COE

Very soon , Certificate Of Entitlement will become Certificate Of Envy. The news today is that there will be a reduction in numbers of COE in the coming six months. Expect the COE price to go up even further. COE will become unaffordable to many more Singaporeans, those who can afford them will become the envy of the rest of us.

 

Think, there are people that are having trouble with rental flats and then there are people buying a piece of paper at almost one third the price of a new flat. How can there be no envy?

  

The COE is based on a simple model of demand and supply. What we cannot control in this equation is the supply, only the government controls the supply. So if the supply cannot change and there is a high demand, what will happen to the price? It will have to go up.

 

Let’s look at the other end of the equation, what is creating the demand? Are Singaporeans really so rich now that they may be willing to pay half the price of a new flat to get a piece of paper? May be yes for some of the richer Singaporeans. Two years ago, I heard some rich people telling me that he can buy a car and used it for two years and then sell it as a used car and not lose any money with the trend of how the COE was increasing.

 

If you look at the list below of the top selling car brands in 2012, you should easily guess who is buying the cars. The top five selling brands except for Toyota are those we associated with rich people. No wonder the COE rise so much.

 Singapore Full Year 2012 – brands:

Pos	Brand	2012	/11	2011	%	Pos
1	BMW (incl Mini)	5,038	2%	4,959	17.5%	1
2	Mercedes	4,323	4%	4,166	14.7%	2
3	Toyota (incl Lexus)	4,272	20%	3,562	12.6%	3
4	Volkswagen	3,567	11%	3,204	11.3%	4
5	Audi	1,679	-20%	2,111	7.5%	5
6	Hyundai	1,155	-10%	1,289	4.6%	6
7	Volvo	1,066	28%	835	3.0%	9
8	Nissan (incl Infiniti)	759	-5%	800	2.8%	10
9	Kia	600	-37%	953	3.4%	7
10	Peugeot	560	22%	460	1.6%	13

Source: MTA, Singapore Times, www.stcars.sg

Who is the people buying used car? Yes, those people not so rich but needed a car in their daily lives. Can some smart people think what this is doing for our society? Rich people are buying cars and using them for few years and then selling the car a few years later with no loss at all and then buying new cars at a higher price in the hope of using them for another few years and then selling again without loss. This vicious cycle will continue to push COE price higher and together with it the used car prices. This cycle may break when there comes a point in time when the not so rich cannot afford the used cars but it will also depend on whether the rich really need to sell their cars in order to buy new cars.

 

We need to find ways to change the demand. Should we allow families that already have one car each for the family members to buy more cars? Should we differentiate the cars base on needs and wants? There are some people that really need car because their daily lives depended on it. Then there are people that buy cars just to show their affluence. Should these two different categories of buyers bid for different categories of cars? There may not be a simple solution to this demand and supply problem but it is a problem that must be solved. Please solve this problem before July 2015 because that is the time when my car COE expires.