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Gone were the days when the COE was just $2. With the new zero growth rate policy for vehicles that was announced by the Land Transport Authority (LTA), it could possibly cause the COE to be affected. But will it plunge that low again, maintain status quo or will it rocket up sky-high? Here are 4 key reasons why many drivers believe that COE will go up in 2018.
1. Reduced COE Quota
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The Vehicle Quota System (VQS), or more commonly known as COE quota, is the number of COEs available to be purchased for the period. This means that COE premiums will be revised upwards due to insufficient COE to accommodate new car purchase demands.
Even at a previous vehicle population growth of 0.25%, COE quota was already declining consistently in 2017. It is widely speculated that COE quota will be reduced further when vehicle population growth is cut totally! Therefore, if the supply of COE deteriorates as speculated, you could expect COE premiums to shoot up to new heights.
2. COE Bidding Becomes More Competitive
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Designed in a way to encourage bidders to outbid each other in order to obtain a COE, the bidding system has been successful in maintaining the competition throughout the years with an average of $49,651 for every bidding in the year of 2017. One way to predict if the COE premiums will be high or low is to analyse the competition for the next bidding period. A lower quota will be the reason for a higher competition while a higher quota would allow the drivers to take a breather due to lesser heat to compete for the certificate.
The final COE premium is decided by the price of the highest unsuccessful bid plus $1. Therefore, if the current demand sustains, they will be "fighting" to win the reduced number of COEs available in the market. Thus, making the exercises more competitive and may result in an upwards revision of COE premiums!
3. Increased COE Renewal Statistics
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There appears to be a trend of car owners opting to renew COE when their car's lifespan reaches the 10 year mark. In 2015, almost 6,000 Cat A cars had their COEs renewed, an almost 600% increase compared to slightly more than 1,000 COE renewal Cat A cars just 1 year ago in 2014. The numbers continued to increase to almost 18,000 in 2016.
With COE prices expected to rise further, renewing the COE of their existing cars is a more affordable option for car owners. Another reason why COE renewal is more attractive is due to the eligibility to obtain a 100% loan for their COE renewal, which means that they will not need fork out a large sum of money as compared to paying downpayment if they buy another car.
With the zero vehicle growth policy taking place, COE quota will obviously be affected when more car owners opt to renew their COE instead of scrapping or de-registering. A new COE will only be available when another COE expires, hence if the number of owners renewing their COE increase, only a thin percentage of other owners get to obtain a COE for their new vehicle which will then increase the premiums due to the competition as mentioned above.
4. Car Owners Are Selling Early
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In order to not experience the full impact of the zero vehicle growth policy introduced by the LTA, car owners are already preparing to take action early. Car owners whose cars' COEs are expiring early next year, can be seen discussing about early COE renewal on forums and driver's communities.
Similarly, car owners whose rides have less than 2 years left, are discussing to let go of their rides soon, to either buy another 2nd hand car with a longer lifespan or a brand new car. If car owners are taking action early, expect the COE premiums be affected earlier than expected, before the policy is even implemented!
Contrary to the reports on the newspapers, based on all the points above, it seems that the zero vehicle growth policy does affects COE premiums in more ways than one. It remains to see what will the government do if COE prices really increase and cars become less affordable for citizens.