How does COE affect Car Prices in Singapore?

How does COE affect car prices in Singapore? - A certificate of entitlement (COE) is a license that exists as part of Singapore’s vehicle quota system, that certifies that car owners have paid the relevant taxes when they buy a car, which then entitles them to use the car on the road.

A COE is issued by the Land Transport Authority (LTA) and is primarily used as a tool to balance supply and demand of the car market, while also managing the total number of cars that are allowed on Singapore’s roads at any point in time, through a figure called the COE quota.

When buying a car from a car dealer, aside from the actual cost of the vehicle, COE prices are often the next highest determinant of the final sale price of the vehicle. How exactly then, does COE affect car prices in Singapore?

How does COE affect car prices in Singapore? - When you buy a car - before you can put it on the road, a new COE will need to be bidded for, after which the applicable COE premium for that bidding exercise will need to be paid for, before the COE is pegged to your car, and allowed to be driven on SIngapore’s roads. Due to the finite number of COEs (COE quota) available during each bidding exercise, the resulting COE price is a reflection of the supply and demand of COEs for that period in time. A spike in COE prices could be a result of a lower COE quota for that cycle, or the result of oversubscription to that cycle’s COE quota. The inverse would result in COE prices falling.

The final COE premiums are then added on to the selling price of the car you wish to purchase, which then determines the final sale price of the vehicle. Sometimes, car dealers will absorb some portion of a COE price increase if the increase is a small amount. However, it is important to note that generally, when COE prices go up, your new car prices will almost always increase as well.

Do take note, however, that COEs are split into various vehicle categories, such as Category A, Category B, and Open Category COEs. These categories are applicable only to cars that fall within their respective categories - so an increase in one category of COE does not automatically indicate an increase across all other categories as well. Even if there was an increase, it could be increasing at a different rate or with a different degree of fluctuation.

How does COE affect car prices in Singapore? - When buying a used car, the car has already been registered with a COE from the time it was put on the road by the first owner. As such, COE prices do not have a direct impact on the used car prices in the same way that it does on new cars. However, the COE trends that drive consumer behaviour will have some spillover effects on the used car market.

As a general rule of thumb, the variance between a new and used car of the same make and model are usually correlated - meaning that when new cars are more expensive, used cars will also become more expensive, and vice versa. This is due to the fact that as ownership costs of a new car get higher and higher, more and more consumers will eventually turn to the used car markets to find similar, lightly used units of the same make and model that they desire. This creates positive demand for the used car market, which in turn will lead to car dealers charging a premium for the cars that are already in their stock list.

Check out this list of used cars to see how the current COE situation has affected used car prices.

How does COE affect car prices in Singapore? - Car loans in Singapore are generally applied to the final sale price of a vehicle, which includes the COE premium. This means that consumers do not have to take a separate loan for their COE, as seen with COE renewal loans. Generally speaking, loan interest rates will fluctuate and change over the years, but the changes are usually not a direct impact of COE prices increasing or decreasing. What is more important though, is how COE prices will affect you as a consumer and your finances after the car purchase.

As the car loan is applied off the sale price of a vehicle, which includes the COE premium, an increase in COE prices will lead to a higher sale price, which means that your upfront downpayment for the car based on MAS guidelines will be higher. It also means that your monthly repayments and total amount of interest paid will also be higher. While the increased monthly cash commitments toward the repayment of your loan may seem quite trivial, it is important to recognise that your can loans are taken into account when calculating your Total Debt Servicing Ration (TDSR) in Singapore. TDSR is the indicator that the Singapore government uses to establish how leveraged you are as a consumer, and how much more money you can loan for other things such as housing. In essence then, if you are thinking of purchasing a new home in the near future, and wish to be entitled to the maximum loan allowed for home loans, then you might want to ensure that your car loans which may be inflated due to COE prices increases, does not render you over-leveraged in the eyes of the government and the banks.

To get a reference on car loan rates or specifically COE loan renewal rates, you may visit here for more information.

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