Several months back, I wrote about whether COE prices can predict a recession in Singapore. I concluded the following,
A sustained period of COE price declined seems to be a leading indicator for a recession. This is especially so for "Open" category COEs. However, "Open" category COEs bottoms during a recession while commercial vehicles COEs bottoms before a recession technically starts... Judging from the downtrend in price since 2013, it may indicate that a recession is incoming...
Fast forward by 5 months, Singapore is now at the start of a recession, which analysts predict may last for a full year.
Now that we are headed into a recession, I will like to take a stab at how this will affect the COE prices in the upcoming months. For more info on COE, please refer to my earlier post
Updated charts
Again, thanks to the data provided by this site, I am able to update the following 2 charts with data from the past 4 months. We have no COE bidding exercise in April 2020 due to the circuit breaker. Hence, the data is only updated till March 2020.
Just to recap, I am only focusing on the "Open" and "Commercial Vehicles" categories because I believe that the "Open" category represents general consumer sentiments while the "Commercial Vehicles" represents general business sentiments. In addition, these are the only 2 categories that have been around since the COE system was implemented in 1990s.
For the upcoming COE price analysis, I will just be focusing on the "Open" category as that is what most Singaporeans are interested in.
Predicting the bottom COE price for "Open" category
To predict how low the "Open" category COE price can go, I am using the data from the last recession in 2008/09. The COE price for the "Open" category went as low as $3,000. Compared to its peak at $97,000, it is a HUGE difference.
As I found in my earlier post, the "Open" category COE tends to bottom in the thick of the recession. Based on the data I have, the following are the "cheapest" 6-months period for the "Open" COE category.
| Bidding Date | Quota | Price | Successful Bids | Total Value | Total Value (Inflation Adjusted) | Price (Inflation Adjusted) |
|---|---|---|---|---|---|---|
| 6/5/2009 | 716 | $8,501 | 713 | $6,061,213 | $7,094,448 | $9,950 |
| 22/4/2009 | 717 | $7,789 | 708 | $5,514,612 | $6,454,670 | $9,117 |
| 8/4/2009 | 720 | $7,326 | 720 | $5,274,720 | $6,173,885 | $8,575 |
| 18/3/2009 | 768 | $5,982 | 768 | $4,594,176 | $5,377,330 | $7,002 |
| 4/3/2009 | 762 | $5,700 | 759 | $4,326,300 | $5,063,790 | $6,672 |
| 18/2/2009 | 762 | $5,889 | 746 | $4,393,194 | $5,142,088 | $6,893 |
| 4/2/2009 | 756 | $3,000 | 746 | $2,238,000 | $2,619,505 | $3,511 |
| 21/1/2009 | 758 | $3,200 | 748 | $2,393,600 | $2,801,629 | $3,745 |
| 7/1/2009 | 767 | $5,701 | 763 | $4,349,863 | $5,091,370 | $6,673 |
| 17/12/2008 | 759 | $6,509 | 754 | $4,907,786 | $5,778,693 | $7,664 |
| 3/12/2008 | 761 | $7,589 | 747 | $5,668,983 | $6,674,967 | $8,936 |
| 19/11/2008 | 757 | $6,889 | 751 | $5,173,639 | $6,091,722 | $8,111 |
Based on the data from this 6 months period, we see that the bidding exercise with the lowest total value was 4th Feb 2009 with a total value of $2.6m after inflation. The average value for the bidding exercise is $5.3m.
Assuming Singaporeans are equally pessimistic and cash-strapped in the coming months as the great financial crisis. The total value spent should be similar. However, the COE quota has been on a decline since 2009. As shown in the chart below, we now have an average of 350 quota for each bidding exercise and the government can further reduce it if they want to.
Source
With that, let's do a simple math, the lowest the "Open" category COE can probably get will be
Lowest COE Price = Lowest Total Value / Average Quota
$2,619,505 / 350 = $7,484.30
Average COE Price in the upcoming months = Average Total Value / Average Quota
$5,363,675 / 350 = $15,324.78
Hence, I predict that the lowest "Open" category COE price during this recession will likely range from $7.5k to $15k. If you can buy a car at COE price of less than $15k, that will likely be a steal.
Conclusion
I do not think the price of COE will get lower than the previous recession because there is now less supply in terms of the quota. However, I think the "Open" category COE price will likely go below $20,000 in the coming months with a strong possibility of going under $15,000.
Again, this is just a simplistic analysis, so please take it with a pinch of salt 😜.
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