Whither Coe?

Looking at the factors that are likely to influence COE premiums in the next two years.

- Christopher Tan

CERTIFICATE of entitlement (COE) prices have fallen from more than $90,000 five years ago to just below $50,000 in recent months.

They seem to have reached an equilibrium of sorts, but which direction are they headed in the next couple of years?

To answer this question, we must examine the various factors that are likely to influence price movements. And there are many.

Firstly, supply. The COE quota cycle has passed its traditional peak. From next year, supply will start to shrink.

But unlike previous cycles, the contraction this time will be less drastic. It will be a gentler curve, because of the COE revalidation trend. Since 2015, more than 50,000 car owners have extended the lifespan of their cars by revalidating the COE. By the end of this year, the number could hit 70,000.

This in effect has slowed down the rate of deregistration. Since the majority of COE revalidations were for a five-year extension, cars which were supposed to have been scrapped in 2015, 2016 and 2017 will now be

Supply will still shrink, but the shrinkage will not be significant. Let’s assume this will put a 10-20% upward pressure on COE premiums.

The next factor to examine is bidding power. Come January 2018, the new Vehicular Emissions Scheme (VES) will erode the profit margins of several car models.

This is because the VES is far more stringent than the current Carbon Emissionsbased Vehicle Scheme (CEVS).