cars above 1,600cc)||$33,900|
|C (Goods vehicles and buses)||$32,001|
|E (Open category)||$34,400|
Here are 5 things that the falling COE prices tell us:
1. COE prices are trending downwards and are expected to continue for the rest of the year
Whether the COE price goes up or down from bidding exercise to bidding exercise seems random, but trends are more predictable.
Since November last year, COE prices have been on a downward trend from $47,112 to $34,110 today. That’s an overall drop of $13,002 in just 8 months.
Lower COE prices are expected to continue for the rest of the year, and there are several reasons why, which we’ll discuss later. But the main reason is, there will continue to be a relatively high supply of COEs from deregistered vehicles for at least another year.
This is because in 2008, the COE quota was a high 115,946. This number is for the period May 2008 to April 2009. Of this number, 48,847 were for Category A cars and 26,376 were for Category B cars.
We can therefore expect that, after 10 years, a good percentage of these will be deregistered this year. For example, from Jan to Mar 2018, a total of 9,546 Category A cars and 8,525 Category B cars were deregistered.
This glut of available COEs will go a long way to delaying the effects of cutting the vehicle growth rate to 0%.
2. Cutting the vehicle growth rate to 0% did not have the expected effect on COE price
As we predicted, the fears that COE would spike once the vehicle growth rate dropped from 0.25% to 0% were unfounded. This is because the main supply of COEs is from deregistration of existing vehicles.
As we pointed out earlier, there are still thousands of cars being deregistered each month, so while the COE quota will be affected, it will not result in a drastic change for the next year.
Unfortunately, the COE quota in 2010 was halved. The drop in supply marked the start of rising COE prices, with Category A COE prices crossing the $45,000 mark for the first time in December 2010. It would stay above that value for 5 very long years.
This means that from 2020 onwards, if there is no change to the vehicle growth rate, we could expect higher COE prices again. That said, I hope we will never again see the highest COE price, a record made in 2013, where drivers spent $92,100 for Category A COE, and $96,210 for Category B COE.
There is another reason why demand for new COE has been low this year, and it has to do with Uber’s exit of the Singapore market.
3. Sales of private-hire rental cars are affecting demand
Uber’s presence in Singapore may have changed the way we deal with public transport permanently, but they also had a significant effect on COE prices, thanks to Lion City Rentals, their car rental arm in Singapore.
Back in April 2016, Lion City Rentals alone was reported to have submitted more than 800 bids for COEs. Later that year on 8 June 2016, the total bids for Category A COEs jumped to a record-high of 3,436.
As a result, COE prices remained high despite an increase in the quota.
Uber’s exit, on the other hand, have been cited as a reason why COE prices have been dropping this year. Without Uber, Lion City Rentals has started to sell off their dormant car population, flooding the market with as many as 400 used cars last month.
Many of these cars have low mileage, but are reportedly going at $10,000 to $20,000 less than a brand new model. Why would you want to buy a new car from an Authorised Distributor when you save thousands of dollars taking advantage of a short-sighted business decision?
Yes, this is admittedly only a short-term situation, but while it lasts, you can expect COE prices to keep dropping as long as the demand for new cars takes a hit.
4. The VES is doing what it should – but it may be doing it too well
The other thing that lower COE prices are telling us is that the new Vehicular Emissions Scheme is definitely working. By taking a more holistic view on pollutants, the VES ensures that car buyers don’t end up buying a car that reduces carbon dioxide emissions, but simultaneously releases other pollutants unchecked.
Unfortunately, this means that some cars enjoying high rebate under the CEVS, aren’t as attractive anymore.
A Toyota Prius Hybrid 1.8 originally enjoyed a $30,000 rebate under the old CEVS, but with the new VES, that $30,000 rebate is gone. A Honda Vezel Hybrid 1.5X used to enjoy a $30,000 rebate as well, but will only enjoy a $10,000 rebate now with the new VES.
The introduction of a 5th pollutant, particulate matter, to the VES with effect from 1 July 2018 means that some cars, such as the Toyota C-HR 1.2 Turbo and Toyota Vios 1.5, may end up costing $10,000 more if you buy a brand new car from next week onwards.
While the VES was introduced to encourage Singaporeans to buy more eco-friendly cars, the truth is that the VES seems to have discouraged Singaporeans from buying new cars altogether. It may have worked too well, and Authorised Distributors may soon need to challenge car manufacturers to come up with a model that is able to take fuller advantage of the VES rebates.
The drop in demand may have contributed to the lower COE prices, but there is something else at play here – a growing cooperation between car dealers to ensure COE prices stay low.
5. The COE bidding system is flawed
Okay, we’re not saying anything new here. Everyone knows that there’s probably a better way to regulate vehicle growth in Singapore than COE. And I’m well aware that each proposed alternative often comes with its own problems.
But one thing the drop in COE prices tells us is that the dealers really have a significant influence on how expensive your new car will be. Many dealers offer to help you bid for COE, and they have their own agenda regarding how much they’re willing to bid.
This may explain the drop in number of bids compared to previous months. Thanks to the VES, dealers are now incentivised to keep COE low, in order to not turn buyers off by a combination of VES surcharges and high COE prices. One dealer claims that dealers have “systems in place” to prevent a rush to place COE bids at the same time.
Unlike individuals, companies can place multiple COE bids. But let’s be fair to them as well. As another dealer pointed out, “We are the only country that sells new cars without knowing how much profit you are going to make.”
What do you think of the low COE prices? Are you going to wait and see if they will drop further next month?
The post COE Prices in Singapore Lowest in 8 Years - 5 Things This Tells Us appeared first on the MoneySmart blog.
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