COE Price Surge Sparks Inflation Fears in Singapore

This trend amplifies inflationary pressures, as higher COE premiums, which constitute a substantial portion of car ownership costs, elevate transportation expenses for households and businesses alike. The 9.2% jump in motorcycle COEs to $9,389 further intensifies this effect, suggesting that even alternative transport options are becoming costlier. As incomes rise and the Land Transport Authority maintains a zero-growth car population policy, the long-term upward pressure on COE prices aligns with inflation and wage growth, potentially adding 1-2% to annual consumer price indices. This dynamic positions real estate, particularly in suburban areas where car dependency is higher, as a key battleground for assessing the economic fallout.

Conversely, central areas with robust public transport links, like those near MRT stations, may see sustained demand, as urban dwellers opt to forgo car ownership amid rising costs. The average HDB resale price, now exceeding $600,000 for four-room units, reflects this resilience, but the correlation between COE premiums and housing affordability could tighten if prices continue climbing. Dealers’ mixed forecasts—some anticipating a sales dip to lower Category A premiums below $100,000—hint at a potential stabilization, though historical data shows supply increases have yet to meaningfully curb costs, reinforcing the view that real estate in car-dependent zones will lag unless transport policies adapt.

Counterarguments suggest that adaptation to high COE prices, as noted by Sime Motors’ Anthony Teo, could sustain demand, boosting stocks of electric vehicle distributors like BYD over time. The 8.4% rise in bids from the previous round indicates persistent buying interest, which might support automotive ancillary firms if dealers offset costs with innovative financing. However, the broader market’s 23% increase in SGX securities turnover in June suggests resilience, with investors likely to favor diversified conglomerates over niche car-related stocks, anticipating a 5-10% earnings correction in the sector unless COE supply surges significantly in the August-October quota.

Commodities like copper, used in electric vehicle production, see limited direct impact but could benefit indirectly if higher COE prices accelerate EV adoption to offset car ownership costs. Construction tender prices, projected to rise 0-2% in 2025, might also edge higher if infrastructure spending adjusts to support public transport, though the effect remains marginal. The bond market’s stability suggests investors are pricing in moderate inflation, but a sustained COE uptrend could shift focus to inflation-linked bonds, offering a hedge against the 7.3% year-on-year increase in HDB resale prices signaling broader cost pressures.

Looking ahead, the financial markets face a critical inflection point as COE prices test Singapore’s economic resilience through 2026. Investors should prioritize real estate investment trusts (REITs) in central areas with strong transport links, targeting a 5-7% yield as suburban properties stagnate, while avoiding overexposure to automotive stocks unless COE supply doubles in the next quota announcement. The August-October quota, driven by a 12-month deregistration average, could rise 5-10%, but historical ineffectiveness in curbing premiums suggests a 10-15% further increase in Category A costs, pressuring consumer spending. Risks include a MAS policy tightening if inflation hits 3%, lifting bond yields to 3.2% and compressing equity valuations, while opportunities lie in hedging with inflation-linked bonds and monitoring EV adoption trends for long-term gains in a market adapting to constrained mobility.