By Dr Yuen Chung Kwong

chart of COE price
$ signs make up a horizontal bar whose length indicates the approximate cost of Prevailing Quoto Premium at each half yearly point; the top line states the $ value in thousands.

The diagram above plots the average successful bid prices for Certificates of Entitlement for the most popular category of cars (i.e., under 1600cc in engine size), from the introduction of the COE system in early 1990 to January 2013 at 6-month intervals. Note that the category also includes certificates for taxis, also that before mid 1999 the category excluded cars under 1000cc; there was also a change in the way the “average” or “Prevailing Quota Premium” was calculated; further, the total number of certificates available for the category has increased considerably over the years, but these details are not important for the purpose of this article, which is to look at the willingness of a typical car buyer to pay for the opportunity to own a car. Approximate as the numbers might be, and regardless of what factors affected the people’s thinking, they measure the willingness well enough.

Roughly speaking, the price of a new car consists of four components: the import price of the car itself, (called OMV Open Market Value – it contains various componets too but again the details are not important here) the registration fee (ARF or Additional Registration Fee – again I omit various details including the partial refund system when the car is de-registered) which is calculated as a percentage of OMV, 140% for most of the period of the diagram but it was later reduced to 110%), the COE price, and the various add-ons put in by the dealer including of course its profit margin.

For a Nissan Latio I bought in march 2006 the distribution of the $55,000 price is roughly

OMV – 15000 ARF 16500 COE – 8000 Others – 15000

Quite obviously, the widely varying COE bid prices, changing more than 10 times over the years, does not reflect the underlying economic value of a car, which ought to be reasonably constant, but some kind of speculative, psychological intent, including the fear that the price would be even higher next time. The previous 1996-99 peak period also happens to be the time when club membership prices were very high. (See The saga of Raffles Town Club ) while the latest COE peak occurred after several years of stubbornly rising property prices.

The rapid drop of COE prices up to 2009 not only reflects the greater allocation of new certificates, but also the large number of de-registrations of cars with expensive COEs to receive the partial refund, with the cancelled COEs feeding back into the new COEs stream. This increase in COE supply, coupled with the built in percentage increase in supply, causes the availability to build up in certain periods lowering the prices, which then induce even more de-registrations.

Given the phenomenal rise of COE prices in the last four years, it might be hard to believe that they can tumble again soon. With the new tax measures in the 2013 budget, imposing higher Additional Registration Fees on more expensive cars and making car loans more stringent, thus discouraging the wealthier prospective car owners from making over-generous COE bids, COE price will start to decline, slowly at first, but once the drop from the peak becomes substantial, those who paid for very high COEs might start to find it attractive to deregister their current cars, get refund for the unused part of the COEs and purchase new cars with lower COEs. This would then increase the number of new COEs to be issued and lead to further declines in bid prices, thus accentuating the downward trend.

While the decline is unlikely to reach the 2009 level, it would still be a great contrast to the current situation, and illustrate the level of “irrational exuberance” that currently exists.


Yuen Chung Kwong completed his PhD in Computer Science from Sydney University in 1972 and worked in Australia and Hongkong before joining NUS Computer Science Department in 1983; he was department head from 1985 to 1993 and retired in 2007.