The volume and timing of the allocation of these additional COEs are still unknown. - Photo: ST
SINGAPORE: The impending injection of up to 20,000 additional certificates of entitlement (COEs) over the next few years may cause potential car buyers to stay on the sidelines while they anticipate the supply of COEs to grow.
But while buyer demand could weaken in the short term as a result, it is unclear what impact the injection would have on COE premiums in the long term.
This is especially as the timing and volume of allocations of the additional COEs are not known, said motor traders and analysts.
Associate Professor Walter Theseira, a transport economist at the Singapore University of Social Sciences, noted that the goal of the injection is to stabilise the supply of COEs, by preventing any sudden reductions or increases, over the next few years.
He said this could then stabilise and moderate prices, giving potential car buyers more assurance that vehicles can be purchased at reasonably affordable prices.
As a larger number of cars are due for deregistration towards the end of this decade, Prof Theseira suggested that it would be logical to add more COEs to the pool as soon as possible, instead of waiting till there is a surge in the supply in the latter half of the 2020s.
He noted that the progressive injection of 20,000 COEs should reduce price volatility, which is generated by significant differences in the supply of COEs between peak supply years and supply troughs.
“This is not about lowering COE prices, but more of giving the market stability in terms of prices,” said Prof Theseira.
But since the Land Transport Authority (LTA) has not committed to a schedule for the injections, he added that there is no “foolproof strategy” for prospective car buyers to try to wait for a potential drop in COE prices.
Motor dealers questioned the significance of the move, especially with the sparse details provided.
Soh Ming, managing director of Dongfeng authorised distributor Volt Auto, felt it would not make much of a difference to the market.
While some buyers would wait to see how the 20,000 COEs would be distributed, those who want to buy cars will still buy cars regardless of the COE premiums, he said.
Sabrina Sng, a managing director at multi-franchise motor group Wearnes Automotive, said that LTA’s announcement only creates expectations for more COEs to be added to the supply, although no information on which category and when they will be allocated has been provided.
She noted that this may be a stopgap move – in reaction to high COE premiums in recent months – to dampen demand among potential car buyers, who may wait for COE prices to drop before making their purchases.
But Sng said that any substantial increase in COEs in one go could trigger “herd behaviour”, with customers rushing to buy and wiping out the supply increase.
On the other hand, Neo Nam Heng, chairman of diversified motor group Prime, welcomed the move and described it as “double happiness” when combined with the cut-and-fill approach that brings expiring COEs from peak supply years forward to fill the present supply troughs.
He added that such moves are better than having zero injections of COEs to the pool, but buyers will put a pause on their purchases until they see how the situation pans out.
As a result, Neo predicts that customers will not be rushing to the showrooms over the next two weekends.
While industry insiders note that the injection of 20,000 COEs is small, he said that customers may perceive it as a significant figure, and may want to wait for the additions to take place, in the hope that COE premiums would fall.
Dr Zafar Momin, an adjunct associate professor at the NUS Business School, noted that COE prices are dependent not only on the supply, but also on changing demand patterns and external shocks.
Describing the injection of 20,000 COEs as a “Band-Aid” on high COE prices, the former automotive expert at Boston Consulting Group said it does not address the root cause related to structural issues within the COE system.
To tackle that, he cited as an example the possible re-categorisation of vehicles to differentiate between luxury and non-luxury cars.
The outcome most consistent with a car-lite vision is one where these additional COEs are allocated to highly utilised cars that complement public transport, such as ride-hailing and car-sharing services, especially if these cars are travelling on the roads during off-peak times, said NUS economist Timothy Wong.
LTA said on Oct 29 that the injection of 20,000 COEs was decided after it noticed a sustained change in travel patterns and reduction in total vehicle mileage over the last five years.
To this, Dr Momin said that it was “a bit unfair” to base this on the measurement of traffic patterns over the past five years, since the total vehicle mileage would definitely drop due to reduced commutes during the Covid-19 pandemic from 2020 to 2021. - The Straits Times/ANN
[- Additional reporting by Lee Nian Tjoe and Kok Yufeng]
