Demystifying Certificate of Entitlement (COE)

Although the policy of COE has been implemented in Singapore for almost 30 years, many new visitors (and even some local residents) have expressed confusion about the scheme.  Read on as we demystify and explain what exactly is COE and how it works to control car population on the little red dot.

What is COE ?

In Singapore, hitting the road in your new car is a little more complicated than just visiting the car showroom, making a purchase, registering the new car and buying the required insurance.  First and foremost, a COE is required before further action can be taken.

COE stands for Certificate of Entitlement.  As the name implies, it entitles you the right to register, own and use a vehicle in Singapore for a period of 10 years.  It is essential for you to obtain a COE first before you can acquire a new vehicle In Singapore. This is by no means a walk in the park, as there is only a limited number of COEs to go around.  The number of COEs is tightly regulated as the government wants to ensure that traffic congestion does not reach untenable levels in Singapore’s small land size and high urban density environment.

Singapore implemented the Vehicle Quota System (VQS) which imposes a quota on the maximum number of vehicles that can be used in Singapore at any given time in 1990 to address this issue.  The VQS is enforced through the controlled and limited distribution of COEs.  Each COE is valid for only 10 years, after which the owner will have to either pay to renew it for another 5 or 10 years to keep using the same car, or deregister and scrap the car.

The necessity to obtain a COE in order to register and own a car has made the cost of owning a car in Singapore much greater, and this obstacle has indirectly helped the government achieve its goal of reducing car ownership here.  Understandably, the demand for COEs far outweighs the supply, and it is very expensive to buy or renew a COE.  For example, the average cost of a COE for Category A vehicles (cars up to 1600 cc & 97kW) in 2016 was S$49,587, and the price has been known to rise all the way to S$100,000 in the past. The COE premium tends to be cheapest for small cars up to 1600 cc & 97kW and more expensive for big cars that exceed 1600 cc & 97kW.

The COE model truly demonstrates the economics law of demand and supply.  Generally, if the Land Transport Authority (LTA) reduces the quota of COEs available, the overall price of COEs will increase. Other factors can also increase consumer demand and the price of COEs. For example, changes in exhaust emission standards could cause a surge of interest in buying compliant vehicles among consumers anxious to avoid paying a penalty. This increased demand could also drive up COE prices.

How to get a COE for New Vehicles ?

Your car leasing company (eg. Sans) will need to obtain a COE by bidding in auctions (either directly or through an appointed car agent) administered by the LTA that are held bi-weekly throughout the year on the first and third Monday of every month. Depending on the vehicle you are leasing, Sans or her appointed agent will bid within one of five categories, depending on the size of your preferred car.

How to bid for the COE ?

Bidders submit bids by naming a reserve price that is the maximum they are willing to pay for the COE. That amount is immediately deducted from the bidder’s bank account. If there are insufficient funds to cover the reserve price, the bid will be rejected. Over the course of the three-day bidding process, the Current COE Price (CCP) will increase by S$1 at a time until the number of bidders whose reserve prices match or exceed the CCP equals the number of COEs available in that bidding exercise. The Quota Premium (QP), which is the price that all successful bidders in that category will have to pay for their COE, will be whatever the CCP was when the bidding ended.

As you can see, the price that will be paid for your chosen car’s COE (if successful), will not necessarily be the same as the reserve price set. If the QP ends up being less than the reserve price, the difference will be credited back to the bank account of the bidder.  If, however, the CCP rises above the reserve price set, the bidder will be notified that they have been outbid. Upon notification, the bidder has the option of revising the bid upward to put himself back in the running for a COE.

Can COE be renewed ?

All COEs will expire after 10 years. When this happens, you can either deregister your vehicle or renew your COE by paying the Prevailing Quota Premium (PQP), which is the moving average of COE prices (QPs) in the preceding 3 months. COE may be renewed for either another 10 years or 5 years (in which case you would pay only half the PQP). Note that if COE is renewed for just 5 more years, it will not be possible to renew it again after that and the vehicle will have to be scrapped at the end of the 5 year extension. If the COE is renewed for another 10 years, it is possible to renew it again at the end of the 10 year period.  It is worthwhile to note that if the vehicle is deregistered instead of being renewed, the owner may be eligible for a COE and/or PARF rebate.