Restructuring Car Loans to Disallow Coverage of Certificate of Entitlement Costs

Er Dr Lee Bee Wah asked the Prime Minister (a) whether the Ministry will consider restricting car loans to cover only the cost of the vehicle and not the value of the Certificate of Entitlement (COE); and (b) what will be done to relieve the impact of high COE prices on SMEs which need vans and lorries for their businesses.

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Mr Tharman Shanmugaratnam (for the Prime Minister): Er Dr Lee asked whether car loans should be restricted to cover only the cost of the vehicle and not the value of the Certificate of Entitlement (COE).

LTA announced in May this year measures to ease a planned transition to a lower vehicle growth rate. This will increase the number of COEs in the market in the later part of this year, over what would have been otherwise available. We should first monitor the effect of these measures before considering further policy measures, such as the loan restrictions Er Dr Lee suggested.

Such restrictions can also have unintended consequences. Restricting car loans to just the value of the car can disadvantage people who have a real need for a car but cannot afford to pay in cash a high proportion of the purchase price for the COE. This would especially affect those who buy smaller cars.

Er Dr Lee also asked what can be done to relieve the impact of high COE prices on small and medium enterprises (SMEs). There are already several concessions given by the Government to businesses to manage their transport costs. For instance, businesses typically bid for Category C COEs. Hence, they do not compete with other private car buyers for COEs. Owners of commercial vehicles also enjoy significantly lower vehicle taxes. The Additional Registration Fee (ARF) for all types of goods vehicles (except goods-cum-passenger vehicles) is set at 5% of the vehicle's Open Market Value (OMV), instead of the 100% OMV applicable for cars.

In addition, the measures announced by LTA in May will make available 117 more Category C COEs each month for the next six months or almost 50% more than would have been otherwise available. This should help relieve some of the upward pressure on the COE prices for commercial vehicles for those SMEs that have to purchase such vehicles during this time.