Experts say fall in COE prices may be temporary

Certificate of entitlement (COE) prices fell below $50,000 in most categories for the first time since May on Wednesday.

But before potential car buyers rub their hands in glee, experts cautioned that this could just be a temporary blip.

The premium for Category A - cars up to 1,600cc and 130 brake horsepower (bhp) - went down from $50,951 to $48,000.

The COE price for Category B - cars above 1,600cc or 130bhp - fell from $53,001 to $46,229.

For the open category, Category E, which can be used for any vehicle type, the price fell from $54,901 to $50,010 - also the lowest since May.

But experts said the prices may shoot back up instead of continuing to slide.

Earlier this year, the COE price for Category B was expected to go below $38,610, which was a six-year-low price hit in February this year.

If everything was as it was 10 years ago, COE prices should drop as the economy slows down, but Uber and Grab are
holding that back. Assistant Professor Terence Fan of Singapore Management University

The expectation stemmed from an anticipated bumper supply of COEs as a result of the scrapping of old vehicles bought during the last supply bonanza about 10 years ago.

This increase in COE supply is supposed to continue growing till late next year.

REBOUNDED

But prices rebounded for the larger cars in the next bidding exercise, before reaching a year-high for Categories A, B and E in June.

Since then, COE prices have stayed above $50,000, until Wednesday.Dr Lee Der Horng, a transport researcher at National University of Singapore, said COE prices would sink only if fewer consumers bid to buy a car.

"The drop would only be permanent if consumers' expectations become less optimistic, and they become more cautious in buying," he said.

Assistant Professor Terence Fan, who specialises in transport at Singapore Management University, said COE prices are also likely affected by the demand created by private-car hire companies such as Uber and Grab.

"If everything were as it was 10 years ago, COE prices should drop as the economy slows down, but Uber and Grab are holding that back.

"If they keep vying for market share and throwing money to buy cars and COEs, it'll be hard to predict prices - especially if these competing firms go all out and drive up demand," he said.

In 2006, there was a peak of new cars registered - with 117,062 units - due to a sustained crash in COE premiums.

This year, 99,836 new COEs have already been registered between January and October.

There were also 23,467 car renewals between January and September, more than double the whole of last year's tally of 9,919.

This high number of renewals could also affect the COE prices as they limit the supply of COEs recycled into the market, said Singapore Vehicle Traders Association first vice-president Raymond Tang.

TEMPORARY?

He added that Wednesday's dip in prices could be temporary as many people are on holiday during this period, resulting in lower car sales and fewer bids.

But he expected demand from consumers to pick up after Chinese New Year, meaning prices could go up again.

Prof Fan said prices, however, should come down in the long run as the Government pushes for a car-lite Singapore.

"Barring other factors such as Grab and Uber and that the older generation may need to rely on a car, we can see the demand for cars becoming less and less, and prices should fall," he said.