In Singapore, our government’s solution to road management is the Vehicle Quota System (VQS) that limits the number of vehicles registered in Singapore, along with the Certificate of Entitlement (COE), a loaded term that still gets car buyers all riled up. Understandably so, they are getting the short end of the stick with the sky-high costs in Singapore as compared to overseas prices.
COE Open Bidding System
COE is determined by the Vehicle Quota System (VQS) and is released for purchase twice a month. In a competitive open bidding system, buyers bid against each other to win the right to car ownership. Within land-scarce Singapore, the demand for COE will almost always exceed supply, which in turn causes fluctuations in the COE market.
How COE Prices Affect The PQP Of The Month
The moving average of COE prices (QPs) over the previous three months is known as Prevailing Quota Premium (PQP). As a result, it will fluctuate month to month, depending on previous months’ values. Instead of going through the entire COE bidding process again, buyers renewing their COE will pay the PQP.
You will only have to pay the Prevailing Quota Premium if you renew your COE (PQP). Please bear in mind that PQP is a moving average of the Quota Premium COE rates for the previous three months prior to renewal.
It is mandatory for buyers to pay 50% of the PQP if they renew their COE for five years, and they are required to scrap their car after the five years are up. For a 10-year extension, however, buyers must pay the full PQP amount, and they can opt to renew their COE for another 10-year period after that 10-year period expires.
As the cost of a 5-year renewal varies significantly from that of a 10-year renewal, buyers should prioritize your car’s condition and your budget before making an informed decision.
COE Trends Over The Past Year
There are a myriad of reasons for the unpredictability of COE prices. Simply put, the swings in COE prices are based on the market supply and demand trends for cars at different time periods. A good example is the COE spike prior to seasonal holidays. This makes sense as buyers tend to want their new vehicles ready for the festive seasons. For instance, the market demand for vehicles typically spikes in the weeks before Chinese New Year. During such periods, more consumers may wish to purchase vehicles, which in turn causes a strain on the market and supply of new vehicles.
Consequently, there have been build-up of backlogs for vehicles, which leads to another factor that affects COE prices: Supply. In the past year, the market was adversely affected by the suspension of COE bidding exercises (April – June 2020). As a result, there were a large number of backlogs at dealerships. As the market recovered, most of these backlogs were reduced significantly as consumers were eager to make a car purchase. In conjunction with the redistribution of COE quotas over the few months after the suspension of bids, a large majority of these backlogs were cleared toward the end of the year.
Consumer behaviour is another consideration that has to be taken into account. For instance, the uncertainties surrounding the COVID-19 pandemic caused COE prices to become profoundly unpredictable. When bidding exercises were suspended during the circuit breaker period, the unprecedented situation actually resulted in a “wait and see how” effect on the market, even after the safe distancing measures were loosened. In this scenario, prices were relatively steady for the first three bidding exercises (July bidding results & August’s first bidding) before increasing in September and October.
The demand for privacy during the epidemic may also mean a surge in car buyers competing to own a car rather than utilise public transport. Moreover, let’s not forget the increased cash flow granted by the government in the form of the Budget 2020 support packages for both businesses and citizens. There are a myriad of elements at play that could potentially drive the market demand for vehicles, and consequently inflating COE prices – the last thing potential car buyers would want.
These trends may cause substantial fluctuations in COE pricing, but at the very core, the demand is dependent on the number of quotas available for bid. The main factor is the zero-growth policy of COEs in Singapore, because the number of cars on the road are restricted so the vehicle population does not grow. Any new vehicle registration is dependent on the number of de-registrations that happen in any given time period, so the COE quotas available for bid depends on the number of car registrations in that particular month 10 years ago. When a car is scrapped or exported at the end of its cycle, the COEs are recycled and assimilated into the pool of quotas available for the given month. In essence, if there are less cars de-registered, there will be fewer COEs up for grabs.
Therefore, speculating trends is not the best solution to get you the best deal. With Singapore’s lofty car ownership costs, renewing your COE actually saves you more because the cost and depreciation of a renewed car is usually lower when compared to a new car. Advances in car care technologies and servicing have improved the longevity and resistance of cars to a great extent. In fact, your trusty road companion can now easily last you over 10 years.
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