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COE- What is it and Why is it So Expensive?

May 11,2020

Why Limit Cars on the Road? 

It may be unbeknownst to many that Singapore has one of the highest road densities in the world, standing at 473km of road per square km of land area! Singapore is also amongst the countries with the highest number of vehicles per kilometer of road. However, on top of an increasingly dense population and purchasing power of citizens with added needs and facilities, constantly building roads amidst other land constraints is not sustainable in the long run. Hence, since 1990, the government has embarked on a monstrous task of providing a sustainable way of urban living through managing traffic and reducing congestion on roads. This led to the birth of the Certificate of Entitlement (COE). 

 

So, What is COE? 

The COE is one of the most costly pillars of Singapore’s traffic management strategies designed to manage the rate of growth of vehicles population based on the Vehicle Quota System (VHS). This is on top of the plethora of taxes already put in place to limit the demand of private transportation, urging citizens to opt for public transportation. Buying and maintaining a car in Singapore hence becomes a luxury due to it being a costly endeavour. In fact, in 2019, Singapore stacked up as the world’s most expensive place to buy and run a car, according to the Worldwide Cost of Living Survey carried out by the Economist Intelligence Unit (EIU). 

 

How It Works? 

Under the VHS, before buying a new vehicle, aspiring car owners would have to first place a monetary bid for the COE, which is auctioned every month. Purchasing a COE would then permit the vehicle to be allowed on the road. Consequently, with this certificate, owners would have the right to register, own and use the vehicle in Singapore for a span of 10 years. After which, the car must either be scrapped or exported out. Should the car owner wish to continue using the vehicle for the intended remaining lifespan, one would need to bid for another COE at its prevailing rate. Car owners would then be subjected to quite an emotional dilemma on whether to bid and pay the prevailing COE amount that could possibly be more than the market value of the car or to deregister/scrape their vehicle which would otherwise still be in rather good condition. 

 

How Expensive is COE?

The vehicle quota is determined when the government announces the rate of growth of the vehicle population every year, based on the analysis of existing traffic conditions and the projection of Singapore’s road capacity. With this data, the quota of individual categories is determined on top of accounting for existing vehicle population from each category and number of vehicles deregistered in the previous year. 

In example, the 5 categories of the COE and its relevant results as of March 2020:  

Category Description Quota Premium  Quota Bids Received
Category A Cars with engine capacity of 1600 CC and below $31,210 982 1421
Category B Cars with engine capacity of 1601 CC and above $30,012 992 1366
Category C Goods vehicles and buses $22,002 448 708
Category E  “Open category” – used for all vehicles  $32,500 331 503

[*Quota Premium: Price of the successful COE bid; 

Quota: Number of COE issued. 

Bids received: Number of bidders participating in this COE bidding round.]

 

COE and its Downsides

Auctioned monthly through a sealed-bid tender, the COE presents itself as an infamous deterrent to anyone who opts to purchase cars. 

 

A deterrent can only be successful if it is high enough a sum to deter most people in owning a car. Inevitably, it favours the wealthy. Moreover, it does not take into consideration the rationale for car ownership. In addition, as the COE is a hefty price to pay, car owners are incentivised to use their cars exhaustively throughout their 10 years of ownership. Therefore, this would lead to higher usage of cars on the roads, contributing to the aforementioned problems like traffic congestion and reliance on private transport. 

 

So What does this Mean for Aspiring Car Owners? 

With the current government measures trying to reduce the number of private vehicles on the road, this means that aspiring car owners might have to either:

  1. Wait for drivers to give up their certificates or
  2. Prepare to bid for COE with a higher bidding amount.

If they would want to do neither, then taking public transport or hiring a taxi/grab would be the only viable option. 

 

Especially for drivers that are unable to afford the colossal upfront and maintenance costs to purchase a car for essential commute, one viable option would be to partake in various car rental services like long-term car rental or short-term rental to address pressing needs. This would address the costly considerations of purchasing a vehicle, upkeeping and maintaining the car throughout the 10 years. Additionally, this would allow you to fulfil your important commuting needs, help transportation of goods and services and to provide a comfortable and convenient way of driving your family and friends around. Check out Buy Car Vs Rent Car, which is better?, for a more in depth analysis of the pros and cons of buying or renting a car. 

 

Rent a Car in Singapore with BizLink Rent-A-Car 

Should you wish to rent a car and save on the substantial upfront cost like COE, you may want to consider various car rental packages in Singapore. Most companies would offer both long-term car rental and short-term car rental packages to cater to your different rental needs. As every customer is unique, BizLink Rent-A-Car would like to extend our support in helping you find the most suitable car rental package that would meet your specific needs. Reach out to the support team at 6285 6616 to get a quote or to enquire today! We wish you a safe and pleasant journey. 

 

References:

https://www.sgcarmart.com/news/writeup.php?AID=70&gclid=Cj0KCQjwsYb0BRCOARIsAHbLPhEH974ljptcBfNUysrFz5buM2-QrChEqqyaUrxF-LwvAeAotJbZJ8QaAurWEALw_wcB

https://www.budgetdirect.com.sg/car-insurance/research/why-are-cars-so-expensive-in-singapore