COE review: Impact of proposed changes on premiums uncertain, say experts

SINGAPORE – It is unclear just how much impact the suggested changes to the certificate of entitlement (COE) system will have on prices, said experts.

Merging categories A and B and giving a COE rebate for mass-market cars may not necessarily translate to guaranteed savings for buyers, compared with prices under the current system.

It is also likely that more car buyers will lean towards buying a mass-market car, they added.

On Oct 8, the Land Transport Authority (LTA) began a public consultation exercise to get views on proposals to merge Cat A and B into a single passenger car grouping.

A tiered system of surcharges or subsidies based on vehicle’s open market value (OMV) is also among the suggested changes.

The aim of the suggested tweaks is to make clearer the distinction between the prices of mass-market cars.

Since late 2024, the price of a Category A COE, meant for mass-market models, has closed in on that of Category B, which is used for larger, more powerful cars and luxury models.

Research Assistant Professor Samuel Chng – Urban Psychology Lab head at the Lee Kuan Yew Centre for Innovative Cities at the Singapore University of Technology and Design – said there is no clear basis to expect that merging Categories A and B will lower COE prices.

Combining both categories, he added, will not create more COEs, but instead make buyers bid in a common pool with a more explicit differentiation in costs, based on a car’s OMV, which is the baseline cost before taxes.

That would mean buyers of mass-market cars will pay less than those buying premium ones, said Associate Professor Walter Theseira, a transport economist at the Singapore University of Social Sciences.

Chng said some buyers might opt to switch to a car with a lower OMV, while others may be influenced by the rebates to get a car.

If more buyers start shopping around for a car, competition for COEs will increase, he added.

Terence Ho, adjunct associate professor in practice at the Lee Kuan Yew School of Public Policy at the National University of Singapore, said such a scenario could mean upward pressure on COE prices.

If the proposed changes are implemented, buyers of mass-market cars could put off their car purchases in the hope of benefitting from the rebate, he added.

On the other hand, those looking to buy premium cars with higher OMVs might bring their purchases forward to avoid the surcharge, added Ho.

It is difficult, however, to determine how significant the impact of these decisions will be on the prices of Category A and B COEs, he said.

As for car dealers, Theseira said carmakers are likely to find ways to ensure car models fit within “better” OMV tiers that qualify for rebates or no surcharges, within the next six months to a year after changes kick in.

For instance, carmakers can bring in a certain car model, but implement specific cost cuts for the vehicle to fit within a certain tier.

This can be done through “old tricks” such as fitting car equipment locally after vehicles are imported into Singapore, as well as disabling certain software features at the import stage and re-enabling them later, added Theseira.

He said such market activity is difficult for the authorities to control as customer preferences and vehicle technologies will continue to evolve, making it necessary for different model variants to be brought into the market.

As most buyers get a car with a COE secured through a dealer, he also said it is likely the full rebate may not be passed on to car buyers.

For instance, the dealer can choose to bank on the rebate to put in a more aggressive COE bid, he added.

And before the changes are implemented, motor dealers will always have the motivation to encourage buyers to rush their purchases, Theseira said.

The supply of COEs, however, is starting to stabilise and this will continue until the end of the decade, so it is likely that prices will go down, he added.

Also with the new ERP 2 system in place, motorists can be priced more “comprehensively” in terms of road usage or distance – instead of just the COE.

As such, Theseira said there could be an increase in the COE supply by the end of the decade or in the early 2030s.

Chng said car buyers will need to consider the combined impact of other policies on the cost of car ownership, instead of looking at the proposed rebate in isolation.

He added that the latest revisions to the vehicular emissions scheme (VES) – in which cars with high exhaust emissions have to pay higher surcharges of up to $45,000 in 2027 – and the halting of a rebate for electric car buyers in December, could offset part of any future rebates for those who buy cars under the proposed tiered system.

But the net benefits will ultimately depend on the car model, when the new changes are rolled out and the prevailing COE premium, said Chng.

Also citing the recent reduction in car deregistration payouts, he said these other policies matter when comparing ownership costs over several years – although the effect is less immediately visible than an upfront rebate.

Taking into account other related policies, Ho said the cost of higher-end premium cars will go up, particularly if they are high-emissions internal combustion engine cars.

And with the smaller car deregistration payout, he said these luxury cars will lose significant residual value since they experience higher depreciation.

All in, the effectiveness of the proposed tiered rebate system will depend on whether buyers can readily compare car model options and understand how they are priced, said Chng.

He added that buyers need to be notified in advance of when and how the annual reviews of OMV tiers take place so that they can plan ahead to buy or renew a car around work, caregiving and household budgets.