The Certificate of Entitlement (COE) allows one to own a vehicle in Singapore, which can be used on the roads for 10 years. A limited number of COEs are released twice a month, making the price of COEs largely dependent on the demand of the market. Introduced in May 1990, the COE was meant to curb road usage and limit vehicle ownership in Singapore during a period of growing affluence and booming car population. We constantly have to be prudent with how we use our limited land space, and controlling the number of vehicles on our tight road infrastructure helps cope with congestion and maintains a healthy road network.
COEs are released for purchase through a competitive open bidding system twice a month. As the supply of COEs is controlled through the Vehicle Quota System (VQS), demand almost always outstrips supply. The COE prices, or Quota Premium, are then determined by bidders in an open market, giving it its NYSE-style fluctuations.
Predicting the future price of COE is not easy. Maybe the government should create a derivative market for COE and get more trading revenue tax! (just kidding)
At AloRide, we need to carefully monitor the motorcycle COE price movements and change our rental pricing accordingly. There is no other market variable that impacts us more than that COE price. A good prediction will help us to optimise our assets allocation and risk/investments strategy.
The COVID-19 pandemic has been said to hit “worse than SARS and the Global Financial Crisis” and will likely last for a few years, leading to our hypothesis that the changes we see during this period will last for a long time. In this research, we found evidence that motorbike COE prices will keep increasing for at least a few years.
The government is artificially placing a cap on the number of motorbikes being on the road. Even though the measure was announced back in 2017, for motorbikes, it seems like the cap existed far earlier than that. Population of Motorcycles has been stable in the last 15 years at about 140,000 vehicles:
- That shows the quota for new CoE will be the same as the number of deregistered motorbikes.
According to this LTA planning report, we found that the return of quota from suspended bidding periods from April to June 2020 (during COVID-19 circuit breaker) will be distributed in 11 months from July 2020 to June 2021. There will be 838 motorbike CoEs being returned per quarter, or about 140 CoE per bidding. This only makes the supply side even worse after June 2021 because the average motorbike CoE quota will only be about 393 after all CoEs are returned.
Motorbike COE quota will be stabilised at about 393 per bidding in the long term
Some important events happened in around April 2018:
Now, let’s take a look at the Monthly New Registration of Motorcycles by Make chart below:
What we see here is a clear surge in demand for Honda and Yamaha motorbikes – the types that fit with delivery jobs – started at the same time in May 2018.
Let’s have a look at some other data – COE quotas vs price chart from 2002 until now:
Looking at the recents quota numbers from 2019 until now, we can see a clear trend that the quota is now stabilising and approaching around 450 bikes per bidding, due to the fact that the surge in NEA-rebate-related deregistrations is approaching a negligent number.
Impact of NEA rebates to the old motorbike population is quite clear here. It reduced by half within 1 year for 2003 models, from 4953 to 2946. The reduction rate will be slower and approaching zero after a while.
The surge in number of deregistered motorbikes in the red box above is highly correlated to the red triangle surge in the previous chart (quota trendline).
We cannot deny the fact that a lot of people will be unemployed in the short term. A sizable portion of them will turn to food delivery for a living.
High demand for food delivery
GrabFood recorded an 80 per cent increase in weekly applications to be delivery riders since last March 2020. Food order increased about 60% compared to pre-COVID.
After the suspend of the COE bidding from April to June, the 1st round of COE bidding caught most of us off guard. When least expected, especially Singapore’s economy is forecast to shrink by 11.8 per cent in the second quarter year as reported in the Straits Times. Category D for motorcycle quota premium increased by 70%.
There are close to double the number of bids as compared to the previous months. These might factor in the missing three months of COE bidding and also the sudden increase in riders venturing into the food delivery business during the COVID period.
COE price mostly depends on supply and demand. Looking at all the above evidence, we found that in the near future, there will be a shortage of COE for motorcycles. Moreover, with the on-going global pandemic, governments will have to do many rounds of quantitative easings (printing money from thin air), which will push up asset prices everywhere – not just stocks, real estate, Bitcoin, but also CoE.
Our final prediction: Motorbike COE will keep rising in the next few years, especially from June 2021 onward.
Worry that you may not be able to afford a new motorbike? You can rent a motorbike with AloRide to avoid the rising COE. Rent a bike today by clicking HERE!
Phil T – AloRide Research – 2020-09-22
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