Wednesday, March 24, 2010

COE prices skyrocket

COE prices skyrocket

Last week, I posted a short article Time to Buy a Car? on COE prices increasing because of the government's move to restrict the supply of COE.

On 24th Mar 2010, the news reported that COE prices have skyrocketed to $28,389 for cars of up to 1,600cc and $36,089 for cars above 1,600cc.

It will definitely not be surprising if the prices continue to climb higher as that is what the authorities hope to achieve. With a limited supply of COE and a high demand for cars, bidders will have no choice but to push the prices higher.

I remember the days when COE prices were going for less than $1,000. The COE for my car was around $14K which is pretty cheap compared to today's prices.

How the ordinary Singaporean is going to afford a car is now a big question mark. With prices so high, I think most people are better off taking public transport. Couple it with the ever increasing HDB prices, the cost of living in Singapore is definitely going up.

Why People Buy Cars

I guess the better way to deal with the problem is to look at the reasons why people drive:

1. Convenience (Public transport is inconvenient)
2. Comfort (Public transport is not comfortable)
3. Status (Singaporeans value status and one is deemed to have made it if they drive a car)

Let me expound on the points further...

For convenience- Family with kids, pregnant women, old folks, rushing for time. All these play a part in people's decision to buy a car. If public transportation is not convenient enough for me, I will opt for the car.

For comfort - Buses can be old, dirty and smelly. Good thing they have removed the noisy TVMobile. During peak hours, when one is weary from work, "fighting" with the crowds just to get on and off the bus or train is a headache. The Singapore weather is also a killer. Hot and humid weather means you get sweaty just by waiting at the bus stop. When it is cool, it usually means that it is raining and one can prepare to get their feet soaked wet.

For status - In Singapore, the car is associated with STATUS. Isn't that what all the Channel 5 and Channel 8 shows have inculcated in us since we were young. The TV ads for cars are also too alluring and thus people are wired from young to desire for the biggest and nicest car.

A Better Way to Deal With Traffic Jams?

But is there a better way to deal with traffic jams and the clogging up of roads? So far, the government has implemented a slew of measures to prevent the overcrowding that is taking place on roads.

We have the COE and ERP that have been put in place to curb the amount of congestion of roads. But have these policies worked?

This is clearly a case where the government has decided that the only way to control the problem is to let the highest bidder pay for the right to use a car. After all, the reasons why people chose to drive a car cannot be easily answered even with the best public transportation system in place.

How High COE Prices Will Affect One's Personal Finance

For many potential first time car owners, they will probably have to put off the decision of buying a car. With COE prices at nearly half a year's wages for the average Singaporean, is it worthwhile to use up 0.5 years of wages to obtain the COE for a car that you can only drive for 10 years? That is a question lots of young adults will have to answer for themselves. Or perhaps they should put off the decision of buying a car only when they have started a family.

For those who cannot live without a car, be prepared to pay higher prices for the years to come. You might want to cut down on other expenses (e.g. holidays, luxury goods) and start saving up the money for the next car that you want to purchase.

19 comments:

  1. Are you using your car to make a living or just for transport?

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  2. the way COE prices are skyrocketing is just madness...hopefully there will come a time when it will come down...together with property prices maybe

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  3. It is just for transport. I am not a taxi driver =)

    With supply of COE limited, it is natural that prices will move higher.

    On the side note, I was just thinking whether the government should have a tiered approach to COE pricing instead. If a family already has 1 car, the 2nd car's COE will be much more expensive. This will help ensure a certain amount of "fairness" in the system.

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  4. If the car doesn't create any value, there is no point to have a car.

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  5. Too expensive to have car as transport. Use BMW and encourage anyone in your family to exercise their legs.

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  6. It's still much cheaper to take a cab...

    Then again, we have to wait long for a cab at times

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  7. Hi FA,

    I guess people value cars, that is why they are willing to part with their hard earned money to buy a piece of metal with 4 wheels.

    "Value lies in the eyes of the beholder."

    The question is how much or what percentage of our income should be spent on transport?

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  8. Last time, when there was no MRT at Hougang, I took MRT to AMK and then transfered to taxi and it was faster than waiting for taxi at city or orchard areas. Probably, can still use the same strategy to complete the last leg not covered by MRT

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  9. A cab is definitely much cheaper than a car. But in terms of convenience, comfort and status, I think a car wins.

    Good suggestion CW8888. That was what I used to do too.

    SBS transit, smrt and vicom all are defensive stocks.. Might not be a bad idea afterall considering that Spore population is increasing...demand for transport should go up..profits should also go up.

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  10. Another headache of driving ...

    http://motoring.asiaone.com/print/Motoring/Drivers/Story/A1Story20100325-206694.html

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  11. Straits Times Article today mentioned that the rise in COE prices are not due to the change in formula for calculating no. of COE alone.

    Agreed. There are market forces and a whole range of other factors that come into play when COE prices rise or fall.

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  12. Don't believe everything the Govt says. LOL !

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  13. Haha..

    But they gave 2 examples where the COE supply was cut down but the prices still went down. So I am guessing that it is due to the demand side of the house =)

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  14. The thing I know why Singaporean buying car is for driving into Malaysia, to return their hometown in Malaysia and outstation in Malaysia. It is so incovenient to use public transport in Malaysia. It affect them convenience to move everywhere in Malaysia mainly Malaysian citizen with Singapore PR.

    But nowdays, many Singaporean live in Johor and buying car in Malaysia bear with J plates.

    For me it is not worth to buy car in Singapore just to drive into Malaysia. If Singaporean want to buy car for driving into Malaysia, they buy weekend house in JB, then buy car and left the car in Malaysia. Crossing the causeway by buses.

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  15. Hi Toshio,

    Thanks for the comments. I am not sure how many Singaporeans actually buy a retirement home and car in Malaysia. But I guess it is a feasible idea given the stronger Singapore currency.

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  16. Hi,

    would u care to share your financial advice on when's best time to change a car and what to consider? tks!

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  17. I am a astute value investor. I can not believe that ford motor was trading at just a dollar a share two years ago just goes to show you that their are great companies that once traded under five dollars a share contrary to popular wisdom

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  18. For those who cannot live without a car, be prepared to pay higher prices for the years to come. You might want to cut down on other expenses and start saving up the money for the next car that you want to purchase.

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