Uncertain Long-Term Effects on COE Prices and Market Behavior
SINGAPORE – The upcoming injection of up to 20,000 additional certificates of entitlement (COEs) over the next few years is likely to cause potential buyers to hold off on purchasing vehicles, awaiting an increase in COE availability. However, the short-term dampening of demand could be offset by uncertainty over the long-term impact on COE premiums, as the precise timing and allocation of these additional COEs remain unknown.
Market Reactions and Analysis
Motor traders and analysts suggest that the move is aimed at stabilizing the COE supply to avoid sudden fluctuations, but it’s unclear whether it will ease pressure on prices.
Associate Professor Walter Theseira, a transport economist at the Singapore University of Social Sciences, noted that the progressive addition of COEs aims to moderate price volatility by reducing extreme fluctuations in supply over the years. However, he emphasized that the goal is not necessarily to lower COE prices, but to create greater price stability for potential buyers.
The Land Transport Authority (LTA) has not provided a detailed schedule for the allocation, leaving some buyers uncertain about the potential for price drops. Prof Theseira cautioned that waiting for prices to decrease could be speculative without a clear strategy.
Industry Opinions
Car dealers have varied opinions about the 20,000 COE injection:
Mr Soh Ming, managing director of Volt Auto, believes that serious buyers will proceed regardless of COE price movements.
Ms Sabrina Sng, managing director at Wearnes Automotive, suggested that the LTA’s announcement might raise expectations but could ultimately lead to “herd behavior”, where buyers rush to purchase cars in anticipation of lower premiums, potentially canceling out the benefits of the additional COEs.
Mr Neo Nam Heng, chairman of Prime, welcomed the decision, viewing it as a positive step, especially when combined with the cut-and-fill approach, which helps balance supply across different years.
Broader Structural Issues
While the immediate impact of the COE injection is debated, Dr Zafar Momin, an adjunct associate professor at the NUS Business School, warned that it may only serve as a temporary fix. He referred to the move as a “Band-Aid solution” to high COE prices, pointing out that it fails to address deeper structural issues within the COE system, such as demand fluctuations and external factors. He suggested considering reforms like re-categorizing vehicles based on luxury and non-luxury segments.
From a car-lite perspective, NUS economist Timothy Wong recommended that the additional COEs be allocated to highly utilized vehicles, such as those used for ride-hailing and car-sharing, particularly those operating during off-peak hours.
Impact of Changing Travel Patterns
LTA’s decision was influenced by a sustained change in travel patterns and a reduction in total vehicle mileage over the past five years. However, Dr Momin criticized this approach, pointing out that pandemic-related shifts in travel behavior could skew long-term patterns, making the analysis less reliable.
The planned injection of COEs is expected to have a modest short-term impact on market behavior. Buyers might postpone purchases in hopes of a price drop, but the ultimate effect will depend on how the COEs are allocated and whether broader reforms are introduced to address supply-demand imbalances.
