Certificate of Entitlement (COE) prices stabilise in June after reaching new highs from the first half, but Category A shows why it’s always more susceptible to fluctuations

SINGAPORE

We think that Certificate of Entitlement (COE) prices are now reaching an equilibrium after weeks of instability: We expect Category A COEs to stabilise at around S$50,000, while Category B COEs have been behaving and levelled out at S$60,000.

In June’s first round of COE bidding, here’s what happened:

Category A, for ‘mainstream’ cars with engines up to 1.6-litres in capacity and with less than 130hp, saw a rather shocking uptick from S$41,801 to S$48,510.

Category B (i.e. the ‘luxury’ category, for cars with engines larger than 1.6-litres, or with more than 130hp) saw a much more gentle increase – it went from S$58,089 to S$60,109.

Category E is the only car COE to drop in price. It’s the Open Category and a proxy for Category B since Cat B is almost always the most expensive COE category, and dipped from S$62,000 to S$61,112.

How did we get here, and where are we going?

With the ingrained perception (right or wrong) that Cat A is for less expensive ‘affordable’ cars, it’s always more subject to fluctuation due to the price sensitivity of Cat A buyers.

– Why Category A COE prices are more volatile

2019 saw relaxed COE prices, with no mad rush for cars and lots of friendly bidding. 2020 wasn’t as bad as it could have been – perhaps amidst COVID there was no rush to go out and blow money on a big purchase. But a year-and-a-half into the pandemic, things evolve, even as they stay the same. 

We said early on that COE quota cuts  as a result of a predominantly young car population would result in higher COEs in 2020 and beyond. COVID delayed that until recently, which is why 2020 still saw relatively tame COE prices. 

But COE prices started the climb in March 2021, and continued to reach new highs. Category B, for example, reached S$61,190 in April’s second round – the highest it’s been since 2015. 

Why? Supply shrinkage. COE quotas, which are in a nutshell the number of new vehicles allowed to be sold per year, are announced quarterly. In 2021, February to April saw a cut, and now May to July. All in, the number of COEs available for cars now, compared to January this year, has dropped from 4,865 per month, to 3,792 per month – a 22 percent decrease.

Quite neatly, we see the difference between Cat A and Cat B’s lowest and highest COE prices this year is also 20 to 25 percent: Cat A at S$40,906 in January, S$49,640 in April, and Cat B S$45,001 in March, S$61,190 in April. 

But to speak of jumps, how can we say this is equilibrium when Cat A suffered such a violent hiccup? It’s all about the nature of the Categories. 

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With the ingrained perception (right or wrong) that Cat A is for less expensive ‘affordable’ (emphasis ours) cars, it’s always more subject to fluctuation due to the price sensitivity of Cat A buyers. Evidence? Just before our S$7k price jump, was a similar dip – S$48,002 to S$41,801.

This was COVID in action, as the government called for Not A Lockdown But Still Heightened Alert – and mainstream car buyers responded by staying home, although car buying was still very much allowed unlike Lockdown 1.0 in 2020. But three out of four data points of the last two months still spell for a COE price in the high 40s. 

If look at Cat B over the same timeline, the dip was much less pronounced – a mere S$1,000-plus – which shows us the relative price insensitivity of Cat B buyers. We just need to look at how much the two types of COEs cost on average: In 2021, Cat A’s average is S$44,295, but Cat B’s is S$52,944. 

If you have buyers that truly want a car and are less price sensitive, they’ll stick around. Conversely, when prices jump, they still stick around  – ironically this behaviour is what makes Cat B more stable.

That’s not to say Cat B buyers do not care about price, it simply means that they are willing and able to pay more if the COE bidding market demands. In 2020, the average price of Cat A COEs was S$35,404, and Cat B? Just S$38,155. 

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