“People will say I’m paying this amount as well as usage-based fees,” he said. “Users will tend to calculate.”
The uncertain economic situation could also cause demand to fall, and prices would follow suit, he said.
“It’s not just the quota itself and the (zero car-growth policy). The economic situation plays a part. When the economy is doing well, everybody is buying and changing cars.”
WHAT’S NEXT?
Buyers may have to navigate their way through a rollercoaster ride of rising and falling COE prices, analysts said, as any dramatic drop will cause demand to quickly rise again, pushing premiums back up.
This means that buyers may need to be strategic in trying to determine the best moment to plonk down a deposit on their next ride.
“I would say that, you know, the market is now looking for the new equilibrium,” said One Strategic Consulting’s Mr Say.
“Once the new equilibrium is discovered, probably in the second quarter of the year, then you will probably see a more stable trading pattern.”
Assoc Prof Theseira described it as a “see-saw effect” that is magnified when COE supply is low. Dealers lower prices when COEs are cheaper, only to have to adjust their prices higher when more people buy cars and push COE premiums up again.
That said, the slightly lower COE prices may be a sign that LTA’s efforts to reduce volatility are starting to pay off.
“You reach this point where the market realises if they can hang on for just another year or two, COE supply increases dramatically. Why pay so much for the COE now?” he said.
“I think we have kind of gotten to that point right now, but we can still expect a lot of volatility in the shorter run.”