askST: With COE prices falling, is it time to buy a new car?

Certificate of entitlement prices have tumbled, with the latest premium for bigger cars hitting a six-year low of $38,610. As such, readers have written in to askST if they should now buy a new car. Senior transport correspondent Christopher Tan replies.

You can start shopping, but you should not rush into signing on the dotted line.

First, you are unlikely to be able to enjoy prices that fully reflect the COE drop. At least, not immediately. Premiums will most likely rebound in the next tender or two. They will take another round or two to come back down, maybe longer.

Second, premiums are likely to trend downwards in the longer term. This is because the supply of certificates - the biggest determinant of prices - is set to balloon for the rest of the year, as well as the whole of next year.

Category A COE (for cars up to 1,600cc and 130bhp) is likely to fall more immediately and sharply. This is because this COE is now $8,000 costlier than the premium for bigger cars - an anomaly.

There is no need for buyers to rush or panic, even if COE prices bounce back up by $10,000 in the next tender.

Do not commit out of fear. Buy at a price that you are comfortable with. More importantly, be prudent - do not stretch your finances.

As you might have noticed, the world economy is a little shaky. That in part has sent oil prices plummeting, which in a tail-wagging-dog way, is having a negative impact on the world economy and employment rate.

In Singapore, the Straits Times Index has lost 500 points since the last quarter. COE rates are reflecting this sentiment, and property prices are likely to follow suit.

There is another reason why you should not rush. Those who bought new cars in the last three years or so - when COE prices were as high as $90,000-plus - are likely to start scrapping their vehicles. This is because the depreciation of these three-year-old rides is higher than that of a brand new car.

This renders these cars unsaleable on the resale market. Hence they would have to be scrapped. This scrappage trend will mean even more fresh COEs in the supply pipeline.

So, once again, start browsing, but take your time. Base your buying decision on need, not greed.

More askST stories here.