More pain on the way after COEs cross S$100,000

THE Certificate Of Entitlement (COE) market crossed a painful psychological threshold this week, when the premiums for 2 categories jumped past S$100,000.

The Category B certificate (for combustion cars with engines of more than 130 horsepower or are above 1.6-litres in capacity, and electric cars with outputs of more than 110 kilowatts) rose S$4,795 in price to hit S$100,684.

Category E followed suit, rising S$4,796 to S$100,697 — an apt move since certificates from this open category can be used for all vehicles (except motorcycles), but is usually deployed to register Category B cars.

Not to be left behind, the other COE for cars (Category A, for combustion machines with less than 130hp or 1.6 litres under the bonnet, and electric cars no more powerful than 110kW) also rose sharply in price. Its premium climbed S$5,800 to S$73,801, a high for the year.

The jump in prices came on the back of a jump in demand. COE auctions are held twice a month, so are usually fortnightly, but some follow a 3-week break. This gives car dealers extra time to collect orders, leading them to compete harder for COEs at the next tender exercise.

This week likely saw just such a 3-week bounce. Prices could soften next time the COE rodeo comes around, as they often do after a shocking jump.

While not exactly welcoming this week’s high prices, some car dealers say they saw it coming. “Those (customers) who bought at S$80,000 will be thanking us now,” one sales director for a Japanese brand told The Business Times. “They kept asking, ‘Sure or not?’ But now they’ll feel relieved. Just like those who buy now will feel glad when COEs hit S$120,000.”

COEs have never gone that high, but the market did see an all-time record of S$110,500 in 1994. Could COE premiums be climbing towards that level and beyond?

Barring an event that puts a large dent in demand — say, a recession — there is reason to think that more pain for car buyers is on the horizon because the COE supply, the so-called COE Quota, looks set to tighten.

The Land Transport Authority sets the COE Quota by considering how many cars go to the scrapyard or leave the country. Every car taken out of circulation spawns a fresh COE. The bad news is such deregistrations have been paltry this year, especially for Category B cars. In the first 4 months of 2022, an average of 1,122 Category B cars left the roads for good each month — compared to 1,427 a month last year.

The worse news is, the picture looks daunting for the next 18 months at least. Car owners tend to deregister cars that reach 10 years in age. And as of the end of April this year, there were only 11,022 cars between 9 and 10 years old.

But there are 13,137 cars between 8 and 9 years old. These will come up for de-registration starting a year from now, which implies that the COE supply is set to stay tight in 2023.

Yet, there is good news. Twice as many cars are now between 7 and 8 years old, meaning the Quota is set to grow meaningfully when those vehicles reach their full decade in 2024 and beyond.

That will mark the start of an expansionary period in the COE supply, which should in turn bring welcome relief to the current pressure on prices. That would be one threshold car buyers should be happy to see the COE market cross.

Analyse historical COE data with The Business Times interactive tool: bt.sg/coetrack