Post Circuit Breaker: Will COVID-19 Impact COE Prices?
We’ve all been feeling the effects of COVID-19 in one way or another. While the pandemic’s impact has been largely negative, you might be able to find a silver lining through it all. For one, the environment is benefitting from a worldwide ‘lockdown’. Another impact COVID-19 and the Circuit Breaker measures will have is on the car market, specifically COE prices, in Singapore.
So, as we come to the end of May 2020, how do you think COE prices will react when Circuit Breaker ends? Let’s explore the impact of COVID-19 on COE prices.
COE Prices Before Circuit Breaker
As news of the coronavirus outbreak in China started to gain traction in January 2020, consumer sentiment started to weaken as Singaporeans were hesitant to make big financial commitments in light of an impending crisis.
From the results of the COE bidding exercise on 5 February 2020, COE premiums saw a significant dip. The prices for premiums in Category B, meant for cars above 1,600cc or 130bhp, closed almost $7,000 lower than the previous exercise.
Following this trend, cars in Category A and in the Open Category also dropped. The dip in results is one of the sharpest drops in COE premiums in recent times.
COVID-19’s Impact on COE Prices
While the COVID-19 pandemic might not be the sole cause, it certainly was one of the major factors that contributed to the decline. As mentioned earlier, consumer sentiments were sinking and people did not want to purchase cars in times of uncertainty.
This sentiment was felt in many different industries, across many different countries worldwide. The economy was slowing down due to the increased health risk, causing some companies to shut its doors forever. Furthermore, the Circuit Breaker measures, while necessary, affected more businesses and markets like the automotive industry.
While you can buy and sell cars online, the transaction still requires some form of physical contact and face to face meetings. So, naturally, people stayed away from this due to health risks as well as the shifting needs of owning a car during this time. As such, the drop in demand was higher than the supply, which caused the COE prices to fall.
Additionally, the Circuit Breaker measures prohibit showrooms from opening and even suspended the COE bidding exercise in April and May. So, what happens when the bidding exercise opens again?
What to Expect Post Circuit Breaker?
There’s news that the bidding exercise will only return when showrooms open again. At the earliest possible date, this will only happen in July. So, we’ll be without the bidding exercise for at least 3 months.
With such a long time without being able to bid for COE, we can’t be certain what is going to happen to the prices. But there are two compelling arguments about what might happen.
COE Prices Fall Further
Many industry experts expect the COE prices to drop slightly due to several factors. Due to the economic sentiment of Singaporeans and regular warnings of recession from the government, drivers will be hesitant to make a huge financial commitment in these uncertain times.
It might also be more difficult for drivers to get loans now as the Monetary Authority of Singapore (MAS) has rolled out packages that reduce the actions a bank or financial institution can take against you if you default a loan. This might see these institutions become stricter in their loan approvals, making it more difficult to buy a car and thus putting a dent on the demand.
Also, it’s unlikely that demand will be inflated from the private hire community like in previous years, as many drivers are considering returning their cars due to declining ridership.
Additionally, dealers might have to fulfil outstanding sales agreements with buyers which were signed before these measures were implemented.
COE Prices Hike Up
So far, we’ve gone 3 months without any bidding exercise. Yet, people are still buying and selling cars during the Circuit Breaker period. This is a sign that there’s still demand to own cars.
Therefore having such a long time away might cause COE prices to rise as car dealerships would have been able to collect and stack up orders throughout this period. And with how the COE system works, more demand means higher premiums.
Even with the looming recession and economic uncertainty, the demand is still there. Another reason why there’s a demand for Singaporeans to own their own cars is due to the increased health risk that taking public transport or taxis pose. This makes owning your own car look a lot more attractive as you’ll technically be safer as you minimise your exposure to your surroundings and other people.
Looking at the SARS Outbreak
While not every outbreak is the same, we can look at what happened in 2003 as an indicator of what might happen now.
When the SARS outbreak hit our shores, there was a significant drop in COE prices. The outbreak also saw a decline in Singaporeans using public transport to reduce exposure to the virus. These situations are likely to happen now too, especially the latter as we’ve seen that the demand for personal vehicles is still present.
At the end of the day, whether COE prices go up or down will largely depend on what happens to the unused quota during these 3 months.
If the unused quota is carried forward and spread across the next quarter, there’s a good chance that COE prices will fall as the demand might not be able to meet the supply.
However, if the quota is spread across the rest of 2020, it’s possible that COE prices might go up as the demand might not be able to meet the supply that’s available. And as mentioned, the demand might increase due to the extended period where dealerships were able to generate interest and also because of the increased interest for Singaporeans to own their own cars to minimize exposure to the virus.
It’s also important to remeber that we can’t be 100% certain of what will happen. The important thing to note is that if you’re looking to buy a car, don’t wait too long in hopes that prices will drop further. If the COE price is fair on your wallets, go for it with no regrets!
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