What will happen when Certificate of Entitlement (COEs) bidding resumes in Singapore in May? Here are the three possible outcomes

SINGAPORE

The COVID-19 circuit breaker has certainly broken a lot of things, and with regards to the COE system, there are definitely more questions than answers at this point in time. 

With the circuit breaker/lockdown measures coming into play on April 6, 2020, passenger and commercial car sales were designated as non-essential businesses, however car owners can still get their cars fixed in an emergency or you can even buy a car online.

That led to COE bidding for the month of April being postponed – the Land Transport Authority (LTA) provides little detail, simply “With the closure of motor vehicle dealerships and showrooms during this period, COE bidding exercises in the month of April will be suspended. LTA will continue to monitor the situation closely and update on subsequent bidding exercises.”

Given it probably has its hands full with social distancing and keeping public transport safe and running, the LTA hasn’t made any further communications on the subject, leading to plenty of questions. Nobody knows how it’s all going to pan out come May 4, when the circuit breaker restrictions are supposed to be lifted, so let’s look at the possible outcomes. 

1. Circuit breaker continues

Let’s make this point clear just to be sure: COVID-19 is unprecedented in modern pandemics, because it’s so different from previous viruses like SARS and H1N1, and it exists in an age of 24/7 Internet-driven scrutiny.

So keep in mind that May 4, 2020 is a provisional date, dependent on how bad the COVID-19 situation gets. If everyone does their part (sadly still an ‘if’), four weeks should be more than enough, however as grandpa said, ‘Hope for the best, prepare for the worst.’ 

CarBuyer polled the sales managers of a few local dealerships and they were – in a rare occurrence – all unanimous in admitting that they have absolutely no idea what is going to happen come May 4. 

If the circuit breaker measures continue beyond that, points 2 and 3 will still happen when things resume eventually, but you can expect the fluctuations to be more intense.

2. COE prices go up

Prices could jump in May after the first round of bidding, and here’s why.

If there is one silver lining due to the COE system, it’s that the supply of cars is already artificially restricted. Even during the 2008 recession, COEs were fully taken up by buyers, which means there is effectively always more demand than supply for cars here.

Keep in mind that the last round of COE bidding we saw took place almost a month ago, on March 18, 2020. Because COE bidding takes place on the first Monday of a month, that can lead to the ‘three-week break’, where in normal circumstances, COE prices go up because dealers have had an extra week to collect orders. 

So come May 4 2020, it will have been a long six weeks for orders to stack up, and as we noted above, COE prices might be low because buying impetus is weak, but it doesn’t mean nobody is buying cars. And, as some of the sales managers we spoke to said, there actually have been people buying cars during The Circuit Breaker.

In fact Wuhan itself is already seeing some signs of recovery in its car market. You’ll say, ‘China isn’t Singapore!’ But consider that China’s burgeoning middle class drives the demand for cars, while Singapore’s lack of supply creates a similar situation of buying intent always existing in no small quantity.

So it’s quite possible that prices will go up slightly – after all there are lots of people who will have spent lots of time on the Internet looking at cool stuff to pass the time (ask me how I know) and itching to do something.

But COVID-19 is a dampener on big purchases, and will keep a lid on things going too crazy. That is, unless the COE comes out at less than S$20k, in which case it might spark a buying revival. 

3. Prices go down

We think this is the situation for the long-term. 

Now since April has become a blank month, its quota will be injected into the quota for the rest of the year instead – that’s 1,945 units for Cat A, 1,966 units of Cat B, and 1,967 units for Cat E.

Not an inconsiderable number, especially since the COE quota has been falling over the past year or more. The question is whether the LTA will spread April’s stash over the next three months (COE quotas are announced every quarter) or over the rest of 2020. 

If it’s the former, then we could see prices stable, or even falling – because are there really that many people buying cars at a time like this? If it’s the latter, prices could still ease because over the past year, COE prices haven’t risen even as the quota has dropped (supply has become less, but demand has presumably also done the same). 

Additionally, in the past couple of years we’ve seen private hire cars inflating demand (they’re registered as passenger cars), however that is finally beginning to tail too. According to industry sources, Grab has returned hundreds of cars to leasing companies in the past few weeks, in a reflection of the plunge in ridership. 

Lastly, car loans could be harder to get, which means a drop in demand. With the measures that reduce the action you can take against loan defaulting, we could see banks becoming stricter on loan approval in this time period.