COE premiums rose again in the first bidding exercise for November, thanks to an even tighter quota supply, but is there some cause for optimism ahead?

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SINGAPORE

In the first Certificate of Entitlement (COE) bidding exercise for November 2021, premiums in Category A, for ‘mainstream’ cars with engines less than 1.6-litres in capacity and output of less than 130hp, rose by S$1,000 to end at S$53,709.

Category B, for cars with engines that make more than 130hp, or are above 1.6-litres in capacity, went up by S$2,591 to end at S$82,801. It’s still expensive, but the rise is certainly less dramatic than the 10 grand increase from the last round of bidding.

Category E, which is open to all vehicles except motorbikes, but usually ends up being used for big cars, saw its premiums go up by S$3,000 to end at S$88,000. Again, an eye-popping figure, but certainly nothing compared to the 12 grand rocket we saw in October’s second bidding exercise.

The main driving factor for the rise in premiums is mainly down to a much reduced COE quota, with the Land Transport Authority (LTA) announcing a significant reduction in supply starting from this month. As we’ve explained before, a limited supply but no corresponding drop in demand results in higher prices.

The outlook for the year ahead doesn’t look that promising too, at least at first glance. With a 0 percent vehicle growth rate (meaning supply of COE is determined by number of cars scrapped or deregistered), there are potentially 14,000 COEs set to be released over the next year, as that is the number of cars whose age is approaching 10 years old (which is when their COEs expire). That works out to around 1,200 COEs a month, or roughly half of what is available now.

But a twist in the tale could possibly help turn the tide. Apparently there’s also more 21,000 cars whose owners decided to renew their COEs for a five year extension four years ago, instead of the usual 10, paying for half the renewal premium in the process (Ju-Len calls them cheapskates. Hmm…). For these cars, their COE tenure would also expire next year, and their demise would be enforced, unlike cars on 10 years COE which can be renewed in perpetuity.

So at the very least there would be 21,000 COEs recycled back into the system next, and in all likelihood more if we take the above 14,000 expiring COEs into account as well. That works out to a potential 1,400 COEs or so a month over the next year, somewhat more than the 1,282 COEs available in the latest bidding exercise.

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Still, market watchers remain cautious, with many anticipating premiums to remain at current levels at least over the next year, with no dramatic swings upwards and downwards. At the most, premiums for Categories B and E could peak at S$90,000 or so, as we saw back in 2012 (almost exactly 10 years ago), but breaching the landmark S$100,000 barrier seems unlikely.

Things will likely come back down to earth from the later part of 2023 onwards, as there would be a significantly larger number of cars reaching their end of their lifespan then, and headed for the deregistration pile, meaning more COEs being recycled into the system. But as always with such things, if you need and can afford a car now, then you should buy. Otherwise, if you can wait it out like a cheapskate, then you should wait.

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