DETERMINANTS OF COE PRICES

Abstract

In Singapore, in order to own a motor vehicle, one has to bid for a Certificate of Entitlement (COE). The lowest bid that falls within the stipulated quota will be the price of the COE for that month. The prices vary from month to month (depending on people's willingness to pay and bid) and have sometimes experienced huge fluctuations over the ten years since its implementation. Thus, this study sets to uncover the various factors that will affect the prices of COE. The importance of such a study is to justify the workings of the COE, as it was felt that the price of COE should not be haphazard. This study, using macroeconomic factors like GNP per capita and GNP growth explained significantly the effect on the COE prices. Many factors that were expected to significantly influence COE prices like interest rates of car loans and petrol prices were surprisingly rejected. Over the course of a year, COE prices will see fluctuation. The variation that is observed is in no way haphazard. It follows closely the seasonal cycles that the Singapore economy experiences. The fact that there is seasonal variation does not undermine and contradict the various factors in the yearly regression model. This is because the yearly factors will determine the average prices of COE for the year, but within the same year, there will still be fluctuations due to the seasonal variation of the economy.