Drop in car COE prices surpasses some experts’ expectations, but most believe premiums will not stay low

SINGAPORE — The drop in Certificate of Entitlement (COE) prices for two categories of cars on Wednesday (May 17) surpassed some experts’ expectations, but most of them believe that the premiums will not remain relatively low for long.

This is because of the long pent-up demand in the market, with the experts pointing to how the number of bids received at each exercise always outstripped the quota allocated.

Separately, the doubling of the COE premium for motorcycles in the latest bidding exercise is simply a "market adjustment" from the unusually low price seen in the previous exercise, they said.

These experts, comprising industry players and analysts, were speaking to TODAY after the latest COE bidding results were announced.

COE premiums for small cars (Category A) dropped to S$92,000 from S$101,001, while those for large cars (Category B) fell to S$113,034 from S$119,399. 

The bidding exercise on Wednesday was the first after Transport Minister S Iswaran announced that the Land Transport Authority (LTA) would bring forward and redistribute the supply of five-year COEs that are due to expire.

The move involves the redistribution of about 6,000 COEs over several quarters — starting from the May to July quarter — and aims to reduce supply volatility in the midst of record-high COE prices.

On Wednesday, COE premiums for motorcycles (Category D) came in at S$10,602, more than double the S$5,002 seen in the last bidding, but lower than the S$12,179 on April 19.

LTA announced on April 21 changes to the motorcycle COE bidding to "improve allocative efficiency", with the bid deposit rising from S$800 to S$1,500, and the validity period for Category D temporary COEs cut from three months to one month.

DROP 'LARGER' THAN EXPECTED

All analysts who spoke to TODAY had expected Category A and B premiums to moderate, but the extent to which they did was beyond the expectations of some.

Assistant Professor Terence Fan from the Singapore Management University said that he had expected prices to “moderate” after the quota change “but not necessarily dip”.

“So, to me, the dip was larger than I had expected,” he said.

“But (it) is not totally unexpected, with the latest change in bringing early the de-registration car numbers in the COE exercise — which should have a bigger impact than previous tweaks in smoothing quarterly COE de-registration numbers,” he said. 

He was referring to a move by LTA in January to calculate the number of COEs available for bidding in each quarter based on the rolling average of a longer preceding period of 12 months.

Car dealer Amos Wong described the fall as a relatively “big drop”.

“If you compare with the past few bids, a drop of about S$9,000 on Category A and S$6,000 on Category B is indeed a big drop,” said the general manager of Autolink, though he said it was "expected".

Since January, COE prices for both categories have been steadily on the rise except during the May 4 bid, where prices for Category A and B went down by S$2,720 and S$1,490 respectively.

Meanwhile, transport economist Walter Theseira from the Singapore University of Social Sciences said he had only expected the quota increase to "help to stabilise prices, which had been creeping upwards".

This was because the increase in COE supply is very small in relative terms, the associate professor from the Singapore University of Social Sciences said.

The quota available in the latest bidding exercise for Category A was 596 and for Category B, 480. These compare to the 474 and 410 allocated in the first bidding exercise of the month on May 4, and 507 and 430 in the previous exercise on April 19.

Car dealer Raymond Tang found that the latest drop in COE premiums was “not so great”.

This was because although the quota for Category A and B went up by around 25 per cent and 15 per cent respectively, the premiums for both categories went down by less than 10 per cent.

This points to a very strong demand in the market, the managing director of Yong Lee Seng Motor said.

PENT-UP DEMAND WILL PUSH PRICES BACK UP

Like Mr Tang, Associate Professor Raymond Ong from the National University of Singapore (NUS) noted a significant pent-up demand for cars. He based this on how the bids received for Category A and B consistently surpassed the quotas allocated.

For example, based on historical data on the One Motoring site since the start of the year, between 28.6 per cent and 57.1 per cent more bids were received than the quota for Category A. For Category B, the excess bids received over quota allocated were between 18.8 per cent and 48.5 per cent.

Assoc Prof Ong, from the department of civil and environmental engineering at NUS,  believes that it would take some time before pent-up demand is met.

“I think in terms of the COE price for Category A and Category B, we need another cycle, that means the next cycle, to observe whether there's a stabilisation in price or if there's a self-correction effect,” he said. 

Mr Tang said that although prices have gone down this time round, it might be due to some consumers holding back for the time being to look at the impact of the latest policy change.

“So I believe in the next round, you might see prices of the premiums still going up,” he said, adding that he expects more people would bid for COEs after seeing a drop in prices this time around.

Like Mr Tang, Mr Neo Tiam Ting, president of the Singapore Vehicle Traders Association, expects premiums to rise.

“Even though they give more (quota), as we see, since post-Covid, a lot of activity has resumed and the demand is coming back,” Mr Neo said.

Associate Professor Theseira, on the other hand, said that fluctuations in prices can be expected over the next few cycles as the market adjusts.

“Basically, I wouldn't expect dramatic reductions in the COE price going forward.” 

Meanwhile, other industry experts like Mr Wong from Autolink, said that COE prices for the two categories “might not bounce back yet for the whole of June and July” due to the extra quota allocated throughout this period.

“But eventually, we will see an uptrend due to the Government’s goal of having a car-lite Singapore,” he said, adding that overall quota supply would still be restrained. 

MOTORCYCLE COE FLUCTUATION DUE TO MARKET ADJUSTMENTS

Market observers attributed the latest jump in motorcycle COE premiums to market adjustments.

Over the past 12 months, motorcycle COE premiums had ranged between S$9,489 (May 2022) and S$13,189 (November 2022).

It saw a drastic drop to S$5,002 on May 4 this year, before jumping back up to S$10,602 on Wednesday.

Mr Rex Tan, president of the Singapore Motor Cycle Trade Association, said that he had expected the increase, “albeit the amount was much more than expected”.

“When the COE price (on May 4) was less than half the previous price, demand will for sure skyrocket. Then the price won't be able to hold,” he said.

Agreeing, Assoc Prof Theseira said that without underlying changes in supply, “large falls in COE prices usually don't stick in our market”.

The industry experts expect more fluctuations in motorcycle COE prices in upcoming bids.

“Possibly, prices will take three to six months to stabilise, and then it will be a better gauge (of the impact of the recent policy change)," Mr Tan said.