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Could COE prices crash after July?

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Rosy news for vehicle buyers, as the COE Quota expands. But could things be even better after July?

SINGAPORE — Good news for vehicle buyers: starting from May there will be a much larger number of Certificates Of Entitlement (COEs) available.

The supply is expanding for all categories, and collectively there will be 6,637 COEs for sale every month, up from 4,705 in the current Quota period of February to April.

For would-be car buyers, the news is pretty rosy.

Category A (for passenger cars with an engine displacement of 1.6-litres or less, and making less than 130bhp), commonly perceived as the ‘mass market’ category, will see the greatest increase: 2,853 pieces per month, up from 1,973 units per month in the previous February to April time period, or an increase of 44.6 percent.

Category B, for cars above 1.6-litres and/or 130bhp, also saw a sizeable increase in monthly quota from 1,138 to 1,444 (26.9 percent), while Category E, the Open category, increased from 349 to 527 per month.

MORE: How the latest COE results led to big bucks for the LTA

Economic theory says that as a good becomes less scarce, its price should fall. But that assumes no increase in demand takes place, and that’s where the COE situation gets complicated.

Although the Quota is expanding in May, there are some reasons to believe that prices will stay high for now.

The main one? The rush is on now to buy cars before July.

That’s because July is when new categorisations take effect for the Carbon Emissions-based Vehicle Scheme (or CEVS).

CEVS prescribes tax rebates for low-carbon cars and penalties for more pollutive ones. Once June is over, many of Singapore’s most popular cars (like the Toyota Corolla Altis) will no longer qualify for a CEVS rebate. Others, like the Honda Odyssey (pictured below), will be newly penalised.

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Buyers have been buying sooner rather than later, to avoid the effects of the revised CEVS.

“There is now a pressure to register before the new CEVS kicks in on July 1st,” says the sales manager of an East Asian brand that CarBuyer spoke to. “After that, (some models’) prices will go up by $5,000 at least.”

MORE: This car is in Singapore. But it won’t be launched until COE prices come down.

But the good news is, higher prices in May and June could mean a hefty fall after.

The CEVS-induced rush has the effect of front-loading sales — the order books have swollen as buyers try to avoid the new taxes or penalties, but that could lead to relatively empty showrooms once the July deadline is over.

In the short term, this CEVS effect could mean that prices stay higher than they normally would, but given the larger Quota that kicks in next month, pricing pressure looks set to ease anyway.

And with the COE Quota set to expand even more throughout the year, the third quarter of the year could bring even better news for car buyers: another expanded COE supply, along with a fall in demand from a car buying public that did most of its shopping before the new CEVS rules.

Could we see a major drop in COE prices then?

MORE TO READ:
The contrary view— why COEs will never be cheap again
Five myths about the COE system