Here are the implications of the sharp drop in COE premiums

Further 20-30% decline is expected.

According to DBS, the sharp decline in COE premiums came on the back of the recently re-introduced financing curbs on vehicle loans.

Cars with an Open Market Value (OMV) that does not exceed SGD 20,000 will now face a maximum loan to value (LTV) of 60%.

For a motor vehicle with OMV of more than SGD 20,000, the maximum LTV is now 50%. This is down from a maximum LTV of 100% previously.

Here's more from DBS:

In addition, the tenure for vehicle loan has also been capped at 5 years. These changes essentially imply substantially more cash up-front for consumers, which in effect, will slam the brake on car demand, particularly for bigger cars.

Hence, a drop in COE premiums for the relevant categories by another 20-30% in the coming months should not come as a surprise. And this will certainly have some knock-on effect on headline CPI inflation.

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