Is the COE affected by the Financial Restrictions?

That question begs an answer, really. I cannot see how the COE is different from before the restrictions were put in place.

For those still wondering what this is about, I guess you are new to looking at cars. What happened was that the government had put into place a loan restriction of the maximum amount of 50% or 60% based on whether the OMV of the car in question was above or below $20,000. Tenure for all loans have also been reduced to a maximum of only 5 years, or well, just sixty repayments. I just like to think of it in the number of months as it makes guesstimating the amount to pay per month easier. E.g.: With cars here easily costing above $120,000 easy, even after the payment of the 50% upfront required, we are looking at repayments of above two grand.

Coming back to the differences before and after the implementation of “cooling measures”: There just isn’t that cooling effect I see at all in CatB. Why do I say that? The prices have gone done haven’t they? (In case you are wondering what the latest prices are, click here)

Cat B has fallen a substantial amount in the first bidding exercise after the loan restrictions were put in place, from over $90k to a little below $60k. That was from the wait and see attitude of some of the cash rich folks took – but for all my imagination, I find it hard to think of situation where it is because they have given up on buying that car because it is not out of reach. This is borne out by the fact that for the next few cycles, the COE has risen again. The very next one that jumped to $73k can be attributed to dealers fulfilling contractual obligations to deliver, but over the next few bid cycles we still stable demand.

This does not fall into cooling – at least my definition of cooling.

The rich are still cash rich and they are just being pragmatic. Why? Because the process of acquiring the COE is not what they handle directly anyway – it’s all handled by the distributor/dealer. When the market works by the buyer looking only at the final price as the decision making factor (of course there are emotional factors, but we are just talking about financials here), what happens in between is not their concern. The excess money goes into the increased ARF tax for luxury cars, with a correlating drop in the COE prices. Only the public is less aware of how much cash is going into ARF as these figures are not as readily collated and graphed as COE.

That being the case, the car demand for Cat B is still largely there. As evidenced in the more or less stable Cat B prices. The cooling mechnism (restrictions on loans) is cushioned from the customer and they do not feel the  pinch.

Business is as usual then. How this can be considered as successful cooling is really only what politicians will try to argue about.

For Cat A prices, there has been a reduction of about $14k since the new rules were put in place. This can be due to the recent legislation but the reduction seems cushioned – probably due to sales agreements signed before the 25th of February which dealers were still bidding to secure the COE for. But that the COE did redice is also a signs of buyers who are waiting to see if they can scoop up a lower priced COE as they dipped after the loan restrictions. But looking at the last four bid results, these buyers are coming back into the market.

Dealers, however, expect to see a gradual reduction of COE prices in the coming months as they expect that over the medium term, these restrictions will still have some effect.

For those drivers who are still waiting to get a new car, it may be advisable to wait but the expected fall in COE prices is going to be slow (read: a long wait before there are significant savings). This is of course barring any unforeseen economic hiccups.  Also, more COEs are expected to be released in a gradual manner towards 2016 where it may be the lowest of the 10 year cycle and that time may be a good opportunity to slip into a new car at lower cost.

But for a person who needs personal transport right now, what’s the best option now? Our advice is to get a reliable 2006 car to last you till 2016. Why so? Because it cushions you from the depreciation of a new purchase or cars from other years where the COE is high and gives you the opportunity to get a new car at low cost while scrapping your second hand purchase just at the right time  when COEs are low in 2016.