Understanding the Recent Decline in COE Prices in Singapore: Market Trends and Influences

The recent bidding exercise for Certificate of Entitlement (COE) in Singapore has revealed a notable decline in premiums across all categories. On October 23, 2024, COE premiums closed lower than the record highs achieved just two weeks prior. This shift comes as a response to the market dynamics that have increasingly characterized COE pricing in Singapore. For instance, premiums for Category A vehicles, which encompass cars with engines up to 1,600cc and horsepower not exceeding 130bhp, fell to S$102,900 from a peak of S$103,799. Similarly, premiums for larger, more powerful Category B vehicles decreased to S$113,890 from S$116,002, and open category COEs dropped to S$114,700 from S$116,000.

The COE pricing system in Singapore is fundamentally driven by the laws of supply and demand. The recent decline in premiums, particularly after a series of record highs earlier in the year, has raised questions among motorists and industry analysts alike. Several factors contribute to the current landscape of COE pricing, the most significant being the constrained supply of COEs. Since 2018, the vehicle growth rate in Singapore has remained at a standstill, set at 0%. This stagnation is attributed to government policies aimed at curbing vehicle population growth to manage congestion and environmental concerns. The prolonged freeze on vehicle growth rates, announced in 2020 and expected to continue until January 2025, has exerted upward pressure on COE prices.

The nature of COE pricing has broader implications for the car market in Singapore, particularly concerning luxury vehicles. The current system does not differentiate between vehicle values within the same COE category, which means that both low-cost and high-cost vehicles are subjected to the same premium rates. As a result, when COE prices increase due to limited supply, the proportional cost of lower-priced vehicles becomes more burdensome for average consumers, while luxury vehicle buyers may remain largely unaffected. This discrepancy can lead to a market where affluent buyers are less sensitive to rising prices, allowing dealers to bid more aggressively for COEs, further driving up costs.

As COE prices continue to rise, many Singaporeans may reconsider their need for car ownership. Families and individuals who may have previously owned vehicles might turn to alternative forms of transport, such as car-sharing services. The trend indicates that as COE costs climb, demand for rental and shared vehicles increases, creating a viable market for car-sharing companies. The rise in usage of private hire services can also be attributed to this shift, allowing residents to navigate the city without the burden of high car ownership costs.

Lastly, the influence of foreign buyers in the Singapore car market cannot be overlooked. As Singapore continues to attract wealthy expatriates, the demand for car ownership among this demographic may contribute to rising COE prices. Unlike residential properties, where foreign buyers face significant additional taxes, the COE system remains open to non-Singaporeans, creating a potentially lucrative opportunity for them to own vehicles in a thriving urban landscape.